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Short Seller Believes That Ormat Technologies Is Engaged In “Widespread And Systematic Acts Of International Corruption”


Foreign Corrupt Practices Act scrutiny can arise in a variety of ways. Although not common, occasionally (see here for a prior example) a short seller (generally speaking an investor hoping to profit if a company’s shares fall) alleges that a company is engaged in corruption.

Recently, Hindenburg Research issued this lengthy report suggesting that Ormat Technologies (a Nevada-based geothermal power company with shares traded on the New York Stock Exchange that owns and operates power plants in Kenya, Guadalupe, Guatemala, Honduras and the United States)”has engaged in what we believe to be widespread and systematic acts of international corruption.”

In pertinent part, the report states:

  • Immediately prior to their work at Ormat, several senior Ormat executives and directors worked at Shikun & Binui, a leading Israeli construction company. Shikun & Binui was recently charged by Israeli prosecutors with bribing officials in what are now two of Ormat’s key markets, Kenya and Guatemala.
  • Ormat’s General Counsel & Chief Compliance Officer, along with an Ormat director, are under pre-indictment in Israel. This is a formal stage of prosecution just prior to indictment. Ormat has apparently chosen not to disclose that the two are currently in the midst of a criminal prosecution. Both still serve in senior oversight roles at Ormat.
  • Ormat CEO Doron Blachar’s immediate prior work experience was serving as CFO at Shikun & Binui. The CEO during Blachar’s entire tenure at Shikun & Binui was arrested in 2018 over the above-referenced bribery allegations. It is unclear whether Blachar faces eventual risk of indictment as well.
  • International electricity projects contributed to 70% of Ormat’s 2020 net income—the vast majority of which is comprised of Kenya, Guatemala, and Honduras. We have uncovered evidence tying Ormat to corruption with senior government officials in this lucrative international business.
  • For example, multiple former Ormat employees and business partners have revealed how Ormat routes sales of energy assets in Guatemala through an undisclosed related party entity. Guatemalan corporate records corroborate these claims.
  • The entity shares an address with several Ormat subsidiaries and was set up by a former Ormat senior employee-turned “independent” consultant who answers directly to senior Ormat leadership, according to the former employees.
  • Official corporate records show that the same Guatemalan entity funneled energy rights to two senior government officials who were responsible for approving Ormat’s original deal in the country; the former head of the Mines & Energy Ministry and the former head of the state utility company.
  • We believe this is direct evidence tying Ormat to corruption with senior Guatemalan government officials.
  • Another Guatemalan Mines and Energy Minister, who was in office when Ormat was later  awarded major improvements to its contract, was fired and charged with corruption by the United Nations-created anti-corruption commission. He is currently on the run with an outstanding international arrest warrant.
  • Ormat’s operations in Kenya contribute “disproportionately” to the company’s bottom line, generating an estimated ~41% of the company’s FY 2020 net income. Its customer is the Kenya state power company.
  • A politically-connected businessman admitted to us that he “opened the doors” for Ormat in Kenya and got the go-ahead for the project after an in-person meeting with the Kenya Power boss (who was later charged with corruption) and former President Daniel Arap Moi, widely regarded as one of Kenya’s most corrupt leaders.
  • We present documents showing that Ormat paid contractors in Kenya tied to corrupt government officials, including one run by the son of the former President Daniel Arap Moi along with others run by his documented front-men.
  • The head of the Kenyan state-backed utility who oversaw the original contract with Ormat, as well as the energy minister at the time, were later found to have demanded millions of dollars in bribes to allow international power companies to do business in Kenya.
  • Two former CEOs of Ormat’s Kenyan customer (the state-backed utility) were subsequently arrested in 2018 and more than a dozen top managers were arrested or accused of crimes relating to corruption.
  • The same state utility customer, responsible for driving Ormat’s “disproportionate” financial success in the country, is reportedly “broke” and “technically insolvent”, posing another threat to Ormat’s most lucrative market.
  • In Honduras, Ormat charges the state energy company roughly the same rate as end customers pay, virtually guaranteeing a loss for the state. These rates make no economic sense.
  • The power agreement assumed by Ormat in Honduras was signed within days of other uneconomical agreements that were signed by the then head of the state utility, who is now under investigation for corruption relating to those agreements.
  • We found that an opaque Panamanian entity with no public presence, formed the day after the Honduran coup, registered to unnamed nominee directors, was inserted into the deal. We have submitted a FOIA request to a U.S. agency and are awaiting imminent release of records relating to the entity.
  • Ormat’s Honduran plant operates in Copan, known as drug cartel territory. A Honduran congressman told us “You can’t operate in Copan without paying the cartels, the gangs or corrupt politicians – and sometimes all three.”
  • We found that Ormat’s contractor in Honduras was raided by authorities on suspicion of being a front company for drug cartels. Its owners are in jail awaiting trial.”

In response to Hindenburg’s report, Ormat issued this statement:

“Hindenburg is a self-proclaimed short seller who we believe stands, along with its clients, to realize significant gains in the event that Ormat’s stock price declines.

Hindenburg’s claims are inaccurate and filled with innuendo in an attempt to mislead investors about Ormat.

We have been providing clean renewable energy in Kenya, Honduras and Guatemala for many years, supporting local communities. Our facilities are financed by numerous leading multinational banks, which conduct extensive due diligence on the Company and its operations prior to entering into lending agreements. We are committed to conducting all of our business according to the highest ethical standards, and we have clear policies in place to ensure our people and our partners act accordingly and consistent with all applicable laws and regulations.

The Company is aware of claims being investigated in Israel regarding Ravit Barniv, an Ormat Board member, and Hezi Kattan, the Company’s General Counsel and Chief Compliance Officer. The claims involve Ms. Barniv’s and Mr. Kattan’s work at another company, prior to joining Ormat. Those claims remain subject to a governmental hearing that may take time to conclude and Ormat is monitoring the process closely.

On February 24, 2021, the Company’s Board of Directors determined that, at this time, it would be prudent to transfer the responsibility for the Company’s compliance function to other members of the Ormat management team until these issues are resolved. In addition, Ms. Barniv told the Board of Directors that she believes that investor attention should be focused on Ormat’s strong performance and future prospects. Accordingly, she has decided not to stand for reelection at the upcoming Annual Meeting expected in May.

Ormat is a global leader in geothermal energy. As the only vertically integrated company in our industry, Ormat is uniquely positioned to serve customers from plant design to supply and development of geothermal, recovered energy, and energy management and storage solutions.

Ormat’s Board of Directors and leadership team are confident in the Company’s strategy. Our strong performance shows that we are on the right path for long-term success and to continue the Company’s growth trajectory. We are focused on capitalizing on our momentum – even in light of the COVID-19 pandemic – and will continue to serve and act in accordance with our values, high ethical standards and in our shareholders’ best interests.”

Upon release of the Hindenburg report, shares of Ormat dropped and as predictable as the sun rising in the east and dogs barking, plaintiffs’ firms representing shareholders began to mobilize (see here).

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