National Social Security Authority (Nssa) chairman Robin Vela says he has strong resolve to fight for the reversal of a US$15 million rights issue at Zimre Holdings Ltd (ZHL) that saw businessmen Hamish and Simon Rudland emerge with a 40% majority stake in the reinsurance group.
In an interview this week, Vela told businessdigest that he was willing to pursue legal routes to have the transaction set aside.
Vela expressed dissatisfaction in the way the ZHL board handled the transaction, vowing he would leave no stone unturned in having the transaction reversed.
He said Nssa was keen on getting to the bottom of the Zimre US$15 million rights issue. “We have a strong resolve to pursue the Zimre issue. We are in constant touch with the investigators. Investigations are still ongoing. But definitely, the investigations will form the basis for a legal challenge,” Vela said.
He said Nssa and Nicholas van Hoogstraten had joined hands to ensure all shareholders are treated fairly and block further Rudlands’ machinations. This comes as it emerged the Rudlands had attempted to underwrite another CFI rights issue.
In a letter dated December 11 2015 to Sec CEO Tafadzwa Chinamo, Vela said he was dissatisfied with the ZHL transaction.
“I would firstly like to reiterate the National Social Security Authority (‘Nssa’ or the ‘Authority’) remains unsatisfied and concerned that the above transaction was indeed not above board and that adequate disclosures were not provided to existing shareholders to make an informed decision.
There are some fundamental issues that continue to be overlooked, namely: it is now apparent that NMB did not have the capacity it purported to have to underwrite the US$15 million rights issue. If this is indeed proven, then it follows that this singular misrepresentation could be a basis to have the entire rights issue set aside.
“There was never any disclosure that the Rudlands, through an entity called Day River Corporation (DRC), would become a major shareholder. We are indeed not convinced that the Rudlands, in any event, are the actually benefical owners of DRC. If indeed they are, then their source of such wealth should also be a matter of interest for the relevant investigating authorities, should it not?” Vela said.
“You will understand that the authority partners with investors who share our investment ethos. A private investor is unlikely to have the same long-term investment ethos as a pension fund which is open-ended and invests for the long haul.”
Vela said there were questions around the purported use of proceeds from the US$15 million rights issue as it emerged that the money is now being used for other purposes than those stated in the tights issue prospectus.
“There seems to be questions around the purported use of funds for which the rights issue was undertaken — it now seems the proceeds of the rights issue that diluted existing shareholders by up to 40% are being used for purposes other than those disclosed in the circular,” he said.
“The circular is the responsibility of the Ben Kumalo-led board of directors — many of whom remain in place today. The circular did not talk about acquiring shares in companies which Zimre now seems to be doing and certainly did not talk about the rights issue funds being used to fund CFI — which is reported in the Zimbabwe Independent Newspaper of today (last Friday).”
Vela said shareholders had a right to be upset as this was not the basis upon which they accepted dilution.
“Of further concern to us is the apparent directing of management of both Zimre and other Zimre-related entities such as CFI and Nicoz by the Rudlands and their appointed persons, which is highly unusual and improper for a listed entity shareholder to be doing. The listed entities exist for the benefit of all shareholders and not the Rudlands,” Vela said.
“The authority shares many of the concerns raised by a CFI fellow shareholder, Van Hoogstraten, through the public media and believe the investigating authorities, including yourselves, have both the duty and ability to investigate the reality of this ZHL transaction to enable us to have the basis to seek an order from a competent court to set aside the Rights Issue.”
He added that Nssa would use its shareholding to fight against potential disenfranchising of shareholders.
“Nssa will continue to use its shareholding to protect against the potential disenfranchising of its interests, but requests that you and the other authorised authorities speed up your investigation and work to enable us to get to an accepted outcome as soon as is practicable. I am available to meet with you and further discuss the above and attached at any time,” he said.
In a letter dated November 25 to Vela, Chinamo said documents filed at the ZSE for the approval of the transaction had proven that NMB had the capacity to underwrite the rights issue.
“In terms of documents filed with the ZSE for the approval of the transaction, NMB were presented as the underwriter and demonstrated that they had the capacity to meet all commitments relating to their role,” he said.
Chinamo said the Zimre transaction was above aboard.
“This was above board as per Section 5.40 and 5.41 of the ZSE Listing Requirements and the transaction was given sanction by the ZSE Listings Committee. Our fellow regulator, the Reserve Bank of Zimbabwe, then raised queries regarding the source of the funds used by DRC for the sub-underwriting. Secz then met the Financial Intelligence Unit (Fill) of the RBZ to try and clarify issues,” he said.
Chinamo added that from the meeting it was established that ZHL management was unaware of the existence of a sub-underwriting agreement between NMB and DRC.
“The FiU Is conducting investigations and Secz has since instructed the ZSE to look into the transaction and to report back with findings. We do hope you bear with us as we try to establish the facts around this particular transaction,” added Chinamo.
But investigations by businessdigest show that of the US$15 million, US$8 million was earmarked for Zimre’s local operations, while regional operations were supposed to get US$3 million.
The group has a reinsurance business in Mozambique, Zambia and Botswana. Each of these businesses were supposed to get US$1 million apiece.
Transaction costs were supposed to gobble up just under a million. Group restructuring and right sizing was supposed to cost US$2,5 million.
According to information made available to businessdigest, NMB took up the balance of shares valued at US$12 295 005,14 as the underwriter.
However, the rights issue account statement reflects that on February 26 2015, a credit of US$12 295 386,28 referenced exDAYRIVER was made into the account.
The company that eventually took over the shares from NMB on May 11 2015 is DRC. Suggestions are that Zimre management may have known on the day of receipt that there was someone behind NMB Bank who had funded the purchase of the outstanding shares.
“NMB Bank managed to demonstrate capacity suggesting that they had already established the road map to the uptake of shares by DRC in advance,” documents read.
“The Bankers for DRC were also NMB Bank, thus narration of the reference supposes that the NMB Bank and ZHL were aware of the source of funds and did not disclose full details to shareholders. In our view this could have had a material impact to the decision taken by shareholders with respect to the rights issue.”
Nssa feels that full disclosure was not fully made by parties in the transaction.