HomeBusiness DigestHwange debt-to-equity deal approved

Hwange debt-to-equity deal approved

Hwange colliery Ltd shareholders this week okayed the conversion of a US$80 million debt to equity in the company.

Taurai Mangudhla

An extraordinary general meeting will be convened to give finer details on the proposed scheme of arrangement.
Hwange Colliery CEO Thomas Makore told businessdigest this week on the sidelines of an annual general meeting in the capital that government, which holds 40% of the company’s total issued share capital, has approved the debt-to-equity swap proposal. He said the deal would be followed by processes to regularise the move. It is, however, feared government could emerge with a controlling stake in the listed coal producer in the wake of rumours the company is looking at pursuing a capital raise via a rights issue post the debt-to-equity conversion.

Should the company float additional shares through a rights issue, other shareholders in the colliery are unlikely to follow their rights.

Insiders say Nicholas van Hoogstraten, the second largest shareholder in the company with an 18,02% stake, held through Messina Investments, would follow his rights.

The businessman together with Mittal Steel Africa Investments (Mittal Steel)’s capacity and willingness to follow their rights in the business was questionable, particularly given that it continues to struggle.

Mittal Steel is the third largest shareholder with a 10,59% equity stake, while other shareholders have a combined 31% equity stake.

Analysts say that focus for government should be on creating an enabling policy environment instead of owning and running businesses. In this case, analysts say government’s options are rather limited. Some sources close to the shareholders in Hwange Colliery say government’s decision is likely to scare off existing and potential investors. “Other shareholders would actually prefer that government transfers its shareholding to some special purpose vehicle such as ZMDC (Zimbabwe Mining Development Corporation) or MMCZ (Minerals Marketing Corporation of Zimbabwe) and there has been some hint that this could end up being the case,” said a source who requested not to be named.

Economist Eddie Cross said government had no chance of ever recovering its US$80 million in Hwange hence the option to take equity. “For Hwange Colliery, this is a good thing. There is no chance that the state can recover this sort of money any other way,” Cross said.

“For the other shareholders it’s a mixed bag, good to have the creditors reduced by this amount but the increase in the say of the state will not help unless the attitude of the State changes dramatically.”

If government emerges as the majority shareholder in the coal producer, Cross said, its focus should be to insist as shareholders that the company sort itself out and get back on track then sell their equity to new investors.
“In the present environment that is not going to happen so I guess this is the best compromise we can get,” Cross said.

Economist John Robertson said government’s move is the only option to tidy things up and consolidate its position in the company.

“It’s a good move for government. Suppose they want to privatise for instance, it would mean they do whatever they need to do without having to deal with so much resistance from other shareholders.

“What government should be really aiming at is to put their house in order and relinquish the stake because it has no business in the company except to create an enabling environment for business through policy.”

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