This story tells us how fortune can be lost in a short time. While it is easy to criticize, for fortune to be lost, first fortune has to be made. And, it is no mean feat.
Having said that, to keep that fortune and let it grow, is the toughest thing to do. Not everyone is successful at that.
The markets had created expectations beyond reality; and who was responsible for this? When operational and financial disclosures are made by managers, it is vital that they are important, accurate, relevant and timely. They should know that whatever they say (and not say) has direct impact on market and its expectations.
The firm is now defaulting on its debt payments. The consequence is near bankruptcy. That is the cost of debt: default risk, which is direct and measurable; and bankruptcy risk, which is indirect and probable, but is very costly. This is basic corporate finance.
Coming back to transparent disclosures and oil and gas in particular, if managers are not honest and realistic about their reserves, reality will catch up sooner than later. This is what happened with the firm.
No comments:
Post a Comment