Thu | Jan 27, 2022

The odd case of a negative-shares error

Published:Sunday | April 25, 2021 | 12:23 AMSteven Jackson - Business Reporter

Normally, filings at the Companies Office of Jamaica are routine, but at times the official record requires a double-take, for instance, recent documentation on West Indies Petroleum Limited, WIPL, which displayed the shares issued by the company...

Normally, filings at the Companies Office of Jamaica are routine, but at times the official record requires a double-take, for instance, recent documentation on West Indies Petroleum Limited, WIPL, which displayed the shares issued by the company as a negative number.

The form pulled on April 13 shows negative 2.147 billion shares issued, while the share capital was positive at just over $50 million for the ship refuelling business that has been in operation since 2013. Another 499,995 shares were described as unissued.

The returns also showed that WIPL was US$53.48 million in debt.

Asked what might explain the negative shares, WIPL chief executive and shareholder Charles Chambers told the Financial Gleaner via email that it was an error made by the Companies Office.

“A review of our annual returns for 2019 and 2020 have indicated that WIPL is in good standing,” said Chambers. “Information technology personnel at the Companies Office of Jamaica have advised that any suggestion to the contrary or alleged information regarding negative shares is likely to be an error, which is to be corrected soon,” he said.

The annual returns for the company date-stamped October 2020, showed two categories of shares issued by WIPL – five billion ordinary shares held by a handful of shareholders, and 426.1 million preference shares held by multiple pension funds and institutional investors.

Companies can, and do, report negative equity. It happens in circumstances where a company makes persistent losses that accumulate over time, and the accumulated deficit grows to a size larger than its issued capital and reserves can offset. However, under the capital structure, the issued capital – normally referred to as common shares or ordinary shares – remains a positive value on the balance sheet.

But even so, what circumstances, if any, could result in a company or entity holding negative shares? Repeated efforts to reach the Companies Office for comment were unsuccessful. And none of the financial experts in various fields polled on the issue had a possible answer, only speculation.

In fact, the very idea confounded one investment banker.

“I am figuring it is an error,” the person said.

A senior accountant reasoned that negative shares, while erroneous on the surface, could possibly reflect a “very heavily debt-financed” company in which the lender holds the shares until payment.

But another investment banker, known for his expertise in constructing complex deals, said negative shares wouldn’t be reflected in such a borrowing situation. “It seems like a lawyer needs to explain this,” he said.

One accountant noted that the issue was odd for a private company, but might be possible for a public company. That’s because investors can easily hold negative shares of publicly-traded companies, when they enter a short position on a stock.

Shorting or short-selling is where an investor ‘borrows’ another’s shares at agreed terms, then sells them at a particular price, with the expectation of scooping them up back later at a cheaper price. The short seller would then pocket the difference, and return the shares to the lender, who is usually a broker.

Many exchanges around the world allow investors to short shares, but while it is under consideration in Jamaica, it’s not permissible here. Additionally, WIPL is a private business.

The bunkering company has recently been in the news after disclosing that it had ousted two directors, who have since been replaced by two Americans. The names of the new directors – Eric Evans and Amanda Levien – whose appointments took effect on March 8, are reflected on the documentation sporting the negative shares. The ousted directors have said they remain shareholders in the company.

The Financial Gleaner came across the information during follow-up checks on WIPL filings, in the wake of the announcements.

steven.jackson@gleanerjm.com