So, what is so secretive about the due diligence on EWI conducted by the OUR, commonsenseja investigates !

Now the due diligence report is a state secret and the EMC cannot divulge to the public what it’s concerns are, but I am not sworn to any secrecy and will express my own views on what I believe would have been found in the due diligence.

  1. The total market capitalization of EWC the parent company of EWI is just US$656M ( This changes with movement of the stock price)
  2. The total asset base of the entire group just reach over US$1.14B
  3. The company has only US$80M in cash, which is enough to cover the bid bond of US$37M , Now this is the group and not EWI
  4. EWI most recently expanded plant in Sengkang  uses fuel oil and not LNG
  5. EWI does not have a steady source of LNG , however it has been doing some work in the search for LNG.
  6. LNG out of Asia is about 3 times as expensive as LNG in the USA and EWI will have to get a source of LNG to use in the Jamaican plant, which they do not yet have.
  7. One of the bankers for EWC, Mizuho was recently issued an administrative order by the Japan Financial Service Agency, which is the equivalent of the FSC in Jamaica, for questionable banking practices. In the last year or so Mizuho has loaned EWC over US$288M ( One for US $200M and another for US$88M). More on the bank later.
  8. EWC will have serious problems securing loans of upwards of US$600M with a market capitalization of just US$656M and the only people I see who would be willing to lend this kind of money is the Chinese Exim Bank, which would , then allow CHEC to partner with the engineering arm of EWC , Slipform Engineering and its project arm Infrastructure World International Limited.

The smoking gun in what I have found so far surrounds the Mizuho Bank, which is located in Japan , which has found itself in trouble with the  Financial Service Agency .

Here goes:

On Sept 27, 2013 the FSA issued what is called an Administrative Order on the Bankers of Energy World Corporation, Mizuho, here are some excerpts

1.Having received the results of an investigation into Mizuho Bank Co., Ltd. (notification of results: June 2013) and requested a report in accordance with Article 24.1 of the Banking Act, the FSA has determined serious problems with the Bank’s postures toward administrative control, internal control, and legal/regulatory compliance, including:

  • (1)the fact that no substantial steps were taken to prevent/break off transactions with anti-social forces for more than two years after it was ascertained that tie-up loans (*Note) had been provided to multiple anti-social forces, and
  • (2)the fact that information on the existence of numerous transactions with anti-social forces went no farther than the executive in charge

Note by commonsense : Anti social forces is a common euphemism used in Japan to mean organized crime.

Here is the link from the FSA

http://www.fsa.go.jp/en/news/2013/20130927-1.html

Following up on this order the Mizuho Bank was asked to take specific steps to ensure adequate controls were in place to prevent the bank from doing business with anti-social groups ( organized crimes).

Here are the various reports from the Mizuho Bank to the FSA.

Report number one, the bank acknowledging receipt of the order and their commitment to address the issues raised. Report #1

20131004 bank report

Bank put special committee in place to address the admin order Report #2

20131008 Investigative Committee

Report #3, Bank makes correct to report

20131008_2 Bank Report Error

Report #4 Bank presents investigative report

20131008 Investigative Committee

Report #5, Bank submits Business Improvement Plan

20131008 Investigative Committee

On Dec 26, 2013 the FSA once again issues another administartive order to Mizuho in relation to the business plan submitted on October 8, 2013.

Here is a section of the report by the FSA.

Based on the results of the inspection of Mizuho Bank Co., Ltd and Mizuho Financial Group, Inc. conducted by the Financial Services Agency (hereinafter referred to as the “FSA”) and the reports submitted by Bank, the FSA today took the following administrative actions against Mizuho Bank Co., Ltd and Mizuho Financial Group, Inc. in order to ensure sound and appropriate business operations

  • (1)Suspend new credit-offering transactions in the quadripartite captive loan schemes from January 20, 2014(Mon) to February 19, 2014(Wed), and ensure thorough improvement of the schemes, for instance, through training for all executives and employees engaged in the schemes.
  • (2)Implement the following in order to ensure sound and appropriate business operations.
    • a)Clarify where the management responsibility lies, taking into account the Administrative Action.
    • b)Strengthen the internal control system and the administrative control.
    • c)Modify, in collaboration with Mizuho Financial Group, Inc., the business improvement plan (submitted to the FSA on October 28, 2013), taking into account the following development and the Administrative Action, and implement the modified plan immediately.

http://www.fsa.go.jp/en/news/2013/20131226-1.html

Report #6, Bank issues statement on improvement of corporate governance

20131226_2 Enhancement of Group Governance

Report #7, Bank takes disciplinary action against members of the  management team

20131226_3 Penalities for Management Team

Report #8, Bank submits new business plan ( Jan 17, 2014)

20140117 New Business Plan

I know its a lot to digest, but what is here troubling to say the least, since Mizuho has been EWC preferred banker in recent years.

I will continue the search

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4 Responses

  1. Energy Monitoring Committee concerned about :
    Logistics of LNG ( Source on LNG)
    Financing

    These are the very issues I have picked up in my due diligence on EWC

    http://jamaica-gleaner.com/gleaner/20140205/lead/lead1.html

  2. You are very confused about EWI.

    EWC is not the the parent company of EWI. It is the other way around – EWI is one of the cornerstone shareholders of EWC.

    EWC has no connection to the Jamaica power project.

    EWC (not EWI) has a recently expanded power plant in Sengkang. It does not use fuel oil – it uses LNG from the nearby EWC controlled gasfields.

    EWI does have a steady source of LNG. Additionally it is doing new drilling to verify the quantity of it’s reserves.

  3. Correct me if I’m wrong, but isn’t the Bid Bond issued by a third-party Bonding Entity? Isn’t this akin to an insurance policy, whereby, if EWI (EWC) is unable to proceed with the project beyond the bid stage, then the third party Bond issuer would have to pay the bid bond amount (US$37 M) to the Government of Jamaica? In other words, the US$37M isn’t something EWI (EWC) would have to fork out from their cash reserves. The third-party Bonding Company is paid a fee by EWI (EWC), based on the risk assessment, to secure the Bid Bond. If EWI (EWC) fails to advance beyond the bid stage, the third-party bonding company would step in and pay the US$37M, not EWI (EWC). Of course, when a company “defaults” on the Bid/Performance Bond, their ability to secure such bonds in the future is jeopardized or the cost/fee associated with getting such bonds increase significantly, to the point where their future project bids might put them at a disadvantage compared to other bidders due to their high Bid/Performance bonding-related fees. After all, Bid/Performance charges are always incorporated in a companies’ bid price.

    Please clarify item number 3…… 3. The company has only US$80M in cash, which is enough to cover the bid bond of US$37M, now this is the group and not EWI.

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