eBusiness Weekly
Tawanda Musarurwa
The London Stock Exchange (LSE) is yet to suspend Hwange Colliery Company (HCCL) after Government placed the coal mining firm under reconstruction at the end of October.However, the LSE has long placed the coal miner on periodic auction call, which is basically a restriction on trades for illiquid securities.
On the LSE, trading in less liquid stocks is proposed to be conducted in periodic call auction sessions.
Official statistics from the LSE show that the stock has not recorded a single trade, at least, over the past five years. Hwange was listed on the LSE on April 27, 1950.
The triple-listed company has since been suspended on the Zimbabwe Stock Exchange (its primary listing) and on the Johannesburg Stock Exchange (JSE) following its placement under administration in terms of the Reconstruction of State-indebted Insolvent Companies Act.
Can reconstruction damage image?
There are concerns that the reconstruction of HCCL will negatively affect the image of the country in the eyes of international investors.
ZSE acting chief executive officer Martin Matanda, has since raised consternation over the way HCCL was placed under reconstruction.
“What was of concern was that the decision to put the company under reconstruction was done without consultations,” he said.
HCCL entered into a creditors’ scheme of arrangement in May 2017, which was essentially anchored on increased production and sales.
Implications of the Scheme of Arrangement
The Scheme of Arrangement temporarily starved off the bane of judicial management until the company defaulted on payments to employees and creditors.
But unlike reconstruction, Scheme of Arrangements are internationally recognised.
And there is great risk that HCCL could be de-listed, at least, from its secondary listings on the LSE and JSE.
British businessman Nicholas van Hoogstraten, who holds a 31 percent stake in the company, has expressed concern over HCCL’s placement under reconstruction and the repercussions of negative international investor perceptions.
Van Hoogstraten is concerned that the reconstruction might be tantamount to “nationalisation” of the coal producer.
According to the Reconstruction Act, every disposition of the property, including rights of action, of the company and every transfer of shares or alteration in the status of its members, made after the commencement of the reconstruction, shall, unless the administrator otherwise orders, be void.
What is nationalisation?
Nationalisation is the process of transforming private assets into public assets by bringing them under the public ownership of a national Government or State.
“I support that (Zimbabwe is open for business), and I believe that is the intention of the new administration and they are doing the right things.
“How this (reconstruction) slipped through the net and is possibly going to blow up in everybody’s faces unless the cap is put on quick, because it’s a public company quoted on the London and Johannesburg stock markets. To international investors what does that show?” said Van Hoogstraten who has already said he is going to challenge the reconstruction in the courts.
“Within a few weeks of making that pronouncement, you are effectively going through the process of nationalizing a company. It needs correcting.”
HCCL, which has been affected by corporate governance issues, is said to be insolvent and owing Government in excess of $150 million.
In addition to the $150 million debt to Government, HCCL has largely been operating in the red.
The company’s 2018 half-year financials reflect a net loss of $23 million.
