After a US$29,325 million acquisition of a 51% equity in Zuva Petroleum, FBC Holdings CEO John Mushayavanhu quickly became a target of staunch indigenisation activists who felt the banker had agreed to be a front for Glencore.
However, a quick look at a deal that gave Mushayavanhu a controlling stake in Zuva, a key oil asset once owned by BP in the country, paints a different picture to the market perception.
The acquisition of the 73 former BP & Shell Marketing Services (BPSMS) assets by Woble, Mushayavanhu’s investment vehicle, surprised many given the amounts paid for the company and the general tight liquidity conditions in the market.
But Mushayavanhu says he acquired the company through an offshore loan granted by Glencore UK.
The loan, according to him is for US$29,325 million payable over a period of 15 years.
According to documents seen by businessdigest, the loan was approved by the external loans coordinating committee, comprising the Reserve Bank of Zimbabwe and Ministry of Finance on 13 January 2014 at an interest rate of London Interbank Offered Rate (LIBOR) of 2,5% per annum.
The loan also has a penalty rate of 3% per annum. According to information seen by businessdigest, the source of repayment would be from dividend income, and proceeds of any share buys backs.
The security is a charge over the shares purchased.
In other words, if Mushayavanhu fails to pay, the lender will realise the security.
The regulatory approvals were given on the strict condition that in the event that the lender has to realise security, they have to immediately sell the shares to an indigenous compliant entity in line with the country’s indigenisation regulations.
For instance, if Mushayavanhu were to default before any repayment is made, he will lose the company. There is a catch; the company has to be sold to an indigenous entity.
When asked if this was the ideal financing model, Mushayavanhu said: “The ideal situation is to pay cash for shares and not resort to borrowing. But show me someone who has US$29 million in cash in this country. Under the circumstances, we have no choice but to resort to borrowing in order to localise the Zuva business. It will take 15 years to repay, but by then the business would be fully localised. I don’t see any other option. I am surprised that people now view this borrowing as fronting when infact it is the only feasible way of localising the asset given the tight liquidity condition prevailing in our economy.”
There was talk in the market that Mushayavanhu had borrowed this money from his bank, but he says he never got a cent from the bank.
“I am a seasoned banker and I know the impact of insider borrowings on the bank’s solvency and would never approach my bank for facilities no matter how small the request. If anything, the bank stands to benefit from Zuva’s daily banking as Zuva is a cash business and does not borrow,” he said. “Corporate governance structures at FBC are so robust that it would be virtually impossible for me to think of borrowing from the bank as such borrowings would never be approved by our board.This is why FBC has remained a strong bank when others have fallen by the wayside.”
Mushayavanhu said the Zuva transaction was similar to how business tycoon Mutumwa Mawere acquired AA Mine, in the 90s.
“This is the same structure Mawere used to acquire AA Mines way back in the nineties,” said Mushayavanhu.
But critics say the deal looks and smells of fronting, a charge he denies.
Investigations revealed that Glencore has an interest in Alveir, which owns 49% of the Zuva business.
Against such a background, the deal makes sense for Glencore as they will be supplying product to Zuva through an off-take agreement or supply agreement, effectively giving them a captive market.
Market speculation had also linked this deal to Strauss logistics.
But Mushayavanhu said Strauss had historically provided transport and logistic services to Zuva and will continue in that role.
“They (Strauss) have no shareholding interest in the Zuva business and are merely service provider. I don’t have shareholding in Strauss,” he said.
Masawara announced recently that the two parties had agreed to increase the price tag of the assets to US$29,3 million from the initial US$24,8 million.
He said: “The price was subsequently increased to U$29,325 million due to delays in finalising the transaction. I still consider it a viable purchase given the potential I see in the Zuva business.”
A National Indigenisation and Economic Empowerment Board report suggests Masawara never owned the Zuva shares in the first place, implying the London Stock Exchange listed firm was a front for Glencore, which funded the purchase.
“We certainly paid the purchase price to Masawara as the rightful owners of Zuva. So I don’t know how they could be fronting and receiving the money at the same time,” he said.
Woble is an investment vehicle owned by Mushayavanhu and his wife.
But others say a number of people had been eyeing the assets and could be seeking to present Mushayanhu as a more front.
The assets were coveted by many that Masawara’s own road to the acquisition of BPSMS was littered by many impediments as connected individuals tried to scuttle the deal through regulatory processes, a fate Mushayavanhu’s deal also suffered.
He spent a year seeking various regulatory approvals, prompting a US$4 million price increase.
Then Indigenisation minister Saviour Kasukuwere approved the Masawara/BP deal under the conditions that Masawara would dispose a 10% equity stake to an employee share trust, dispose 50% of its retail sites to its dealers, sell shares to youths, women and the disabled and treat the leases of all dealers fairly.
The Youth Development, Indigenisation and Economic Empowerment ministry at one point gave Masawara plc a 14-day ultimatum to demonstrate that it had complied with indigenisation requirements that were pre-conditional to its acquisition of BPSMS Zimbabwe.