Murowa: RioZim violated ZSE rules

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RioZim Ltd concealed key information that Harpal Randhawa, a majority shareholder in the mining group, was interested in acquiring Murowa Diamonds, the company’s 22% owned diamond asset, in violation of standing Zimbabwe Stock Exchange rules on related party transactions and disclosures.

By Chris Muronzi

This comes after RioZim this week announced that it gave up its pre-emptive rights to Murowa Diamonds last year because it could not afford the purchase price and that the board had waived its preemptive rights.

Investigations by businessdigest this week showed that while RioZim claims an AGM held on August 28 2016 discussed the Murowa pre-emptive rights, the issue of pre-emptive rights was never on the agenda.

According to the Annual General Meeting (AGM) notice, eight items were on agenda under ordinary business. Under special business, four items relating to an EGM of February 19 were on agenda. Pre-emptive rights were never on agenda, according to the AGM statement. As a rule, companies cannot insert resolutions for items that were never on the agenda.

An AGM deals with routine business like adopting financial statements and appointment of auditors.

In line with ZSE guidelines governing related party transactions, RioZim should have issued a cautionary statements, given notice of an Extraordinary General Meeting (EGM) and convene the meeting to okay the sell to a related party.

RioZim claims that the board of directors of RioZim passed a resolution to irrevocably and unconditionally waive the company’s pre-emption rights on Murowa. This is not adequate compliance with the ZSE requirements as the company should have called for an EGM given this was a category 1 transaction in terms of materiality. Shareholders and not the board of directors should have approved this transaction, according to the rules.

“Shareholders should have been given an opportunity to weigh on the very valuable rights that they had in Murowa,” a minority shareholder said this week.

Randhawa, who is classified as a material RioZim shareholder under the ZSE guidelines, should have declared his interest.

The ZSE guidelines define a material shareholder as “any person who is or within the 12 months preceding the date of the transaction was, entitled to exercise or control the exercise 10% or more of the votes able to be cast on all or substantially all matters at general meetings at the listed company (or any other company which is its subsidiary or holding company or which is a fellow subsidiary of its holding company.”

According to the rules, if a listed company (or any of its subsidiaries) proposes to enter into a related party transaction, the listed company must consult the ZSE committee at “an early stage.”

In transactions involving the acquisition or disposal of fixed property or in the case of a mineral company, an acquisition or disposal of minerals, mineral resources or mineral reserves, an independent valuation including the value, the basis of valuation and the method of arriving at such value should be conducted. An independent valuation of the asset was never obtained.

RioZim also did not obtain the approval by resolution of its shareholders either prior to the transaction being entered into or prior to completion of the transaction in line with ZSE regulations.

In line with ZSE guidelines governing related party transaction, RioZim should have issued cautionary statements followed by an EGM to okay the sell to a related party.

Investigations show that companies cannot carry resolutions for items that were never on the agenda.

According to the AGM notice, eight items were on the agenda as ordinary business. Under special business, four items relating to an EGM of February 19 were on agenda. Pre-emptive rights were never on agenda, the statement said.

An AGM deals with routine business like adopting financial statements and appointment of auditors.

In accordance with ZSE rules, RioZim should have called for an EGM to specifically deal with the Murowa Diamonds pre-emptive rights. The company claims that the board of directors of RioZim passed a resolution to irrevocably and unconditionally waive the company’s pre-emption rights. This is not adequate compliance with the ZSE requirements as the company should have called for an EGM given this is a category 1 transaction in terms of materiality.

Shareholders and not the board of directors should have approved this transaction. “Shareholders should have been given an opportunity to weigh on the very valuable rights that they had in Murowa,” a minority shareholder said.

In light of the fact that the RioZim board is constituted by appointees of Randhawa’s Gem RioZim, the investment vehicles with a majority equity stake in the group, the board’s independence is questionable in the transaction.

Long standing directors of RioZim such as JL Nixon, Simba Makoni, Albert Nhau and Ashton Ndlovu, a former CE of the company, left the group in the last few years.

“How will the shareholders of RioZim be able to recover if their rights to both assets were taken from them by a related party who inserted himself between Rio Tinto Plc and RioZim limited? Bearing in mind that RioZim owes US$110 million to banks and creditors, how will the other RioZim shareholders who are not GEM RioZim recover from this,” a minority shareholder said. “Also bear in mind that the market capitalisation of RioZim was over US$200 million in 2010 and now at US$10 million. The end result of all this is that all the other shareholders of RioZim except for Gem Riozim will lose all their value with RioZim possibly going into judicial management while Gem Riozim makes out with Murowa Diamonds — this is not right!”

Rio Tinto converted its 56% stake in RioZim and the 50% JV portion in Murowa into a 78% direct shareholding in Murowa, ceasing to be a shareholder in RioZim. This comes as it also emerged a month ago that Rio Tinto did not offer the right of first refusal in the sale of its 78% stake in Murowa and a 50% interest in Sengwa Colliery to RioZim as required by the 2004 agreement between RioZim and Rio Tinto.

In an announcement in June last year, Rio Tinto said it had sold its 78% stake in Murowa to RZ Murowa Holdings Ltd.

It has, however, emerged that Rio Tinto’s 78% stake in Murowa was actually acquired by RZ Murowa, a British Virgin Islands (BVI) incorporated company, controlled by GEM Holdings.

GEM Holdings is fronted by Randhawa, who is also the principal behind GEM RioZim Ltd, the largest shareholder in RioZim Limited.

Rio Tinto plc this week defended its decision to sell a 78% stake in Murowa Diamonds and Sengwa Colliery to RZ Murowa Holdings — a transaction that has been criticised by the Zimbabwean government amid possible deal irregularities resulting in tax losses.

“Rio Tinto’s decision to divest its interests in Murowa Diamonds and the Sengwa Colliery Ltd to RZ Murowa Holdings Limited was a commercial decision and Rio Tinto was of the view that the future of these assets can be best managed by entities with existing interests in Zimbabwe,” said Illtud Harri, spokesman for the Anglo-Australian group.

Zimbabwean authorities are to probe the transaction which would seem to prejudice minority shareholders in , a 22% shareholder in Murowa Diamonds.

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