Too Much Interest?

Probably the most interesting post of the day concerning the issuance of 25 million shares by Emeka Offor to himself as head of Chrome. The shares were issued in payment to him for interest on his $9.3 million loan to ERHC at 12%. The interest payment at today's price (.47) was worth $11.9 million without reducing the principal due. And, needless to say, it will be worth a hell of a lot more tomorrow, or soon thereafter. This begs the question, "Why is he being paid more in interest than the face value of the loan?" One earlier post in the topic even asserted that the interest payment might amount to usury under Texas law.

But wiser heads probably laugh at such malarkey. No American bank, and perhaps none at all except his own Afex Bank (and more about that later) would have loaned ERHC a cent when it had no assets and its rights were far from being exercised, if they ever could be. It was almost as though the lender knew that before they would be exercised there would be a coup, a 2003 renegotiation of the treaty rights, severe criticism of those rights from many sides - including the powerful World Bank - and even an attempt to strip ERHC of its rights in the Sao Tome parliament. The worst blow of all - a lawsuit that cost him majority control of the company and $25 million in shares - came just a month ago.

There is a reason billionaires become billionaires: They take larger chances than most of us. No one ever talks about the guy who bought the six billion dollars worth of currency George Soros sold in a single day, netting himself a $1 billion profit. That guy lost his butt. And George Soros knew it could have been him, had his bet been wrong. Had Offor lost his bet, he would be out $9 million dollars - about Na. 1 billion ($1=133 Naira). So he took his chance, very, very carefully, leaving himself an escape hatch, but essentially betting on his own skills and company, and he won. You and I are doing the same on a smaller scale; together, we've bet something like $10 million on ERHC. We're individually far less exposed, but for me, my investment accounts for a great deal of my net worth. Others have bet more carefully, only risking what they could afford to lose. But all of us are betting on ERHC as the "main chance," as they used to say. So did Offor, but in a clever, strategic way that has will pay him back for his confidence very handsomely - if his bet plays out. Remember, those shares have not been anywhere near the open market, and he hasn't filed a Form 144 indicating he plans to sell them. He may want to wait until they're worth $2 or $3 or more. And the usury laws were voided all across the nation 20 years ago. Visa and MasterCard and the rest persuaded state governments and voters in referenda that if the usury-based interest caps were not lifted, they would not extend credit in the state. The poor suckers blieved them, and 29% is what I pay on some of the money that has purchased my ERHC stake. I'll have to make 100 percent to pay them back!

Meanwhile, here's a typically insightful comment from balance_builder, writing on RB:

Last I read, the filing indicates it would be ERHC's OPTION to pay the principal loan back via shares by January 31, 2007. I believe the loan will be paid back by other methods...i.e. refinancing or in cash. By 1/31/07, ERHC could very well be producing oil out of the GoG. If not producing, you can bet your boots it'll be close to production and there will be proven oil in ERHC's filings :o) Tain't hard to get a very respectable interest rate on a $10 million dollar loan when you've got $80 BILLION dollars of oil near production. That said.....Mongo doesn't post all fact. Mongo made a very big assumption...again to the negative side....by saying ERHC will pay back the loan with shares. I fully expect our SP to be between $15 and $30 dollars and I strongly doubt we'll convert .0175 cent shares to pay for the loan. Yes, another attempt of Mongo's to twist the facts to the negative.