Hanging onto the toys

Thursday, 15th June 2017 09:03 - by Eric Chalker

The memorably, if awkwardly named company Petropavlovsk is in the news again.  Last time was in the run up to a shareholders’ meeting in February 2015, called to approve a major refinancing of the business to prevent it going bust.  I attended that meeting and was appalled by the chairman’s behaviour.  Now some major investors, including the much-respected M&G, want to get rid of him and he’s gone on the Today programme to fight back.

In 2015 too as I recall, but certainly now as can be seen on the company’s website, http://www.petropavlovsk.net/en/,  the board is anxious to involve private investors who hold their shares through a nominee.  As it acknowledged in 2015, the company has “a widely held shareholder base”.  This means a lot of private investors have their own money in the company, either directly or through a nominee.  Despite this, at the special meeting called to approve the refinancing in 2015, the chairman refused to answer a single question, even in response to protests.  In my book, that is scandalous and a chairman who behaves in that way is not suitable to be chairman.

Many private investors made the effort to attend the meeting in February 2015.  Some would have had with them the 360 page circular and prospectus supporting the resolutions the meeting was called to approve.  With so large a document, it is reasonable to think there might have been many questions and some indeed were attempted, but the chairman was implacable.  With his eleven other directors alongside him on the platform, he simply refused to answer any question pertaining to the two resolutions those present were asked to approve.  Quite why he thought some one hundred people had bothered to attend was a puzzle.  Evidently for him the whole thing was a formality to be got over in the quickest time possible – a requirement of the Companies Act, but not a matter of any real interest to the company’s directors. 

A year before the meeting in February 2015, the share price was 25.26p.  At the time of the meeting it was 4.8375p, a drop of 81 per cent.  In the circular, the chairman blamed the collapse on two things, one being the excessive debt built up which could not be repaid without the refinancing and the other was a claimed “backdrop of gold price volatility”.  Despite this claim, the gold price had barely moved in the previous 12 months and finished virtually as it had begun, at $1,200 versus $1,204.  Given the unrepayable debt, plenty of scope one would think for calling the directors to account, but whereas the directors wanted shareholders’ votes they didn’t want their questions.

Seeking sympathy

The Today programme interview is available on the company’s website.  Petropavlovsk’s chairman, Peter Hambro, was interviewed by BBC’s business presenter Dominic O’Connell.  It is worth a listen.  Mr Hambro did not dispute that the move to oust him was because some shareholders were unhappy with the way he had been running the company, but claimed this should really be seen as a takeover of the company by stealth.  When challenged to admit that the resolution to remove him and two other directors would require a majority of votes, Mr Hambro responded that this would still not meet normal takeover requirements.

Mr Hambro said he had been accused of wanting to “hang onto my toys,” but he insisted that his concern was to protect the interests of all shareholders.  Mr O’Connell then mentioned the dramatic drop in recent years of Petropavlovsk’s market capitalisation under Mr Hambro, which the latter claimed was because of people “going short” of the company’s shares.  When his interviewer suggested this was not illegal, Mr Hambro agreed and said his biggest ever percentage profit had been achieved in the same way, but he left open the question of whether this has been in his own company’s shares.

Is it a takeover?

When asked whether the Takeover Panel had become involved, Mr Hambro said the Panel was a “very private organisation, very difficult to talk to.”  I found this strange, because I have talked with staff of the Panel on several occasions and although I am sometimes left feeling it doesn’t fully honour its publicly declared ‘central objective’, I have never felt simply brushed off.  If someone as lowly as me can get through to the Panel, how much easier must it be for someone with the distinguished name of Hambro?

By Peter Hambro’s own admission, the company he founded 23 years ago attracted the interest of a large body of private investors.  Almost the only chance such investors have of questioning a company’s directors is at shareholder meetings.  If company chairmen then block such questions, for whatever reason, that is not only disgraceful but calls into question the whole concept of ‘public liability’.  Petropavlovsk is not the only instance of a chairman wanting to curb questioning, but it is the most egregious.  I won’t be at this year’s AGM because I no longer hold the shares, but I do hope private investors who are able to attend stand up determinedly for their rights.

I conclude by mentioning the reasons that have been given for removing Mr Hambro.  Renova Asset Holding Ltd states “that the current Board lacks the requisite focus on corporate governance and does not endorse principles of good corporate governance that should be followed by a public company.”  M&G states that “there have been multiple strategic mistakes made by Petropavlovsk over the course off 2014, 2015 and 2016 which have significantly destabilised the business and delayed its recovery…… partially attributable to inadequate corporate governance controls within the Company.”  If I were still a shareholder, I know which way I would be voting.

The Writer's views are their own, not a representation of London South East's. No advice is inferred or given. If you require financial advice, please seek an Independent Financial Adviser.