A tiny diabetes drug maker in Norway decided to get into energy trading - and failed spectacularly
- Norwegian pharmaceuticals company, Vistin Pharma, decided to take a gamble on energy markets in March last year despite being best known for making a diabetes drug.
- The company announced Tuesday that it was closing its energy trading operation following the departure of resignation of head of energy trading, Torbjørn Kjus, on Friday.
- Vistin's contracts are worth negative 85 million Norwegian kronor ($9.8 million) as of December 31, 2018. They expire at the end of 2020.
Energy trading is a notoriously tricky gamble. Prices of a variety of products are subject to intense volatility that can catch even the most savvy investors off guard. For the not so savvy, it can be even worse. Take Norweigan pharmaceuticals company Vistin.
Vistin Pharma, best known for its type-2 diabetes medication Metformin, announced in March that it would try its hand at the energy market. In a veering turn from its business model, it explained that it made the move "to take advantage of the global change in sulphur specifications for marine fuel in the global shipping industry in 2020."
However, things didn't go to plan.
The company announced last week that its head of energy trading, Torbjørn Kjus, would be leaving immediately. Losses totalled $12 million and at the end of 2018 margin calls - deposits required to cover trading losses - had reached 163.5 million kroner (about $19 million), tying up more than half the entire company's cash, according to Bloomberg.
Not content with making money off diabetes patients, Vistin decided to also bet on the price difference between low-sulfur gasoil futures on the Intercontinental Exchange in London and contracts for higher-sulfur fuel oil traded in Singapore.
Under these contracts, the company was financially exposed to the difference in dollars per metric ton between two types of shipping fuel. Its bets went the wrong way, and Vistin finally threw in the towel.
"To establish a sustainable business unit based on energy trading has proved to be demanding," it said on Tuesday. "The international energy markets have been challenging and the trading positions taken by the company has so far not performed as planned. The current market conditions have also made it difficult to raise external capital for closed-end funds."
Volatility has jolted energy markets in 2018, eroding profit at major oil traders including Trafigura.
Vistin CEO Kjell-Erik Nordby declined to comment and Chief Financial Officer Gunnar Munum didn't immediately return calls seeking comment.