Zimasco: The inside schemes,surreptitious corporate raiding

AFTER Zimasco rejected Portnex’s bid to acquire the integrated ferrochrome producer, it seemed the suitor had gotten the message. But unbeknown to Zimasco, Portnex was still smitten with the integrated ferrochrome producer, writes Zimbabwe Independent’s business editor Chris Muronzi in the second installment of the inside story on Zimasco.

Schemes, which would make the devil green with envy, were devised. The implementation of such stratagems would betray cunning cut-throat business instinct, which borders on corporate banditry never experienced in markets such as Zimbabwe.

Two years ago, a clique of minority Mwana Africa Plc (now Asa Resources) shareholders called an extraordinary general meeting of shareholders and pushed out Kalaa Mpinga, the then chief executive and founder.

Nearer home, the last notable hostile takeover was several years ago when Shingi Mutasa took over TA Holdings Ltd.

Portnex International, incorporated in 1999, had begun operations in 2004. With offices in South Africa, Zimbabwe and Turkey, Portnex positions itself as a global reductant-supplier to numerous consumers of a broad spectrum of carbon products.

While Portnex was happy to sign a deal for the leasing of Zimasco’s facilities, investigations show the company could have taken the rejection of the offer to purchase the ferrochrome producer badly.

An elaborate plan to institute a hostile takeover of Zimasco was put in motion that would make Mark Wellesley Wood, once described as a “pin-striped bandit” and the man behind the ouster of Mpinga from Mwana Africa and Brett and Roger Kebble from DRD look like a Sunday schoolboy.

Portnex had decided to play a long game.

The company in conjunction with London-listed International Ferro Metals (IFM) in 2014 had made an offer to acquire Australia-based Pacific Carbon and Modderriver Minerals’ assets , comprising six retorts used to produce intermediate or retort coke, through a newly incorporated company in which IFM would hold two-thirds and Portnex the balance.

This had marked the beginning of a growth appetite through acquisitions.

Portnex had already decided the programme of action to take if Sinosteel did not want to sell. With its aggressive growth plan moving forward smoothly, a chain of events were set in motion.

At face value, the leaking of the baseline contamination report to the media seemed to have been mere mischief. But a careful examination of the series of events shows that this was part of a multi-phased programme that would lead to the intended end, a controlling equity stake in Zimasco.

Behind the scenes Portnex had been busy.

The first was approaching the company’s creditors such as banks — MBCA, CABS, BancABC, Stanbic and Nedbank — to support a business plan Portnex felt would help revive the company and to reject Zimasco’s plan to be placed under judicial management.

Investigations show that in January and February, banks had been made to believe that Zimasco management had no chance of turning around the company.

Portnex in tow

Informed by Portnex’s position, banks rejected a proposal to have the company placed under judicial management on the basis of the business plan. A banking source this week confirmed they had been approached early this year with a plan to involve the South African company.

MBCA, Stanbic, BancABC, CABS and Nedbank are owed around US$34 million.

Zimasco, according to investigations, crossed swords with most of the banks after they tried to block its road to judicial management.

Management felt the company would be better protected from creditors under judicial management.

This resulted in banks opposing management’s plans to have the company placed under judicial management.

The second was something Zimasco had remotely considered.

The findings of the Ecco Elementum baseline contamination report seem to have been a forerunner to events of last week.

On August 4, two seemingly unrelated stories appeared in two local dailies. The other alluded to worsening Zimasco woes after shareholders reportedly failed to bail out the company while the other one hinted towards a looming class action over alleged ill health stemming from Zimasco’s pollution role.

In retrospect, the stories could have been a well-orchestrated and pre-meditated programme in implementation mode if events of last week are anything to go by.

Niarchos Investmements last week made an application seeking leave to sue Zimasco in terms of Clause 6 of the provisional judicial management order and Section 3 of the Class Action Act.

Portnex trades in Zimbabwe as Niarchos Investments (Pvt) Ltd.

If events of last week, which saw Niarchos approaching the court seeking permission to sue Zimasco, are anything to go by, the modus operandi had changed.

For the first time Portnex, which had all-along been playing smart by keeping its finger prints off things at Zimasco, eventually bloodied its hands publicly.

A key Portnex executive, William Neil Wilson, who was instrumental in the development of the company’s Zimbabwean business contracts, filed court papers seeking leave to sue Zimasco.

Under Zimbabwean law, a company under judicial management cannot be sued.

The class action

On August 15, a latest twin-cab Ford Ranger stopped in the streets of Mbizo, a poverty-stricken community on the outskirts of Kwekwe. Aboard the top-end Ford twin-cab was Portnex’s Wilson.

Mbizo is a high-density suburb in Kwekwe located east of the city centre across the railway line from Zimasco, the ferro-chrome producer. The suburb is divided into several sections all numbered one up to twenty.

Mbizo Section 1 and 2 form the oldest part of the suburb, which were originally built to house cheap labour for the gold mines. The high density suburb, was formerly a black-only area, reserved for the poor and African population that trekked to the towns in search of jobs. Together with Amaveni, Mbizo supplied the much-needed labour to the gold mines scattered across the growing town. Since independence, the population of the suburb has exploded and the suburb itself has expanded from two sections numbered one and two, to eighteen. Most of these sections have extensions.

Apart from poignant poverty, Mbizo is at the receiving end of municipal water cuts that have in the past few years forced vulnerable members of the community to collect water from shallow wells contaminated with sewer water.

The purpose of Wilson’s visit, it would emerge later, on this particular day was to improve the lives of the people of Kwekwe.

His plan was very simple. But in order to succeed, he needed a local co-ordinator and someone who knew his way around the area.

He was in luck.

A meeting with a local Zanu PF ward chairman Keith Chamunorwa Charakupa would prove to be more rewarding than he had expected. In a few minutes, Wilson had brought Charakupa to speed on what needed to be done. Wilson, Charakupa would later discover, was on a mission to locate sick people around Mbizo. In no time, Wilson had convinced Charakupa that there was chrome six in Kwekwe’s water bodies and it was making people sick. Those willing to come forward would end up rich beyond their wildest dreams, Wilson added.

Charakupa is to have co-opted Caleb Chibonda, another ruling party official, into the programme.

From there, Charakupa and Chibonda rounded up sick people in Mbizo. The duo was looking for people with rash and other ailments.

They were in luck.

The sick were sold the chromium six story and how it would enrich them.

Unbeknown to Charakupa and the many sick people he had found in Mbizo, Wilson was keen to get victims for the case he had been building against Zimasco. Without them, his company’s plan to sue Zimasco would not take off.

It was a brilliant plan. A hostile take-over bid disguised as a multi-million-dollar lawsuit. Niarchos attorney Vengai Madzima yesterday confirmed Portnex has in interest in purchasing Zimasco.

“Portnex international has interest in purchasing the business. Any company that trades in the same business would have interest in purchasing the asset. That is not the question. Portnex is interested in ensuring that the people of Kwekwe do not die,” Madzima said.

Once the victims had been found, questionnaires were handed over to the 30 sick people who had agreed to be part of the class action.

A questionnaire obtained by the Independent shows that Niarchos questioned people on how long they had resided at their said address, how far their residence was from the river and borehole, if they used water from the borehole or river, whether they used the water for drinking and how many times they drank the water.

They were also asked if they ate food watered by river and borehole water.

After signing the questionnaire, the victims were then made to sign legal documents giving Niarchos power to represent them, prepare documents and deal with lawyers in the class action against Zimasco.

“Niarchos Investments (Pvt) Ltd, a company with limited liability and duly incorporated in accordance with the laws of Zimbabwe with registration number 5675/2015 with power of substitution to be their representative and prepare all and any documents and/or pleadings, to instruct and pay any professionals, such as attorneys, advocates and other professionals as Niarchos Investments (Pvt) Ltd deems necessary on behalf of is and to proceed with the class action on behalf of us and in general to take any necessary steps for this matter to be adjudicated to,” the document reads. The document also empowered Niarchos to receive 19% of the amount ordered payable as a success fee.

“We give this mandate in the understanding that Niarchos Investments (Pvt) Ltd will act on our behalf and we hereby ratify, confirm and authorise and undertake to ratify all that Niarchos Investments (Pvt) Ltd legally perform in accordance with this power of substitution to be our representatives. We agree and understand that if this matter is successful, Niarchos Investments (Pvt) Ltd will receive 19% of the amount ordered to be payable to us and as a success fee,” the documents added.

But there was a catch: participants who developed cold feet after signing the mandate would be liable to pay legal bills initially met by Niarchos.

“We further agree and understand that if any one person who signed this substitution for Niarchos Investment (Pvt) Ltd to be the representative, cancels the substitution, the said person will be liable to pay the proportional percentage of the legal and or any other fees/costs paid by Niarchos Investment (Pvt) Ltd,” the document read.

Armed with the questionnaire and the legal documents, investigations show that the “victims” were ferried by a commuter omnibus hired by Chibonda and attempted to file charges with the Zimbabwe Republic Police, but were turned down because of glaring typos. After being told to retype the documents, the litigants are said to have been taken to Chikowore Building in the city of Kwekwe to correct typos on the documents.

Tick tock, tick tock

A race against time had just begun. A Zimasco creditors’ meeting was slated for the coming week.

All creditors had to register their claims and have them verified at the Master of the High Court on Wednesday 24th August.

Against such a background, all legal ground had be covered.

On Tuesday, word of a looming class action, the biggest ever in the country’s history, was whispered.

“Sometime in February 2016, under a mandate from the lessee, Applicant began operations at Zimasco (Pvt) Ltd, West Plant, Kwekwe. During the course of its business, applicant commissioned an environmental assessment report with a reputable international company commonly known by the name and style of Ecco Elementum Environment and Project Management Proffessionals,” part of the documents read.

“The environment assessment report, conducted at the instance of the applicant, revealed first reposondent has been polluting the water bodies of Kwekwe with lethal chemical hexavalent chromium (chrome six). Furthermore, the independent laboratory tests of chrome six, indicated that the levels of chromium six in the soil and water bodies ranged from 0,01 mgs to 61,49 compounded by evidence of the presence of arsenic and lead.

“Notwithstanding that acceptable levels for chrome six drinking water, according to the California Office of Environmental Health Hazard Association, must not be more than 0,0002 mg. the presence of chrome six on the first respondent’s site and surrounding environment, as caused by the negligence of the first respondent, is alarming.”

Wilson claimed Kwekwe residents had been exposed to Chrome Six and planned to sue for damages arising from the exposure and would soon file a class action.

According to court papers, Wilson said he had brought the case before the courts because he had considered the general level of education and financial standing of the members, the difficulties they would likely to encounter to enforce their claims individually.

“I humbly aver that a class action would be in the best interest of all the potential claimants for the following reasons …”

An advocate approached the Master’s office last week seeking to register his claim. His claim for US$507 million was dismissed. Wilson hired Thabani Mpofu, a prominent lawyer.

Although a class action of this magnitude is a first in Zimbabwe, elsewhere companies have been forced to part with millions.

Helping

Asked if money had not motivated the lawsuit given the quantum, he said his client wanted to help the people of Kwekwe.

“What should be said? If Zimasco admits to the problem and compensates the affected in its recovery plan. We saying let’s value life more than money. First they have to guarantee that the claim will be dealt with. And then we can withdraw the case,” Madzima said.

On whether Zimasco had sought the consent of Zimasco to collect samples, Madzima said: “The question has to be understood in context. The insurance for Portnex and their financiers required them to first get a baseline study of the environment. When Portnex commissioned the study, they were not aware of the Chrome Six problems there. But because countries outside Zimbabwe are stringent about the environment, they said we want the baseline report which was a guideline on where they were. In order to finance mining project, they need a baseline study of the business.The real question is consent or no consent, is there a Chrome Six problem at Zimasco? Has EMA said there is no problem?”

Asked why Portnex has brought the lawsuit, Madzima said:

“If you look at the Class Action Act, the act has a specific requirement, that in order to bring a class action, a party bringing a class must be able to afford the action. But we want to assist the people of Kwekwe.”

When challenged that Niarchos stood to make a lot of money, Madzima said his client was investing a lot money for the lawsuit.

“How much is Niarchos going to pay? Niarchos is putting its money for the lawsuit. They want to bring the lawsuit and they can afford. Niarchos is putting its own money and they want to remedy the problem,” Madzima said.

“You are not understanding the context. How much is Niarchos going to lose if they lose the class action? That doesn’t matter. It’s irrelevant to you. Niarchos is putting its money to address a problem that companies are supposed to remedy but are saying that there is no problem,” he said. “Niarchos is motivated by the need to assist the people of Kwekwe. Niarchos has invested its money to help the people of Kwekwe. Niarchos is willing to withdraw the case if someone else is willing to take it.”

Erin Brockovich

The case Wilson is building reads like a movie script. In the film Erin Brockovich, an almost similar storyline is followed.

Brockovich, who shot to prominence through a 1993 case against Pacific Gas and Electric (PG&E) Company in the United States, was an American legal clerk and environmental activist, who built a case against PG&E of California in 1993.

Her successful lawsuit was the subject of a 2000 film under the same name starring Julia Roberts. The lawsuit catapulted the reallife Brockovich into a media personality.

In more or less the same way, Brockovich’s case is about alleged contamination of drinking water with hexavalent chromium (chromium VI, Cr-VI or “Cr-6”) in the southern California town of Hinkley. Unlike in the US case where a facility, the Hinkley compressor station, built in 1952 as a part of a natural gas pipeline connecting to the San Francisco Bay Area, used hexavalent chromium in a cooling tower system to fight corrosion, Zimasco does not have a natural gas pipeline.

Zimasco has since discredited the report, claiming the tests were not independently verified and were not done by an accredited laboratory.