Amid an internal investigation, Griffiths Energy International Inc. has cancelled its plan to sell shares in what would have been one of the biggest initial public offerings in Canada in months. Instead, the company is looking to raise money privately to keep its African oil project on track.
The energy company, founded by deceased financier Brad Griffiths, filed paperwork late last year for an initial public offering that sources said would seek to raise about $300-million. On Friday, the company asked regulators to withdraw the prospectus, meaning the IPO can no longer go ahead as planned. Griffiths could resubmit paperwork to restart the process at a later date.
There has been a cloud over the planned IPO ever since the company disclosed in its initial filing that a committee of its board was investigating whether all its consulting agreements complied with corruption laws, as well as probing common share transactions tied to some of its founders. The company sought money to develop oil fields in Chad, an African country ranked by Transparency International as among the 20 most corrupt in the world.
Griffiths missed a year-end target for its IPO, citing the "regulatory process," but the company's chief executive officer expressed hope in December the deal would be done early in 2012.
Now, with cash needs looming to bring on production at the projects in Chad, sources say some large shareholders approached the company with another plan. They suggested the company raise some money instead via a private placement, where the shares are sold to investors but not listed on a stock exchange.
A group of investment banks, including GMP Securities, Canaccord Financial Inc. and Dundee Securities Corp., are looking for orders in a private placement transaction seeking to raise $200-million selling shares of Griffiths Energy at $7 apiece, sources said. That's up from $5, where the company sold shares in a private placement in September, according to its prospectus.
Griffiths Energy spokesman Alan Bayless declined to comment.
Even with the support of some large shareholders, the question is whether there will be enough demand at that price. Some early investors in Griffiths Energy had been offering shares for sale at $7 recently in the pre-IPO grey market and not finding takers, said Dann Cushing, chief executive of Toronto-based Liquidity Source, a brokerage that specializes in trading shares that aren't listed on exchanges.
Public disclosure shows that large investors already in Griffiths Energy include the mutual fund arm of Royal Bank of Canada and Dynamic Power hedge funds run by Rohit Sehgal, who works for a division of Bank of Nova Scotia. A trust in the name of the Griffiths Family was listed in the IPO documents as the largest shareholder.
Those who follow the company say its assets in Chad are very promising. A big part of the challenge is getting the oil out of the landlocked country.
Griffiths has to build an 80-kilometre pipeline to connect with a key pipeline to export oil out of Chad.
"That will be a significant amount of the time spent between now and first production toward the end of " Trevor Peters, Griffiths' chief financial officer, said at a conference in October. The company also needs to build a water-processing facility.
Mr. Peters said the upstart, with properties formally controlled by Exxon Mobil Corp. , planned to reach peak production of 25,000 barrels of light oil per day within 18 to 24 months from its first oil field. The facilities and pipeline will accommodate up to 50,000 barrels per day, he said.
Griffiths will need about $300-million to get to a "self-sustaining cash flow position" for the oil field, he told potential investors at the conference.
"That's the main driver for us in terms of getting production online by this time [October]next year – building that pipeline and the central processing facility," Mr. Peters said.