THE government and Cottco transaction on Olivine Industries (Pvt) Ltd might be a done deal but the controversy surrounding the acquisition is far from ov
Government used the deal to become the majority shareholder in Olivine with 51% but invited Cottco to take up the remaining 49% after HJ Heinz pulled out.
It all sounds like a fair deal considering that Cottco officially paid US$6,8 million for a company whose value could otherwise be over US$100 million were it not for the economic crisis and the fact that HJ Heinz just wanted out.
However, an investigation into the specifics of the deal reveals that there is more to it than has been told to the market.
The market was told that HJ Heinz was paid US$6,8 million by Cottco on August 16, 2007 but all the public announcements and statements on the deal seem to have conveniently omitted to mention that more money changed hands in order to make the transaction possible.
Businessdigest can reveal that government could have structured the deal in order to benefit from a combination of tax and duty waivers that it gave itself during the transaction.
While the agreed value of Olivine had come to about US$7,5 million if taxes and duties are included Cottco was made to pay US$6,8 million directly to HJ Heinz.
The difference between the actual value of the deal and what Cottco paid to HJ Heinz went to Industrial Development Corporation (IDC) which had negotiated the deal on behalf of government. IDC is an investment vehicle for the government.
Confidential documents in possession of businessdigest show that Cottco was made to pay US$460,947 to IDC using the Old Mutual Implied Rate (OIMR).
“The GoZ (Government of Zimbabwe) through IDC has invited Cottco, as technical partner, to acquire 49% of the entire issued share capital of Olivine Holdings (Pvt) Ltd and all its subsidiaries and associates in return for which Cottco will effect payment to H J Heinz in the amount of US$6 825 000 payable in foreign currency in full settlement of IDC’s obligations to HJ Heinz arising from preamble E plus US$460 947 payable in local currency after conversion at the Old Mutual Implied Rate,” said part of the shareholder’s agreement.
The problem is that IDC was not supposed to get the money in the first place because it was for taxes and duties under the structure of the deal.
The other issue is that Cottco was being made to pay using a rate which is far more than the official rate which at that time was US$1:$250. The OMIR is the accepted parallel market rate in business circles. Government has in the past threatened to deal with businesses that use parallel market rate.
Questions have been raised as to why the official rate was not used.
The third issue is that the shareholder’s agreement does not state the purpose of the extra payment that Cottco made to IDC. An official who was part to the talks that culminated into the deal said the extra amount arose from the fact that government did not want to extend the tax waiver in had given itself to Cottco.
“Government gave itself a waiver on tax and duty that came with the deal but they still went on to claim the money from Cottco. If this was a transparent deal government should not have claimed money they did not pay from Cottco,” said the official. The waiver was for the whole deal and not government alone.
In other words government got a reimbursement for tax and duty money it did not pay. There is yet another problem though.
Although Cottco paid the money as fees for duty and tax questions have been raised as to why the payment went to IDC instead of Zimra as the revenue collection authority.
This means that IDC was therefore making a profit from a waiver that government had approved. Because IDC is 100% owned by the state it means that government was actually benefiting from its own waiver.
The problem through is that the money was not accounted for in Zimra’s books but went to a government company which is not supposed to collect taxes.
Buy allowing IDC to make a profit from that tax waiver government was in other words shortchanging the national treasury in order to benefit its own company.
Although IDC and Zimra are all under government, their roles are totally different. Zimra collects revenue which is then distributed under a national budget.
IDC on the other hand is an investment vehicle which government uses to do commercial businesses.
IDC managing director Micheal Ndudzo denies that the money was from a tax waiver.
In an interview last week Ndudzo said the extra amount was meant to cover IDC’s “human resources and legal cost” incurred during the transaction.
“The place (IDC) literally came to a standstill during the transaction. We had to push all our top managers to deal with those issues,” Ndudzo said.
On why the parallel market was used Ndudzo said: “It really does not matter what rate was used. We used a rate that gives value.”
He however does not explain why IDC as a local company had to peg its costs in foreign currency.
Sources close to the issue insist that the extra money paid by Cottco was not meant to cover the costs IDC incurred in the deal because each part had foot their own bills.
Cottco had its on accountants and legal representatives. IDC has its own team. HJ Heinz hired a consultant from Botswana to act on its behalf.
Under normal circumstances IDC’s costs should have been covered by the government which had appointed it to work on the deal.