ZUMBANI Capital, a consortium led by Murray & Roberts (M&R) chairperson Paddy Zhanda and M&R’s former CEO Canada Malunga, is set to lose its recently-acquired 47% shareholding in the construction firm after the Securities Commission of Zimbabwe (SECz) directed the Zimbabwe Stock Exchange to take corrective action over the manner in which the acquisition deal was conducted.
Zumbani Capital acquired a 47% stake in M&R, previously held by Trinvest Investments and Murray & Roberts Ltd of South Africa.
Zumbani’s international partners are Malcolm McCulloch, who represents Carlmac of South Africa, and Brait, the international investment group represented by Sam Sithole.
The deal went through at 1,47 US cents a share, a 79% discount to the trading price of seven US cents. Well-placed sources said after numerous complaints from investors over the deal, which saw Zumbani become the controlling shareholder in M&R, SECz was compelled to look closely at the transaction.
The ZSE is to reverse the acquisition and offer 78,5% of the shares acquired by Zumbani Capital (78,365,054 shares) to other shareholders of M & R as at 2 May 2012 on a pro-rata basis at the same price which Zumbani Capital acquired the shares (1,47 US cents). Zumbani Capital will be allowed to retain 21,5% of the shares (21,427,461 shares).
This offer shall be open to all shareholders in the share register as at 2 May 2012 for 30 days.
In terms of allotment, the shareholders will be entitled to purchase an allotment of 4 shares for every 11 shares held as at 2 May 2012. Any shares not taken up through this offer shall be retained by Zumbani Capital.
SECz found that the take over went against ZSE listing rules. Section 9 (i) of the rules states that any person wishing to acquire a minimum 35% stake in any company has an obligation to make an offer to minority shareholders at the price the seller is willing to offload his or her shares. Alternatively, if no such offer is made, the acquirer should get a waiver from the ZSE.
Zumbani Capital is said to have obtained the waiver from the ZSE in a letter written to the broker who handled the transaction, Lynton-Edwards Stockbrokers. The waiver letter was signed by suspended chief executive Emmanuel Munyukwi. However, it was discovered that Munyukwi did not have the authority to issue the waiver as the ZSE Listings Committee, that is supposed to deal with such issues, did not meet and was not aware of the deal.
A circular should also have been issued since M&R was trading on a cautionary with the offer detailing the valuations used in pricing the offer, the identity of the acquirer and the price. SEC has also raised concern that Zhanda as chairman of the company was conflicted as he was a related party to the transaction.
Jerome Negonde, a market analyst said that Sec’s true mandate was to protect minority shareholders who were not offered the same when the M & R transaction was crafted. “The corrective action will guarantee that the market’s integrity is maintained and will ensure that ZSE integrity is maintained and will go a long in ensuring that capital market players the relevant authorities in structuring deals,” said Negonde.
However, while it is agreed that there is need to protect minority shareholders, analysts say that the deal was done through a willing buyer (Zumbani) and willing seller (M & R SA) agreement and if other investors wanted to challenge it they would have done so during trading as it was transacted through a book-over of shares.
SEC says that the transaction was executed privately outside the pricing mechanism of the exchange and was therefore irregular. At that time M & R was trading at 7c.
Other market players said that Zumbani was being punished for actions carried out by the suspended chief executive and this would be too harsh on the consortium especially considering that they were under the belief that all necessary approvals had been obtained. However, SEC in the directive notes that there are no records of a formal application being lodged by the broker to the ZSE Listings Committee. Lynton Edwards as the agent representing both the buyer and the seller in this deal failed to follow due process for a corporate action as set out in the ZSE Listing Rules and Requirements. The agreement was therefore flawed procedurally and was thus irregular. Analysts note that the blame for the transaction should rest solely on the broker, who should have guided his clients them through the transaction and the ZSE.
SEC chief executive Tafadzwa Chinamo could not be reached for comment as he was said to be away from office.