/ 22 May 2014

Zim: Hwange board faces axe

Nicholas van Hoogstraten appears to have joined forces with Mines Minister Walter Chidhakwa.
Nicholas van Hoogstraten appears to have joined forces with Mines Minister Walter Chidhakwa.

The government and the British mogul Nicholas van Hoogstraten are allegedly planning to forge an alliance to make changes to the board of the coal-mining Hwange Colliery Company that may include ousting the chairperson, Farai Mutamangira, sources have told the Mail & Guardian.

Sources said that this was likely to be done at the next shareholders’ meeting, a date for which has not yet been set.

The government and Van Hoog­straten are the major shareholders of the struggling Hwange.

Van Hoog­straten, who spoke to the M&G from Brighton in the UK this week, said shareholders and workers were unhappy “over the long period of corruption and incompetent mismanagement at Hwange. Government has also been prejudiced, as the major shareholder,” he said.

He also said the board members have committed a criminal offence by not calling for an extraordinary general meeting (EGM).

“The board was served with a notice on 1 April to call an EGM for the purposes of putting the company under judicial management and to appoint a judicial manager. A reminder was sent to the board on 12 May. This breach of the Companies Act will now be reported to the ministry of justice as the failure to call an EGM as demanded constitutes a criminal offence by all person responsible,” he said.

Reports of the intention to sack the board have apparently alarmed the board, and in particular Mutamangira, who is reportedly an ally to the former mines minister, Obert Mpofu, who is now the minister of transport.

‘Turnaround strategy’
This week, Mutamangira, who was appointed in August 2011, issued an unprecedented “chairman’s letter to shareholders”, disclosing initiatives that his board have taken to save Hwange from collapse and seeking shareholder support for what he described as a “turnaround strategy”.

But Van Hoogstatren said “it [the turnaround strategy] is a case of too little too late”.

The M&G understands that Mutamangira’s letter is a reaction to increasing frustration by Van Hoogstraten and the government over the plummeting fortunes of the company, which lost $30-million in 2013, after a profit of $3-million in 2012. The value of shareholder equity plunged to $75.8-million in 2013 from $106.6-million the previous year.

But worse than that, current assets went down to $85.1-million in 2013 from $104.4-million in 2012, and current liabilities escalated to $162-million from $125-million in 2012, rendering the company technically insolvent.

Hwange is of strategic importance to the state because the country’s biggest thermal power plant, the Hwange power station, and satellite power plants in other parts of the country are dependent on its coal.

According to reports in December, Mines Minister Walter Chidhakwa, who replaced Mpofu in September, was searching for suitable candidates to appoint to Hwange’s board.

In December, Chidhakwa sacked Mpofu’s appointees to boards of companies that are wholly owned by the government and fall under his ministry. Among those dissolved were the boards of the Minerals Marketing Corporation of Zimbabwe, the Zimbabwe Mining Development Corporation and Marange Resources.

But he could not wield the axe on the Hwange board, whose members are appointed in terms of Zimbabwe Stock Exchange rules and the Companies Act. A change to the board requires a majority vote at an annual general meeting (AGM).

The government has a 37% stake in Hwange and would require the support of other shareholders to effect any changes to the board. Van Hoogstraten has a 30% shareholding, and an alliance between him and the government would give the two a combined vote of 67%, far more than the 50% vote required to pass any resolution.

The National Social Security Authority (NSSA), a compulsory state pension fund, has a 5.87% shareholding and is controlled by the government through the ministry of labour and social welfare. The other major shareholder is Mittal Steel African investments, with a 9.76% stake.

Hwange has other small pockets of shares trading on the London and Johannesburg stock markets.

Van Hoogstraten is allegedly only too happy to lend a hand to Chidhakwa. He was infuriated when Mutamangira’s board rejected his $50-million bailout offer made to Hwange through one of his investment vehicles, Wilbough’s Consolidated. If accepted, that deal would have given him management control of Hwange.

“My interests control around 30% of the shares and we have the direct support of another 5% of shareholders. I have not yet had a meeting with the newly appointed minister of mines which I expect on my next visit to Harare in two weeks time. I would also expect Mittal Steel (who hold 9%) and NSSA (who hold 6%) to support judicial management as its the only viable solution to save Hwange from becoming another Zisco Steel,” Van Hoogstraten said.

After his offer was rejected, Van Hoogstraten wrote to Hwange’s secretary, Thembelani Ncube, on April 1 seeking an urgent shareholders’ meeting to place the company under judicial management and for the appointment of a judicial manager.

Govt not in support of liquidation
But the government is not in support of liquidation and is equally wary of a takeover of the company by Van Hoogstraten, who ironically gave the government part of the stake it holds in Hwange. The other part of government’s stake was donated by Anglo American.

Ncube was said to be out of the country when the M&G contacted his office but an official said the AGM was likely to be held in June.

“I don’t have the dates but it’s slated for June, probably end of June,” the official said.

Chidhakwa could not be reached for comment.

Mutamangira said: “Hwange will be shortly convening its AGM and the board and management will be seeking support from shareholders on the turnaround plan, in the sincere hope that the fortunes of the company will begin to significantly change.”

An advisory note put out by the Hwange board said they had declined Van Hoogstraten’s offer because of Wilbough’s insistence of taking management control through a special purpose vehicle, and because of Wilbough’s adjustment of its offer “to irredeemable convertible loan stock”.

“It is, therefore, no longer an offer of debt capital but [of] equity capital,” the note stated.

In his letter to shareholders, which he admitted was “my first letter to shareholders since my assumption of the chair on 3 August 2011”, Mutamangira said Hwange “was unable to progress this offer further” after consultations with major shareholders and a failure to break the deadlock over the issue of management control and regarding the costs of the funds.

He also said another problem was that Van Hoogstraten’s $50-million came with a 10% interest charge, plus 3% of turnover and 17% of profit a year over five years.

Under the proposal, Wilbough’s special purpose vehicle would have had reported directly to the Hwange board, and a co-ordinating committee comprising three of Wilbough’s representatives and two Hwange directors would have been established.

Van Hoogstraten had insisted that the government would keep its 37% share and debts owed to the state and the NSSA would be converted into five-year preference shares.

Sources said Mutamangira is working on a way to placate the government and to isolate Van Hoog­straten. In his turnaround plan, Mutamangira wants to restructure the balance sheet by converting some debt into equity, a move likely to shore up the government’s and the NSSA’s share in Hwange.

Hwange has a total debt of $170-million, of which over $50-million is owed to the government and the NSSA. Several new players, Makomo Resources, Coal Brick and Chilota, have posed a challenge to Hwange, which Mutamangira admitted had put Hwange “under increased competition”.