Petroplus- Buyout Addiction

Petroplus is an oil refinery operator which has acquired a number of oil refinery and storage facilities including the refinery at Coryton near London. It recently went into administration blaming low margins and the euro-crisis.
In June 2006, Petroplus generated a turnover of $3.798 billion, but only achieved a net profit of $104.6 million. This is not much over 2 .6%  profit on sales. These are not ideal credentials for banks to begin to lend billions so Petroplus could buy more oil refineries. Yet this is what happened.

In  March 2007 Petroplus acquired the Ingolstadt refinery from Exxon Mobil for £425 million.

In June 2007 Petroplus bought the Coryton refinery near London for $1.4 billion from B.P.

In April 2008 Petroplus then aquired the Petit Couronne Refinery in France for $785 million from Shell.

Petroplus accounts show that in 2006 the company had no debt, in 2007 this had increased to $1.333 billion, 2008 $1.882 billion, 2009 $1.833 billion and 2010 $1.692 billion.

Petroplus for whatever reason were not doing such a great job in 2006 and their current business at the time would appear to have been a case for some concern. So why did the banks involved lend Petroplus money, adding substantial costs to the business adding risk not only to their current business but also to the new oil refineries they had acquired.

Petroplus problems have been blamed on low margins and the current economic climate. The problem is that in the lead up to the crisis many businesses were loaded up with debt in the name of corporate buyouts. If you are borrowing money and you are actually            creating new refineries then okay, some chances need to be taken in order to make your product accessable to new markets. But in the case of Petroplus, they were just buying up existing refineries and then selling parts of the business off. Its difficult to see where the money was going to come from to pay off the increased costs associated with the debt.

Ofcourse this will not affect the bankers involved as its not their money they are lending. The top executives also still collected $3 million a year at Petroplus until the collapse of the company. Why worry about a bit of debt?

Don't blame Petroplus for the economic crisis because there are tens of thousands of companies that have been badly influenced by banks getting involved due to their vested interest in pumping our invested money into these business, when there seems to be no benefit to the economy and a high risk to jobs.

Petroplus has recently been under an investigation into allegations of fraud, which has actually been mentioned on a Petroplus website where you can get access to Petroplus annual reports. Any results from this will be added to this blog should they come about in the near future.
What there is absolutely no doubt about is that Petroplus has had quite a complex history. To begin with, the Petroplus that was originally formed is not quite the same Petroplus that bought the Coryton refinery from B.P. and which recently called in the administrators. Heres some back ground information that hasn't been brought to you by the main stream press and media.-

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In April 2005, RIVR ACQUISITION B.V. purchased PETROPLUS INTERNATIONAL B.V. RIVR therefore became the holding company of Petroplus International B.V.

Feb 2006     Incorporation of Argus Atlantic Energy Ltd. (Registered in Bermuda)

In August 2006, RIVR Acquisition B.V. merged with Argus Atlantic Energy Ltd, forming Petroplus Holdings A.G.
(The Share Holders of RIVR contributed their shares in RIVR to ARGUS ATLANTIC ENERGY LTD, resulting in ARGUS ATLANTIC ENERGY LTD becoming the ultimate parent of RIVR.
ARGUS ATLANTIC ENERGY LTD subsequently transferred its registered office from Bermuda to Swtzerland. and changed it's name to PETROPLUS HOLDINGS A.G.
RIVR is now a wholly owned subsidiary of Petroplus Holdings A.G.)

"RIVR is owned by funds and entities affiliated with RIVERSTONE HOLDINGS, THE CARLYLE GROUP, and company management."
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About Riverstone Holdings LLC

"Riverstone Holdings LLC is an energy and power focused private equity firm founded in 2000. It has approximately  $17 billion under management across 6 investment funds, including the worlds largest renewable energy fund. Riverstone conducts buyouts and growth capital investments in the midstream, exploration and production, oilfield services, power and renewable sectors of the energy industry. With offices in New York , London and Houston, the firm has committed approximately $14.4 billion to 69 investments in North America, Latin America, Europe and Asia."  (www.riverstonellc.com)
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About the Carlisle Group

"The Carlyle Group is a global 'Alternative Asset Manager' with $90.5 million of assets under management, committed to 67 funds as of mMarch 31st 2010. arlyle invests across 3asset classes.- Private Equity, Real Estate and Credit Alternatives- in Africa,Asia, Australia, Europe, North America and South America.Focusing on aerospace and defence,automotive and transportation, consumer and retail, energy and power, financial services, healthcare, industrial infrastructure, technology and business  services and telecommunications and media. Since 1987 the firm has invested  $60.6 billion of equity in 969 transactions. The Carlyle Group emplys more than 880 people in 19 countries. In the aggregate , Carlyle portfolio companies have more than $84 billion  in revenue and employ more than 398,000 people around the world."
 www.carlylegroup.com
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From the Petroplus report containing the above information can be found the following statement;-

"Petroplus is currently a wholly owned subsidiary of RIVR acquisitions B.V.
R.I.V.R. will continue to grow its fast growing 4GAS LNG Terminalling and LNG Marketing Business which will be formally separated from and managed independantly of  Petroplus, going forward."*

On 13th April 2006, RIVR, holding company of Petropus International B.V. agreed acquistion of European Petroleum Holdings N.V.

2nd May 2007 Offering Memorandum ;Petroplus Finance -Bermuda(A finance subsidiary of Petroplus Holdings AG- Date of formation un-known):-
$600,000 6 3/4 % Senior Notes due 2014.
$600,000 7 % Senior notes due 2017.
To be guaranteed on a senior basis by Petroplus Holdings A.G. and certain of it's subsidiaries.

 A company owning its own financial company is a tac-tic which has various benefits.
One  is that, it could actually turn profits into financial costs. This is done by the finance company charging the main  business side of the company for its finanancial services. It will obviously still need banks, but the finance company will act between the main company and the banks. Because Petroplus Finanance is registered in Bermuda, this makes it difficult to access their accounts in order to find how much Petroplus finanance was actually charging the main Petroplus company (due to different laws in bermuda which allow accounts to be kept secret which is why places like Bermuda are popular as well as tax benefits). Im not saying this is what has put Petroplus out of business but I know the following scenario goes on in business all over the world. Basically, Petroplus Finance can Profit from the debt of Petroplus International B.V.. It could do this even if Petroplus B.V. was actually losing money...Financial costs of Petroplus B.V. would end up in the hands of the executives of Petroplus Finance. These could be the same executives who run petroplus or may be just colleagues of them. Either way Petroplus Finance has without doubt been adding extra costs that need not have been paid. Setting up a finance department within Petroplus would be cheaper than setting up a sepeate company.
What is for sure is that the costs of the above mentioned bonds were not cheap considering they totalled $1.2 Billion. The reason Petroplus collapsed was because they were unable to maintain the interest payments on the debt from these bonds. Most ordinary people would ask how they could ever have expected to pay this interest and the other un-paid part, the Senior notes themselves by their due dates.

The Business and Finance world is a virtually lawless society...To see the end of the current 'recession' this without any shadow of a doubt needs to change. And it needs to be carried out by an international organisation who doesn't allow Switzerland, Bermuda, Monaco etc to flout the laws other countries are having to adhere to.

Note on BP Sell off;
It mustn't be forgotten that BP were a contributor to this crisis the day they sold the refinery to Petroplus Holdings in 2007. BP is owned by shareholders who benefitted from an increase in value in their shares when the the refinery was sold to Petroplus Holdings. They may well claim that the sale was required to fund expansion in other areas, but selling this depot off to what is affectively a landlord was never going to have long term benefits in the U.K. It also must not be forgotten that if it  the industry had not been privatised, BP could not have sold the refinery off. Basically, the whole situation was totally preventable, but now it will be costing us all. Welcome to private enterprise !



This was first posted in March 2012, updated in June 2012 & December 2012.

Hedge Funds-'Ticket touts on Steroids'

Hedge funds have evolved, basically as a whole sale version of stock brokers. If you read the national papers of the U.K. or U.S.you will have heard about hedge funds, possibly when one is about to prevent the demize of a large company. The financial newspapers have a slightly biased point of view, a more favourable view than they deserve, of these kinds of organisation, but you must understand that the existence of hedge funds, private equity companies and stock markets are the sole reason why the financial papers exist.

A hedge fund could be described something like this;

"What hedge funds tend to have in common is a dedication to an extreme form of capitalism - but not a lot else. Hedge funds engage in a bewildering range of activities. Some buy and sell whole companies, just like private equity. Or they deal in commodities, or individual shares, or bonds, or currencies, or the debt of troubled companies, or complex financial products like credit default swaps and collateralized debt obligations. They are responsible for transactions worth trillions of dollars every year. And what they endeavour to do is measure the intrinsic riskiness of holding a particular asset which could be some shares, or property, or anything tradable at all, and then see if that risk has been captured in the market price of that asset. If the price is too low relative to the risk, they would buy the asset. If it is too high, then they would sell the asset."
 -This is the usual type of explanation for hedge funds if you were to read one of the finanacial papers.

 Although hedge funds are successful, from the point of view of getting a return for the investor, as you will see from the following explanation, how they achieve this and the affects this has on the economy is to say the least, questionable!

   If you read books on finance or view internet websites, its difficult to get a clear idea of what hedge funds actually do and the good they achieve. The reasons for this are that, whoever is writing or running the internet site do not really want you to fully understand them. Either that or they don't understand themselves and they are just passing on an interpretation they may have received from another source. You have to understand that a lot of this information for the benefit of potential investors. The information is therefore to create a sense of security to potential investors and encourage them to hand over their cash. Investors are never told that their investment may do some economic damage, but there is no shadow of a doubt that investments are being used in a way that they have caused and continue to cause an apalling economic mess.

Ticket Touts on Steroids.

   If you go to a concert or football match to see a very popular performer or football team, you will often find ticket touts around the approaches to the stadium or concert venue. These touts have bought these tickets probably at the face price of the ticket, but gamble on the event being more popular than the original ticket price would suggest. When the touts get it right they can make a lot of money. But they do get it wrong as well. Occasionally a sell out concert or football match will have vacant seats because touts have over estimated the popularity of the event and ended up stuck with a load of tickets. These ticket touts at times get a pretty hard time from the press, for depriving people from what may be an occasional once or twice a year outing. However, I think it is unlikely  that any one will die from an over priced ticket for a concert or football match.

    If there is any job similar to a hedge fund manager (outside of finance) then it is a ticket tout. Hedge fund managers do much the same job as ticket touts, although there are a few factors which make the two jobs different;-
i)...Money is invested by other wealthy individuals or investment institutions and very little of their own money is used for their buying and selling.
ii)...The investments hedge funds make are usually on a whole sale scale.
iii)...A hedge fund could buy and sell tickets like the ticket touts by buying a ticket agency company, but they could also buy and sell just about anything else.. Including oil, gas, crops, property, company shares, complete companies, debt from banks, debt from businesses, debt from governments.

But they are the savior of businesses..........once they have gone out of business!

   Although the financial press will often report that a business is being rescued by a hedge fund, what actually has usually happened in reality is the hedge fund waits for the company to collapse so that the debts are wiped out. Hedge funds will then be ready waiting, with cash at the ready to buy the company at a bargain price without the unwanted baggage , the debt.

Hedge fund rules are few and unenforsable.

   Hedge funds have diffrent regulations from other fiancial institutions such as banks as far as what they can invest in is concerned. They are allowed to take on investments that would be of too high risk to banks. Also, the investors into hedge funds  must be individuals who are particularly wealthy or institutions that invest on behalf of a large number of individuals such as pension funds, foundations and insurance companies.
   However, although ordinary individuals with investment accounts are prevented from investing in hedge funds, the banks are aloud to lend our invested money in bank accounts to the hedge funds. In any hedge fund purchase, the hedge fund investors money is used as the 'equity' or deposit (even though its really debt!) in a deal and the bank may lend an other four or five times the equity to complete the finance for the deal.
   Basically, what this means is lots of us are investing in hedge funds, but most of the profits are going to the hedge fund managers and the investors directly linked to the hedge funds. This is one of the reasons hedge funds are able to make a lot of money. They are using a lot of our money without us knowing, but keeping the majority of the profits for themselves. The banks could be making the same investments the hedge funds are making, but rules prevent the banks from making the same type of investments. So they hand our money to the hedge funds and the bankers and hedge funds share the spoils,leaving us with maybe a little interest.

   Although the British based hedge funds are regulated by the F.S.A. there is a problem. This is that British banks deal with  U.S. based hedge funds which have different regulations  to the U.K. hedge funds. In fact different to the degree that U.S. hedge funds do not have to register with the U.S. equivalent of the F.S.A., the S.E.C. I the British banks are making deals with U.S. hedge funds, which are not being regulated by the F.S.A or  any one else then you may as well have a system where there are no regulations and no regulators.
   Since the financial crisis the S.E.C. in the U.S. have looked into regulating hedge funds, but would appear not to have made any specific new regulations that the hedge funds now have to adhere to. There have only been some very general points about overseeing the hedge funds to make sure they are not taking excessive risk with investments.
   The S.E.C. has this statement within an analysis of the financial crisis;

"In the U.S., a few years ago, the S.E.C. unsuccessfully attempted to regulate hedge funds."
   It seems like it was a bit of a half hearted attempt at it. However, here are a few reasons which would make it difficult to regulate. The following shows the total funds managed by the U.S. hedge funds and how they rapidly increased leading up to the crisis;
            
                                    1990                       $38 Billion
                                    2002                       $625 Billion
                                    2007                       $1.9 Trillion
                                    2008                       $1.3 Trillion

   In 2006, hege funds were responsible for half the trading on the New York stock exchange. It is clear it would be a difficult task to oversee all this activity.

- There is a final note on hedge funds which is this. In researching the differences between hedge funds and other financial institutions, the most significant difference and important factor is this. You have to be a wealthy individual or the manager of an institution which qualifies you as an investor into hedge funds.
-Yet the rest of us are all investing in hedge funds through bank account savings- through the banks lending of leverage (loans) to the hedge funds. And also through insurance companies whch affects just about all of us in some way. Lots of insurance companies rightly or wrongly invest heaps of cash in hedge funds. (By the way this makes a total mockery of the insurance industry that we entrust to them. They are affectively gambling our insurance funds) Any way what the point is, is that all the ordinary people are investing in hedge funds one way or another, but the profits from them are only benefitting a few. Basically hedge funds apear to be a club which has benefits exclusive to the wealthy, but which we are all feeding. Almost as if it was a pipe line running between the ordinary working people to the wealthy.

This was first posted in March 2012.

WELCOME TO X-ECONOMICS !

Hi,
Welcome to X-Economics.
Please view our 'sister'  previous blog ; ANTI-CRISIS ECONOMICS.
(http://anti-crisis.blogspot.com)
The 'ANTI-CRISIS ECONOMICS' blog was blocked on 31st Dec 2011 which is why no posts have been added since. Reasons why the blog was blocked have never been given. However we are greatful it has been re-instated.We can now continue to persue a fare, sustainable world economy. To see our previous blog, just click on the link above. All the 2012 posts will be on this blog, X-ECONOMICS.

By the way, if you see '.............................' at the end of a post, it means more will be added at a later date.