Optibase: Hi-Tech Innovator or Aspiring Investment Advisor?
Written by: Aaron Katsman | August 10, 2007
By Aaron Katsman
IsraelNewsletter.com
Optibase (OBAS), a company that deals with advanced digital video solutions, today announced a “change” in its investment policy. They will decrease their holdings in structured notes, after taking a loss. They had invested about $10 million, about 40% of all their cash, in a structured note that they have since sold at a loss of over $300,000. In today’s announcement, they didn’t specify the principal amount but they said as of July 30, the loss would have been over $900,000. It appears to me that they invested in some kind of range accrual structured note, where, as long as the Libor rate was within a specific range, they earned high rates of interest, but once the range is breached, they get nothing. They obviously did this when rates were still low; as rates rose, they got nailed.
My question is where is the corporate oversight?
How was the company able to manage their cash position in such a speculative manner?
Where was the Board of Directors?
If you investigate the company, you will find that the Chairman of the Board also happens to be CEO. I am not naive enough to think that Optibase is the only company with this arrangement, but clearly there is a conflict of interest with this structure. If Optibase wants to turn into an investment company and take more risk with their cash, that’s their choice, but how about a little transparency for investors?
It’s a shame that this has happened because the company has been executing their core business model well. For the first half of ‘07, revenues totaled $12.2 million, compared with $8.3 million for the first half ‘06. Net loss for the period was $1.6 million compared to a net loss of $2.4 million.
Maybe the fact that they are stepping up to the plate and taking responsibility for the loss will mean the end to this practice. Let’s hope Optibase stays on the cutting edge of broadband streaming solutions and leaves the investing to professionals.
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Disclosure: Author’s fund has no position in OBAS as of 8/10/07.
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Aaron Katsman is the lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.
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