The company’s chairman Tendayi Chimuriwo last week threatened to fire “whoever” had put up the property as collateral in order to secure a US$11 million loan without the board’s nod.
The bond was cancelled before an AGM on Thursday last week which would have voted on whether or not the hotel should be put up as collateral for African Sun Ltd to get a loan from the Industrial Development Corporation. Dawn is an associate company for African Sun Ltd (ASL).
The Dawn board was restructured before the debacle. Directors who left Dawn were Farai Rwodzi, Bryan Thorn and Edwin Manikai and they were replaced by Phibeon Gwatidzo, Mark Tunmer, Davie Cooper and Jane Worsfold.
Chimuriwo promised shareholders a “ruthless investigation to determine which unauthorised person had sanctioned the move”.
Insiders say the group could have lost valuable money due to the mix-up by Dawn directors, saying legally the issue did not need an EGM or AGM to be regularised as shareholders only needed to be alerted.
“When shareholders need to rectify a motion they need to read it but it was not done. Fortunately, African Sun and Dawn did not lose any money. The interest for this money was about liable +/-2,5% which is a giveaway by any market standards,” a senior official at Dawn Properties said.
However, officials at Dawn Properties told businessdigest on Wednesday that Chimuriwo should have consulted widely before making a public statement that the group would embark on an investigation over the issue saying it was not in the best interests of the group.
The officials further alleged that Chimurowo himself had been in charge of a process that was not executed properly.
“When that deal was being finalised, there was a new board coming in. He (Chimuriwo) should have advised the newcomers of major issues at hand. As it stands no action will take place as it is more of an own goal,” an official at Dawn said on Wednesday.
ASL CEO Shingi Munyeza said he prefers that the matter be dealt with internally as it was a “family issue”.
“The final stages of the transaction were done in a transitory board. There are bound to be loose ends, it is not like someone wanted to do something illegal. Half the board is new,” Munyeza told businessdigest on Tuesday.
“We (African Sun) might not be happy with what transpired but will not let Dawn or African Sun crash or go on a corporate war,” Munyeza said.
Shareholders last Thursday questioned how the proposal, item 10 of the proceedings, had been tabled in the first place and how a US$11 million asset could be tabled without approval from the board.
Chimuriwo said the “processes went ahead of board approval”.
He said it was a “major transgression” and said the board had subsequently found it prudent not to proceed.
However, it was pointed out to the chairman that page six of the annual report states: “To this end African Sun has secured offshore funding but now requires security in the form of real estate. Your board has been called upon to consider providing security and has seen fit to do so and further details will be made available to shareholders at the AGM.”
In his defence, Chimuriwo said the board had initially sanctioned the move as the expectation was that this would translate to higher room rates and occupancies appeared attractive at first, but later chose not to proceed.
He said the bond had been cancelled and the group had incurred no costs in the set up of the facility.
“Someone needs to be fired,” he added.
In 2007, African Sun decided to refurbish under a five-year plan that would see US$60 million being raised.
“At least US$20 million would go towards refurbishment of local properties while the balance was for expansion,” Munyeza said on Tuesday.
On November 13 2009 an EGM was held, where the group asked for a US$10 million rights issue, US$10 million private placement and US$15 million debt which all sailed through during the meeting.
On December 12 the rights issue closed and African Sun received US$10 million.
“We were talking to three major funders –– Afrexim Bank, DPSA, IDC and PTA banks,” said Munyeza. “In the talks there were issues concerning sovereign risk in Zimbabwe because we wanted some of the money for refurbishment, after dollarisation and the Unity government. IDC was struggling to lend to Zimbabwe but the papers were signed. Export Credit Insurance Corporation of South Africa Ltd (ECIC), a credit guarantee company said they were happy to guarantee IDC to give African Sun money.”
“We wanted US$10 million from IDC but it would be US$11million, including fees for ECIC,” Munyeza said.
IDC carried out due diligence and were happy with the business case and documentation started flowing. ECIC signed the guarantee on condition that ASL Sun had a property to use as surety.