WHILE banks are waiting in the wings with well over the needed US$400 million to bankroll the National Railways of Zimbabwe (NRZ) recapitalisation project jointly undertaken with South African rail, port and pipeline company, Transnet, and Diaspora Infrastructure Development Group (DIDG), negotiations for the closure of the deal are moving at a sluggish pace largely due to a convoluted legal process, the Zimbabwe Independent has learnt.
Tinashe Kairiza/Andrew Kunambura
Standard Bank of South Africa, parent company to Stanbic Bank, has expressed commitment to shell out between US$100 million and US$317 million; Absa (US$200 million); Nedbank (US$200 million); Industrial Development Corporation of South Africa (IDC) (US$100 million); Ecobank Kenya (US$100 million) and CBZ (US$50 million) to fund the project.
Insiders say between US$700 million and US$1 billion could be secured before evaluation of the financiers to appoint the mandated lead arranger or debt book runner.
Negotiations have been going on between the parties involved as pressure mounts for the deal to be finalised and for real work to begin. However, sources say a complex and convoluted legal process associated with the transaction being handled by Harare commercial law firm, Dube, Manikai & Hwacha (DMH), was delaying the deal.
DMH was appointed legal consultant by transaction advisers, Deloitte & Touche (Zimbabwe).
“Negotiations to finalise the transaction and close the deal have been going on of late, with several meetings being held to deal with outstanding issues. These processes, including the due diligence and associated legal procedures, should have been concluded in June, but the deadline was missed.
There are three issues being raised now: Transnet approvals, Transnet using a shelf company, Transnet International Holdings, which has no balance sheet, and legal processes,” a senior government official in Harare said this week. “Is the deal being stalled because Transnet has no board approvals? The Transnet board can only approve once the parties have settled all the core agreements. The real issue is that NRZ transaction advisers (Deloitte and attorneys DMH) have since February been going round in circles on the due diligence and now some inconsequential issues.
“In fact, NRZ transaction advisers are supposed to have received the core agreements, but refused to work using them claiming they will only attend to the concession agreements after they have concluded the due diligence. NRZ seems to be struggling to manage its transaction advisers who are either deliberately delaying the process for reasons best known to them or are out of their depth.”
Another official said Transport minister Joel Biggie Matiza now needs to crack the whip or escalate the issue to President Emmerson Mnangagwa to get things moving as the project was one of those showcase investment deals for government.
“There is another funny story being peddled by some of the parties involved in the deal. They claim that Transnet has huge debts and so it might not be able to fund the deal; that is finance its side of the bargain. This clearly demonstrates some parties are either stalling the process or simply don’t really understand the transaction, its structure and funding. Transnet, like any other corporate entity that is creditworthy or with a credit rating, borrows from the capital markets by issuing corporate bonds or any other debt instrument to fund its expansionary or capex programmes,” the official said. “Transnet is generating positive cashflows and its current debt cover ratios are healthy, so it is obviously in a position to raise money for its own equity in the deal.”
Under the deal, Transnet has made commitments to avail about 10% of the total funding, which amounts to US$70 million.
The official added the legal imbroglio was the real issue frustrating the project.
“The requests for more information, Transnet board minutes and documents of past court proceedings on litigation cases, by lawyers have become unreasonable and ridiculous. Everybody is asking: to achieve what? We know how due diligences are done, certainly not like this. Something is not adding up here.
“NRZ transaction advisers are now behaving as if they want to buy into or acquire Transnet. If the DIDG-Transnet consortium was to do the same on NRZ, there would be no deal to talk about. That is why some parties are now asking questions and are tempted to believe there is lack of good faith on some of their partners. The advisers have even gone as far as asking for Transnet board minutes going back as far as three years, previous court cases and confidential client contracts, which is unnecessary and needlessly intrusive. Besides, that would also pose serious legal challenges for Transnet.”
An NRZ source said some Zimbabwean businesspeople who lost the bid have also been trying to destabilise DIDG-Transnet consortium in a bid to hijack the project.
“They are even saying Transnet is using a shelf company called Transnet International Holdings which has no balance sheet. The point is Transnet is still the contracting party, but like any large company it has different operating divisions which undertake specific businesses on behalf of the group.
Transnet has Transnet Freight Rail that operates trains, Transnet Engineering that manufactures and maintains rolling stock, Transnet Pipelines which operates the pipeline businesses. Transnet incorporated Transnet International Holdings to house and operate Transnet’s international business,” the source said.
“This is common business practice that even NRZ and other companies do. It seems NRZ transaction advisers are now majoring on minors to slow down and undermine the project or collapse it to jump in and take over with their partners. If this is the case, then it mustn’t be allowed to happen. Government should not allow self-interested individuals to slow down or sabotage such a big project.”
Sources close to the negotiations said following a meeting in October by parties involved to thrash out modalities of the deal, which include seeking approvals, drafting agreements and implementation, “all the necessary issues that need to be done have been moving at a tremendous pace except the legal technicalities”.
However, sources say transaction advisers have been moving at snail’s pace, frustrating progress.
NRZ general manager Luis Mukwada confirmed the delays, but said they were caused by “unforeseen bureaucratic issues” and the huge value of the project.
“When we went to tender last year, we initially thought we were going to raise US$400 million through debt, but then the proposal we got ended up involving a special purpose vehicle. It involved much more agents and the deal became more complex than the normal loan deal we had earlier anticipated,” Mukwada said. “We have had to do due diligence on our partners and they too had to do due diligence on us. After that we then drafted a framework of agreement and started negotiating the principal agreement. This is the stage where we are at the moment.”
Mukwada also said DMH had to be thorough in handing the complex legal processes, further delaying progress.
“They are undertaking standard processes that they cover in terms of due diligence. The range of information they required was quite big,” he said.
Senior partner in DMH legal practitioners, Selby Hwacha, could not comment, saying the case was being handled by his fellow partner Edwin Manikai.
Manikai, who was said to be attending a meeting in Victoria Falls, could not be reached for comment. Calls repeatedly fielded to him were not answered.
WhatsApp messages were also not replied to even though they were seen and read.
Matiza was not answering calls on his mobile phone, while his deputy Fortune Chasi could also not be reached for comment as he was said to be in China.
DIDG chairman Donovan Chimhandaba was also unavailable for comment.
Efforts to get comment from Transnet were also fruitless.