Last Thursday evening, Michel Fayad, a strikingly tall 36-year-old, and Said Mehraik, nearly twice his age and half his height, boarded a flight from Paris to Dublin. The two Lebanese-born French businessmen were getting ready to appear before the High Court in a case that has pitted them against Petrel Resources Plc, the oil and gas exploration firm based in Dublin’s Clontarf they agreed to take over last November. 

The two men are the founders of the Hungarian-registered company Netoil Inc Ltd and part of a group of investors led by Lebanese-American businessman Roger Edward Tamraz. They have been ramping up their stake in AIM-listed Petrel since August, agreeing to bring it to 51 per cent in a deal approved by a Petrel EGM in November. 

As previously reported, the reverse takeover stalled earlier this month when some of the shares Tamraz and his associates had pledged to hold for at least one year under a lock-in deed were suddenly traded on the AIM market. Last Friday, Petrel obtained the continuation of an earlier High Court injunction preventing any more of the Tamraz-led group’s shares from being traded.

The hearing gave the new investors a chance to give their side of the story. Fayad apologised to the court for not yet having organised legal representation in Ireland, but filed a draft affidavit through Petrel’s solicitors McEvoy Corporate Law. 

Read in court by barrister Gary McCarthy, the document revealed that Fayad, who became a director of Petrel under the deal last September, was asked by Petrel chairman John Teeling to step aside on 17 January. “I assume this means I have been suspended as director pending the results of a fraud investigation.” This was confirmed by the company later on Friday.

“In order to save on the cost of entering the MLA, the MLA borrowers (including myself) did not take any legal advice, in any jurisdiction, on the contents of the MLA.”

Michel Fayad

The affidavit outlined Fayad’s version of events and his investor group’s response to the letter they received from Petrel’s solicitors on January 7, seeking “a full and detailed explanation in respect of the sale of the sold shares in breach of the lock-in deed”.

Fayad testified that the investors entered into a term sheet for the MLA with EYCP LLC, a lender registered in the US state of Delaware, and its Cayman-based agent SRT Capital SPC Ltd on November 19, 2019 – two days before Petrel’s EGM approved the reverse takeover. This was updated on December 9 with “minor changes” to the MLA agreement. 

Tamraz, Fayad and their co-investors were to borrow £3.15 million from EYCP and provide 37.3 million shares as security for the loan. These were the shares acquired by Tamraz, Fayad and Mehraik in August under the first phase of the deal, representing a 25 per cent stake in Petrel at that point. Crucially, Fayad insists that “the capital shares would not be at risk until monies were advanced under the MLA,” which he says never happened.

On affidavit, Fayad acknowledged his group’s shortcomings when entering the loan agreement: “In order to save on the cost of entering the MLA, the MLA borrowers (including myself) did not take any legal advice, in any jurisdiction, on the contents of the MLA and instead relied upon the party broking the transaction (Oscar Olu-Williams) and representations made to us by the lender during the course of the negotiations.”

Fayad told The Currency that he and his partners trusted Olu-Williams’s experience. “He is well-known on the market and has managed IPOs,” he said. Fayad added that the British broker introduced them to Bulent Toros, a Turkish national representing EYCP and SRT Capital.

Unfamiliar with AIM market practices

By December 23, Fayad and his associates had placed the security in the custody of Deutsche Bank, which in turn outsourced the holding of the shares to Chase Nominees Ltd, a London unit of JP Morgan Chase. All parties present in court on Friday agreed that Chase Nominees, a defendant in the case because it had become the legal owner of the shares, had followed instructions and not committed any wrongdoing.

“Neither myself nor the other investors were aware that pledging shares might constitute a breach of the lock-in deed as none of the investors are experienced investors in the AIM market and are unfamiliar with market practices of that market,” Fayad testified. “We assumed that it was only the sale of the shares on the market that was prohibited.”

Fayad said that the borrowers then received a notice of default from their lender on January 3, stating that three clauses in the MLA had been breached:

• The 30-day average trading volume in Petrel shares was not to fall below 75 per cent below that on a reference “day of exchange” set at the date of the MLA. Judging by the high trading volume recorded at the end of November around the time of the EGM, this clause set the bar high. By early January, EYCP notified the Tamraz group that volume had fallen too low and they were in default. “My understand of the reasoning for this is that over the Christmas period, trading levels reduce dramatically as a result of the holiday season,” Fayad said on affidavit.
• EYCP also notified the investors that the shares were not freely tradeable without a volume restriction, unlike agreed under the MLA. “I consider that this is evidence that the lender was seeking to trade the shares prior to the notice of default,” Fayad testified.
• The MLA also “provided that the shares were not subject to any lock-up or prior encumbrance,” and the lender cited the existence of the lock-in deed as another default trigger.

Petrel alerted the stock exchange on January 8 at 7am that around four million locked-in shares had already been traded over a number of days. Fayad testified that his lender had started to sell the shares “immediately after sending the letter, possibly even before”. As soon as he found this out, he said he instructed Deutsche Bank to stop any further sales. “I, nor either of the other investors, gave, or had any intention to give, any instruction to dispose of any further shares in Petrel,” Fayad’s affidavit quotes from a letter sent to Petrel.

Petrel’s barrister Gary McCarthy told the court that if what Fayad said was correct, “it appears that the lender has not advanced any money and is now demanding £1.5 million sterling for breach of agreement in circumstances where they haven’t paid any money on foot of it, and they have got the benefit of $770,000 worth of shares which they traded as a collateral.” 

Though not at its pre-Christmas peak, Petrel’s share price was two to three times higher during the first week of January than before the November EGM or after the January 8 stock exchange announcement revealing the first difficulties.

Fayad added on affidavit: “We now doubt whether the lender ever intended to advance any funds under the MLA.” He also listed five court cases in the US and one in the Cayman Islands where SRT Capital SPC Ltd and/or Bulent Toros have been defendants since 2012. Fayad admitted to The Currency that records of these cases could be found through a Google search. “I consider this demonstrates a pattern of unlawful behaviour by the lender’s principals consistent with our own experience,” he said.

“I consider that myself and the other MLA borrowers have been the victims of a targeted and dishonest attempt by the lender to take control of the shares by unlawful means,” the affidavit concluded. It was not explained in court why the investors chose to borrow to fund this relatively small transaction.

What happens next?

Fayad and Mehraik went straight from the Four Courts to negotiate with other senior Petrel shareholders in Dublin on Friday. “We had a very satisfactory meeting,” managing director David Horgan told The Currency afterwards. Although they remain on opposite sides in a live High Court action, the two groups remain intent on working together. 

Horgan acknowledged a series of problems: Petrel’s existing shareholders did not know the new investors were borrowing against their stake – nor were they allowed to under the lock-in agreement. Even if they were, they should have declared the pledging of shares as security in a stock exchange announcement – which Fayad belatedly did on Friday evening.

Regarding the poor due diligence conducted on their lender, Horgan said this was not the first time investors had suffered from placing personal confidence above legal checks. “Olu-Williams is a colourful character but he is well-known,” he said. “London is a strange place, a lot happens in wine bars and works on a trust basis.” 

Yet he still found it unacceptable that Tamraz and his co-investors failed to scrutinise the small print of their loan agreement, especially as it led to regulatory breaches. “The MLA was set up to fail,” he said – especially the trading volume requirement. “Any share in any exchange will fall by at least a quarter during Christmas week.”

The focus is now on recovering as many shares as possible from the grip of the US-based lender. If the 5.25 million already traded were sold to bona fide buyers without notice, Tamraz and his associates may have to buy an equivalent stake on the open market to replace them, Horgan said. Meanwhile, over 30 million shares remain frozen in custody by order of the High Court and one option would be to cancel them, he added.

Any losses would have to be borne by the Tamraz-led group of investors. “They’re very contrite,” said Horgan, adding that Petrel’s priority was to defend the interests of its shareholders. The company’s barrister told the court that his client would make a statement of claim for the breach of the lock-in agreement in due course.

“The boys have access. We’ve been involved in Ghana, and as soon as they heard Roger [Tamraz] was involved, the reception changed.”

David Horgan

On balance, however, he maintained that the plan to give Tamraz, Fayad, Mehraik and their associates a majority stake in Petrel was still the best for the company: “The boys have access. We’ve been involved in Ghana, and as soon as they heard Roger [Tamraz] was involved, the reception changed.”

Ghana, as Ireland, has so far not allowed Petrel to proceed with oil exploration plans on its concessions, sending the company’s value in a downward spiral in recent years. Its stock was worth less than 1p last June.

When it comes to delivering projects, “as a junior our balance sheet is too small,” Horgan said. Petrel is essentially not taken seriously, which is why the deal with Tamraz makes sense in his eyes. “This offers us an opportunity to square this circle. They have a bank, they have had delivery in the past.” The condition is to keep regulators and shareholders happy, Horgan added.

Fayad, too, said his group was still in on the deal. “Our intention remains to control Petrel and to place oil, gas and mining assets into it – especially oil fields in the Middle East and Africa.” He explained that while himself was Lebanese, Mehraik had Iraqi ancestry and Tamraz was born in Cairo – then all studied in Europe, enabling them to work across cultures. Mehraik chairs Tamoil USA, the American branch of Tamraz’s oil refining and trading business, he added, which is separate from its Libyan and European unit sold to Libyan state interests under Muammar Gaddafi in the 1980s.

They decided to back interests into Petrel because it was a practical investment vehicle, Fayad said. “Petrel was a dormant shell, it was interesting to take it over because it was already listed… rather than an IPO that would take months,” he explained.

Following Friday’s meeting, Fayad said he hoped his group of investors could agree a settlement with their lender, which would in turn be approved by Petrel. “We’re working on it,” he said.

Who is Roger Edward Tamraz?

Aside from Tamoil’s international oil business, Fayad highlighted Tamraz’s wider experience since 1967, including facilitating the Sumed pipeline bypassing the Suez Canal in Egypt in the 1970s and obtaining agreement from the Turkish government to land another pipeline, known as Baku-Tbilisi-Ceyhan (BTC) from Azerbaijan in the early 2000s. He added that the US-Lebanese businessman had also managed some of the largest oil concessions in Turkmenistan, initiated a large methanol refinery in Saudi Arabia and held interests in banking, luxury hotels and shipyards in France.

Tamraz, who will turn 80 in March, has been no stranger to controversy. His career took off under the presidency of his friend Amine Gemayel in war-torn Lebanon in the 1980s and was centred on the rescue of the country’s Intra financial group. Tamraz himself was never far from politics and was tipped as a potential contender for Lebanese president in the late 1980s. Some of his businesses, however, failed spectacularly, including several banks he controlled in the Middle East and in France. 

In the mid-1990s, the US Senate committee on intelligence found that he had contacted members of the White House’s National Security Council to try and secure backing from President Bill Clinton for his Caspian sea pipeline project.

When security officials rebuffed him, Tamraz and Tamoil made $177,000 in contributions to the Democratic Party, attending events where Clinton was present and approaching the party’s then national committee chair Donald Fowler. “Apparently, Tamraz told Mr. Fowler that he had cooperated with the CIA in the past and that the CIA would vouch for him,” the US senators reported, expressing extreme concern at the tangled links between business, security and politics in the affair.

A memo on Tamraz released by the CIA itself in 1997 described him as a “big talker who relishes the spotlight”. The document confirmed his role in helping international companies clinch the Suez pipeline bid and other deals such as the obtention of 100 million barrels of Saudi oil for Japanese trader Itochu during the 1973 Arab oil embargo. 

However, the US intelligence agency also warned that “his business dealings have left a trail of victims,” detailing the failure of his Al Mashrek bank, the second-largest in Lebanon, which led to the country’s authorities placing him under investigation.

While Tamraz dismissed the Lebanese prosecution as politically motivated, there are also concurring media reports of criminal convictions against him in relation to fraudulent banking failures in Jordan and in France at the time.

Asked about his “cow boy reputation” in an interview with Le Monde newspaper in 2013, Tamraz said: “You can’t make an omelette without breaking eggs. Sometimes, they splash.”