The role of RioZim Ltd in the Murowa Diamond acquisition transaction has come under the spotlight amid accusations they could have reneged on their fiduciary duties and conflicted themselves by acting for Randhawa, writes Zimbabwe Independent Business Editor Chris Muronzi in the second and final installment into how Harpal Randhawa controversially acquired the diamond mine and Sengwa coal.
Independent Business Editor,Chris Muronzi
Legal experts say only shareholders in a properly called and constituted EGM could have waived RioZim’s pre-emptive rights in Murowa.
A number of RioZim directors such as Saleem Rashid Beebeejaun, Lovemore Chihota and Mustafa Tassadak Sachak, who were part of the board that made the decision to waive other shareholders’ rights in Murowa also represented the buyer RZ Murowa Holdings, a company owned by Randhawa. Documents have revealed a shocking level of double dealing and conflict of interests in the manner RioZim Board of directors handled the Murowa Diamonds pre-emptive rights.
Beebeejaun, a director at RioZim Ltd, is also a director of Murowa Holdings as an appointee of the shareholder, RZ Murowa Holdings, a company controlled by Global Emerging Markets (Gem).
Chihota, the current chairman of RioZim Ltd, is also a director of Murowa Holdings Ltd. He was appointed a director on August 7 2015. Sachak, another RioZim Ltd director, was also appointed as a director of Murowa Holdings. He was appointed on August 7 2015, a week after Rio Tinto Plc announced the sale of Murowa diamonds.
Their appointment a week after the sale of Murowa diamonds could have also been an attempt to make it appear as if RioZim was the beneficial shareholder in Murowa.
Chihota resigned on June 10 2016.
Ramdeenee Anupama Beebeejaun, a housewife, was also appointed as a director on September 1 2015. Ramdeenee’s address is listed as 31 Riverwalk, Vacoas, Mauritius.
Other directors of Murowa Holdings are Bindra Manraj Singh of the United Arab Emirates.
Saleem Rasheed Beebeejaun, whose date of birth was filed as March 1995, was appointed on September 1 2015. He resigned on the same day.
In light of this information, the trio of RioZim Ltd directors, who are representing Gem on the board of the mining group, could have acted in bad faith when they waived pre-emptive rights to Murowa on behalf of other shareholders only for another shareholder,Gem, to acquire the same company.
The trio replaced Gary Obrien and Delwin Witthoft.
Beebeejaun, Sachak and Chihota’s presence on the boards of companies controlled by GEM, could signal an unhealthy relationship with Randhawa.
Although Rio Tinto Plc was still talking to other parties, a series of events show that the mining giant had made up its mind on the suitor. In August 2014, investigations by the Independent show that the Reserve Bank of Zimbabwe (RBZ)’s Exchange Control review Committee reviewed the restructuring of RioTinto Plc ownership in offshore companies that directly owned the Zimbabwean assets in question.
Rio Tinto Plc’s restructuring of shareholding Murowa Holdings was laying the foundation for the transaction to follow.
Rio Tinto’s proposal entailed restructuring the group’s shares into a holding company that directly owned Murowa.
Rio Tinto International Holdings Ltd transferred its 50% interests in Murowa Diamonds to Murowa Holdings Ltd.
The move meant that all Rio Tinto Zimbabwean assets would be housed in Murowa Holdings Ltd.
Judging by those events, Randhawa had made up his mind that the transaction could be done offshore, evidence suggests.
And there was no going back.
Documentary evidence shows that Randhawa felt there was no need to seek regulatory approvals for offshore sale of assets domiciled in Zimbabwe.
Others say this was an attempt to fool authorities into believing RZ was a RioZim Ltd company.
The Independent has established that the RBZ was never advised of other ownership changes such as the transfer of additional 28% equity stake and 50% of Sengwa into Murowa Holdings as required whenever an onshore asset changes hands offshore.
After the sale, the Independent established, that the central bank was made to believe that offshore transactions had no bearing on local assets.
This was despite this being standard practice whenever a Zimbabwean asset exchanged hands.
The transaction also meant that all Rio Tinto Plc’s Zimbabwean assets and outstanding loans to Murowa Diamonds (Pvt) Ltd would be under the control of Murowa Holdings, a UK registered company.
RioTinto, according to investigations, illegally sold Zimbabwean assets to RZ Murowa Holdings, a Gem company without seeking exchange control approval for the transaction as required by the law in relation to its resources.
The Independent understands that the central bank instituted investigations into the sale of Murowa diamonds but RioZim defended the sale on the grounds that Rio Tinto Plc, a foreign company, had disposed off Murowa Holdings, the controlling shareholders in Murowa and Sengwa offshore.
RioZim also claimed it had waived its pre-emptive rights, did not require the shares in Murowa because the diamond mine was a loss making entity, auditors felt it was not a going concern, the local mining group was highly geared and had no funds to either acquire and fund the operation.
This, people close to the transaction, said was not an accurate position.
For instance, RioZim could have sold its pre-emptive rights to a suitor for a fee. It could have tagged along when Rio Tinto sold its equity stake in Murowa. Investigations show that a deal to sell RioZim’s 22% equity stake in Murowa was once mooted. Proceeds from the sale of the 22% equity stake could have gone to retire RioZim’s debt.
Furthermore, RioZim could have entered into a transaction with pension funds who are sitting on excess funding.
After acquiring Murowa, RZ Murowa went on the local market to finance the restart of Murowa.
The company raised US$7 million through a Murowa Diamonds debenture.
The transaction was structured by Imara Capital Zimbabwe.
People close to the deal say Simba Chopera, the chief operating officer of Imara, was responsible for raising capital.
Murowa Diamonds is one of Zimbabwe’s most attractive mining assets. Currently, the mine has about 3,5 million carats that can be easily extracted over the next two to three years. The investment required to increase the processing capacity is a DMS plant. Two DMS plants can be secured for the cost of US$10 million which can easily treble current processing capacity.
Actual mining can easily be handled by contractors as was the case since 2004 when Rio Tinto commissioned the mine.
According to an Information Memorandum prepared by Standard Bank in November 2012 Murowa could have achieved a total production 8,8 million carats to 2021.
A simplistic analysis at an average historical price of US$150 means the easily accessible 3,5 million carats translate to minimum revenues of about US$525 million over the next three years.
The Independent has established that the effective purchase price was the new owner assuming an inter-company loan between Rio Tinto Plc and Murowa Diamonds.
The loan balance was about US$17 million. “Rio Tinto Plc wanted to do the right thing for RioZim. In their books, they sold the asset to RioZim,” a person close to the deal said.
Nothing has so far been paid by the new owners toward this effective purchase price. Investigations show that Rio Tinto Plc sold the mine as a going concern.
The Independent understands the balance sheet was left intact with some cash amounting to around US$5 million.
This cash is said to have been converted by the new owners to buy earthmoving caterpillar equipment from Barloworld Equipment of South Africa.
Rio Tinto Plc had been talking to a number of people.
Petra Diamonds, Sachi Corporation and a foreign based banker are said to have put in a bid. It has emerged that a number of companies including indigenous companies, placed bids for the 78% equity stake in Murowa.
According to documents seen by the Independent, Sachi Corporation, a United Kingdom registered company with interest in petrochemical business in South Africa, expressed an interest in buying the equity stake. Sachi is said to have been looking at purchasing a 78,8% equity stake from Rio Tinto Plc.
The offer, according to documents, would have addressed indigenisation concerns around the deal.
Sachi is said to have had discussions with the government of Zimbabwe about the Murowa diamond transaction. The company proposed to purchase the 68,8% owned by Rio Tinto Plc as well as be granted investment status in Zimbabwe as indeginous Zimbabweans. Sachi is said to have offered to pay cash of around US$45 million informed by its own valuation based on Murowa’s 2012 production figures.
Sachi is said to have ascribed a value of about US$45 million for 100% of the company on a cash and debt-free basis including access and continued use of the Rio Tinto PLC diamond marketing for the rough diamond trading process in Belgium.
It is understood that in the last quarter of 2012, Rio Tinto conducted a high level resource optimisation review exercise at Murowa. Following this review, an alternative business case and optimal mine plan was identified for the future of Murowa. After announcing the sale of Murowa and other diamond mining assets, RioTinto Plc found itself under pressure. The group had to comply with indigenisation rules.
Rio Tinto Plc then got permission from authorities to sell its entire 78,8% equity stake from then abrasive Indigenisation minister Saviour Kasukuwere.
Rio Tonto then got permission to sell its entire 78,8% from Kasukuwere on commercial terms but the 19% had to go to an indigenous group.
Discussions with Kasukuwere had put Rio Tinto Plc in an invidious position.The remaining equity would be sold or given to workers and the community.
Rinto Tinto then invited expressions of interest for two types of transactions. A bid for RioZim’s 22% equity stake. Under the 2004 shareholders agreement, RioZim had rights to tag-along should Rio Tinto dispose of its 78% Murowa equity. This naturally attracted interest from indigenous Zimbabweans of means.
According to investigations by the Independent, two groups expressed interest. The first group was led by a banker Lewis Musasike, who is based in SA. The other was Sachi Corporation, a company controlled by a Zimbabwean medical doctor Ian Chikanza based in the United Kingdom.
Musasike is the MD of Africa Rising Capital. According to the company’s website, he has over 25 years of experience in corporate and investment banking; development banking; capital/financial markets and treasury; and financial management on the African continent and internationally. He founded and was the Chief Executive of Africa Next Investment Holdings (Pty) Ltd, established in 2008 to pursue investment and advisory opportunities in sub-Saharan Africa. Africa Next subsequently merged with Afris. He also served as the chairperson of the investment committee for a Venture Capital Fund based in Nairobi focusing on East Africa for three years ended February 2013. From February 2007 to December 2007, Lewis was the director and head of corporate and investment banking for Standard Bank Africa, based in Johannesburg in charge of all CIB operations in sub-Saharan Africa outside of South Africa.
Prior to that, Musasike spent nine years at the Development Bank of Southern Africa (DBSA) as executive manager/Vice President for private sector and international investments (project finance, corporate finance and corporate banking) in South Africa and the rest of the SADC region; executive manager; treasury and manager; Treasury responsible for capital raising from local and international markets; and management of Treasury operations includingits investment activities and risk management and financial policy formulation. Before joining the DBSA, Lewis spent 11 years at the African Development Bank (AfDB) in Abidjan, Cote d’Ivoire in various senior roles including as Head of Capital Markets and Financial Operations, responsible for financial policy framework, capital raising in the international capital markets for the AfDB, from member countries for its concessional window (the ADF), and liasing with the investor community and global rating agencies.
The second bid, investigations show was for Rio Tinto’s 78,8% equity in MD.
Rio Zim waived its right so that the transaction could be done involving an indigenous group.
About three groups expressed interest including Petra Diamonds, an Israel group and Sachi Corporation.
With the bidding process in motion, the prospects for Sachi and Petra seemed bright after the Israeli group pulled out for the 78% equity stake.
Then something the parties had not seen coming happened. Rio Tinto Plc CE Tom Albanese was fired in early 2013.Rio Tinto, under Albanese, had declared an interest in Riversdale, a Mozambican coal asset and made a US$4 billion offer for the mining company which was readily accepted. But less than two years later, Albanese had been fired and Rio Tinto was facing US$3 billion in unforeseen impairments for its purchase of Riversdale.
This effectively put the bids in jeopardy as it would later appear. A new CE Sam Maurice Cossart Walshcame in. With the coming in of a new CE, Rio Tinto put the sale of Murowa diamonds on ice.
The group felt vindicated after the diamond business made money. But behind the scenes, Zimbabwe was still a problem child for Rio Tinto.
Although Rio Tinto Plc had officially put the sale on hold, the Independent understands that Sachi continued to express an interest in buying RioTinto’s 78,8% equity stake.
As of March, 2015, it is understood Sachi was still pushing for the acquisition of Murowa.
Randhawa was also lurking behind the scenes, negotiating for a sweet heart deal with Rio Tinto. His selling point was the Murowa deal would benefit RioZim shareholders.
Sachi Corporation is said to have made a new offer of US$50 million when Obrien was appointed. Randhawa seemed to have successfully woven a good yarn as Rio Tinto decided to forego a US$50 million Sachi offer on the table. But all bidders where shocked one morning on July 26 last year when Rio Tinto announced the sale of Murowa to a company linked to RioZim.
“When Rio Tinto decided to sell Murowa the offer should have been made to an indigenous group on commercial basis as had been agreed by the Minister of Indeginisation,” a source said.
“However, one day there was a press release that both Sengwa Coal and MD had been sold to RioZim. But it then transpires that its was not RioZim that bought the assets but a vehicle owned by the Indians who were now majority shareholders in RioZim,”
Right under RBZ watch
Other investigations by the Independent show that the Reserve Bank of Zimbabwe (RBZ)’s Exchange Control review committee reviewed the restructuring of Rio Tinto Plc ownership in offshore companies that directly owned the Zimbabwean assets.
Rio Tinto Tinto International Holdings Ltd warehoused its 50% interest in Murowa Diamonds to Murowa Holdings Ltd, an indication the mining conglomerate wanted to dispose of the equity offshore.
The transaction also meant that all RioTinto Plc’s Zimbabwean assets and outstanding loans to Murowa Diamonds (Pvt) Ltd would fall under the control of Murowa Holdings, a UK registered company.
The Independent understands that the RBZ instituted investigations into the sale of Murowa diamonds.
RioZim defended the sale on the grounds that Rio Tinto Plc, a foreign company, had disposed of Murowa Holdings, the controlling shareholders in Murowa and Sengwa offshore.
The Independent has established that the effective purchase price was the new owner assuming an inter-company loan account between Rio Tinto Plc and Murowa Diamonds.
The loan balance was about US$17 million.
Nothing has so far been paid by the new owners towards this effective purchase price. Investigations show that Rio Tinto Plc sold the mine as a going concern. This means the balance sheet was left intact with some cash amounting to around US$5 million.
This cash is said to have been converted by the new owners to buy earthmoving equipment from Barloworld Equipment of South Africa. This equipment was unveiled amid great pomp and fanfare in January this year as evidence of the new investors injecting capital into Murowa.
No finger prints
Like an invisible ghost, Randhawa’s hand in the controversial Murowa takeover and manipulation of the process is invisible.
People who worked closely with the businessman say the issue of reporting framework on his part had come up. In fact, it would seem Randhawa has been making frantic efforts to insulate himself from legal liability at RioZim. He is not directly involved in major decisions. He achieves his objectives through a board of directors he controls and manipulates behind the scenes.
Investigations show that the issue of reporting framework was suggested at RioZim by one director. It was suggested, the Independent established, he should take up an executive position at RioZim.
The sources say Randhawa did not like the proposal. That would have made him liable to an extent.
“It seems this all a calculated move from the look of things. You cant say he is my boss in anyway because I don’t report to him legally and yes he is on the other hand. There is what is known in the US law as plausible deniability,” a person close to RioZim said.
Is this deliberate? Some people feel that it is.
Plausible deniability is the ability for persons (typically senior officials in a formal or informal chain of command) to deny knowledge of or responsibility for any damnable actions committed by others (usually subordinates in an organisational hierarchy) because of a lack of evidence that can confirm their participation, even if they were personally involved in or at least willfully ignorant of the actions. In the case that illegal or otherwise disreputable and unpopular activities become public, high-ranking officials may deny any awareness of such act in order to insulate themselves and shift blame onto the agents who carried out the acts, confident that their doubters will be unable to prove otherwise. The lack of evidence to the contrary ostensibly makes the denial plausible, that is, credible, although sometimes it merely makes it unactionable. Indigenisation
Contrary to Chihota’s claims that Murowa was indigenised, the company is foreign controlled.
Going by indigenisation definition, Randhawa cannot be classified as indigenous Zimbabweans.
After acquiring a 78% of equity of Murowa diamonds, Randhawa’s now controls 87% of Murowa and 72% of Sengwa.
He already owns 44% of RioZim, who in turn own 22% of Murowa and 50% of Sengwa.
This he achieved without paying a cent.
When RioZim floated a US$10 million rights issue early last year, Gem, according to the rights issue circular, was paid US$300 000 in shares at a price of 15 US cents or two million shares at the same for underwriting the rights offer.
It has since been established that a figure of US$2,887 million, which was said to be for refinancing of funds already expended and general purposes in the rights issue circular, were actually funds outstanding to Gem in management consultancy fees Randhawa charges the group.
His consortium is said to have paid for its initial 25% equity stake in RioZim in 2012.
According to board minutes obtained by the Independent, Randhawa refused to honour his peldge for US$45 million debentures because he feared his shareholding would go beyond permissible indigenisation limits.
This is beyond the set limits for foreign investors. Under the Indigenisation Act, Randhawa would have to regularise his shareholding in line with the company’s indigenisation Act.
President Robert Mugabe says the application of the indigenisation legislation in the resources sector is cast in stone.
The management of RioZim have advised the market of the strong prospects of a US$2,2 billion power station at Sengwa as well as improved performance from Murowa Diamonds in the second half of 2016.
“what they don’t seem to get that it would have been infinitely better for the shareholders of RioZim to have exercise their pre-emptive rights and actually own these two assets which are about to perform so well but only for RZ Murowa Holdings and not for RioZim shareholders,” a minority shareholder said.
“What is truly strange is that the some of the Board members which decided not to follow RioZim’s pre-emptive rights in Murowa are the same directors of the new board of Directors of Murowa. So Murowa is not good enough while they are at RioZim but really exciting when there are at Murowa. Had the Zimbabwe Stock Exchange been playing regulatory role, the RioZim debacle would have been met with swift action and punitive measures.
Rio Tinto is also in a fix. In a bid to be seen to be as a good, socially responsible and law abiding corporate citizen, the group decided to dispose of its equity in Murowa to a company the group believed to be an indigenous entity, has ironically ended up selling to a foreign party.
Given the company’s squeaky clean corporate image, the group would not want to be seen going after a party it feels acted fraudulently.
While indigenous companies were ready to pay cash for the business, Rio Tinto went on to sell to a person classified as non-indigenous. Already, there is talk President Robert Mugabe wants the deal reversed on the grounds that RZ Murowa acquired the asset fraudulently.
The Indian investors fraudulently acquired Murowa Diamonds and Sengwa through a deliberate and intricate wave of misinformation and prejudiced the interests of other shareholders in RioZim.
“By so doing they also prejudiced the interests of indigenous groups who had raised funding to buy the RT equity stake and also those of govt who wanted the assets to be owned locally. This is draining foreign currency. The Indians also jeopardised the community around the mine from acquiring their 10% equity which the Minister of Indigenisation was fighting very hard for,” people close to the deal said.
Others feel government must take a tough stance on the matter as these diamonds just as the other diamond assets must be owned locally. There is no reason why local black groups who had made offers to RT cannot purchase the assets under the same terms offered to the Indians by RT or alternatively, MD can be compulsorily be merged with the other diamond companies.
The Independent has established that Chihota is effectively taken over RioZim management.
Chihota, who joined the board as an independent director before assuming the chairmanship when Elisha Mushayakarara stepped down, is now a virtual executive chairman of RioZim. Investigations show that he has an office and a personal assistant.
His office, the independent understands, works closely with Gem RioZim investments, the group’s 44% majority shareholder, who were controversially given a management contract in July 2012.
Manet Shah, an official of Gem RioZim Investments, is said to be working closely with Chihota.
“Shah is working from Chihota’s office. Chihota is basically an executive chairman now,” a source said.
The company has a full management complement of a chief executive and finance director. “Shah is the external manager from Gem RioZim. They work very closely,” a source said.
Other investigations show that Chihota and RioZim current CE Noah Matimba have a prior working relationship.
Chihota was until recently chairman of Aurex Holdings (Pvt) Ltd, a jewellery manufacturer while Matimba was hired as the MD of Aurex. Matimba then joined RioZim in 2014 as chief executive. His appointment coincided with the elevation of Chihota to chairman of RioZim. The new management set up has virtually rendered Matimba redundant, but sources say the duo have a cozy working relationship.