Govt begs steel giants to take up Zisco stake

WORRIES over a ballooning Zimbabwe Iron and Steel Company debt and an imminent asset seizure in South Africa have forced government to re-invite two steel companies –– Jindhal Steel and ArcelorMittal –– to take up 60% equity in the troubled steel maker, business digest has learnt.

Sources close to the Zisco deal told this paper yesterday that government had sent letters inviting Jindhal Steel of India and ArcelorMittal of South Africa to urgently inject around US$290 million into Zisco for a 60% stake in the steelmaker.

Part of the US$290 million will be used to retire a Euro 40 million debt accrued by Zisco in 1998, a source said.

“Government has written to Jindhal and Mittal with an offer for equity. They urgently need US$50 million for debt rescheduling. But the total figure they will be needing is above US$200 million,” a source said.

This comes after President Robert Mugabe allegedly rejected ArcelorMittal and Jindhal’s bids saying the two entities were too big. According to Industry minister Welshman Ncube, Mugabe threw out the Zisco bids arguing that the two companies were too big. Mugabe is said to have recommended medium-sized companies to buy equity in Zisco.

But analysts say Zisco needs an investor with a deep pocket to get the steelmaker back on stream.
Jindhal is said to have made a commitment to invest over US$2 billion in getting the plant operational, build a stainless steel plant and a 2 000 Megawatt power station.

The power station would help ease the country’s power problems.

Jindhal is the world’s third largest steelmaker by tonnage with an annual turnover of about US$2,1 billion and forms part of the larger Jindhal Group with total assets in excess of US$12 billion.

Jindhal’s rival, ArcelorMittal South Africa, a subsidiary of the world’s largest steel manufacturer, ArcelorMittal Group with a market capitalisation in excess of US$35 billion, is also said to be back in the race.

ArcelorMittal has a presence in more than 60 countries. By February, Arcelor was said to have been holding onto cash of over US$300 million to invest in Zisco in anticipation of a possible acquisition of the Zimbabwean steel asset and make its first foray into iron production.

Government is frantically trying to save the auctioning of five properties that it owns in South Africa over a 40 million euro debt. Zisco owes a German development bank, KFW Bankgruppe, after the company failed to pay the loan over a prescribed period of time. Properties in Pretoria, Johannesburg and in Cape Town are due to go under the hammer on July 1 this year.

The government, through the South African embassy in Pretoria, has so far written to the lawyers representing KFW Bankgruppe indicating that two of the identified properties are diplomatic properties and are protected under diplomatic immunity. However, it has emerged that the government is making frantic efforts to save the other properties from being auctioned. The government has adopted a two pronged approach to deal with the impending auction issue.

According to sources, government wants the debt payment to be shared with the German government as both governments guaranteed the loan to Zisco.

But the Germans are not buying the idea.
Another option involves government’s current efforts to lure investors to partner Zisco to commit themselves to servicing the loan before entering into a partnership with Zisco.

Zisco entered into a loan agreement with the German bank on January 29 1998 and was to pay off the debt in 16 installments but Zisco defaulted after only the fourth payment in 2002.

The minister for Parastatals and State Enterprises, Gabbuza Joel Gabbuza, this week said that the government was working on a mechanism that will allow Zisco to get partners that will service the company’s debt while at the same time recapitalising the company.

“The proposals that we have received from international companies wishing to partner Zisco is that they will service the company’s debt and that could save lawsuits that the company will face,”Gabbuza said.
He said Zisco owed over US$100 million and the lawsuit by KFW Bankgruppe was likely to be one of many to come.

“The idea of finding a partnership for Zisco is meant to avoid the impending lawsuits as the company will service the debts with the aid of the partner and we have done the reports to that effect and handed them over for cabinet deliberations,”Gabbuza said.

The government is believed to have engaged the Germans in a bid to have them pay off the debt.
Efforts to get a comment from Justice and Legal Affairs minister, Patrick Chinamasa were fruitless.

The attachment of the Zimbabwean properties comes almost two months after South African civil rights group, Afriforum, secured a High Court writ of execution to attach four Zimbabwe government owned properties in Cape Town.

Afriforum attached the four properties on behalf of white commercial farmers who were dispossessed of their land under the land reform exercise.

The organisation had successfully acted on behalf of several Zimbabwean farmers dispossessed following Mugabe’s controversial land grab policy.

KFW Bankengruppe and Afriforum have reached an agreement to share proceeds from the sale of Cape Town properties that were initially attached by Afriforum.

 

Chris Muronzi/ Loughty Dube

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