Demands disclosure for key asset BNC
Chinese still stripping and externalising assets
The move by Asa Resources, led by its flagship Freda Rebecca, to apply for voluntary judicial management was part of a deliberate strategy to ward off continued asset stripping and an impending hostile takeover by a group linked to its sacked Chinese executive.
The judicial management application has since been withdrawn, throwing mainly Zimbabwe Stock Exchange listed Bindura Nickel Corporation into further turmoil amid concerns the lack of information– not even a cautionary statement– could prejudice minority shareholders and the $20 million Trojan smelter restart bond holders.
Asa Resources holds approximately 70 percent of the nickel producer.
Through its lawyers, Wintertons Legal Practitioners, Freda Rebecca Gold Mine, filed the application alongside, Freda Rebecca Holdings (Pvt) Ltd, Bindura Nickel Corporation Ltd, Hunters Road Nickel Mine (Pvt) Ltd, Trojan Nickel Mine Ltd, BSR Ltd, Greenline Enterprises (Pvt) Ltd, ASA Services (Zimbabwe) (Pvt) Ltd, Bindura Estates (Pvt) Ltd and Mwana Properties (Pvt) Ltd.
According to well-placed sources, the move by Asa management to voluntarily apply for judicial management, was meant to protect the company’s assets from the Chinese shareholders who have been accused of continued asset stripping and externalisation; a situation, which has put a damper on operations.
A forensic audit in 2016 unearthed numerous financial irregularities, which were directly linked to Chinese expatriate employees, who were based at Freda Rebecca Gold Mine and BNC. The audit uncovered asset stripping and the suspected looting of up to $15 million, by a group of Chinese bosses led by then CEO Yat Hoi Ning.
Part of the charge sheet indicated that management, mainly at Freda Rebecca, were pocketing up to $500 000 in management fees, a move seen as a thinly veiled form of externalisation of foreign currency, which is against the Finance Act.
Top four officials fingered in the allegations of bad corporate governance practices including Ning; Yim Kwan (finance director); Edmund Zhang (former chief procurement officer) and Yuan Hu Ching (non-executive director), were sacked at the height of chaos in the group. A police docket has since been opened by Zimbabwe authorities.
However, in a sharp turn of events, the fired Chinese officials were reportedly plotting a comeback.
The officials were planning to turn the tables notably on Toindepi Muganyi, then interim CEO of Asa and CEO of Freda Rebecca over allegations of engaging in “major capital expenditure” without following the “approval and reporting procedures”.
BNC managing director Batirai Manhando, then interim executive director, had also been lined up for the sack by the Chinese officials, who felt betrayed by people they had helped to top posts.
Asa opted for administration to allow it time to sort out its managerial and financial challenges. It then appointed Mark Skelton and Trevor Birch of Duff & Phelps Limited in London, to act as administrators.
Given the financial challenges faced by Asa since it was taken over by Chinese investors in 2015, an offer to the miner’s shareholders was made for the purchase of their shares, by Richpro Investments Limited, a BVI company owned and controlled by Feng Hailiang.
Hailiang is a Chinese industrialist, whose net worth is estimated by Forbes at $2,4 billion.
However, his offer was not recommended by the directors of Asa Resource Group Plc, amid fears that Hailiang was fronting Hoi Ning and Yim Kwan, who were fired for allegedly running down Freda Rebecca and salting away $4 million.
Asa Resources’ listing on the London Stock Exchange junior market has since been cancelled.
In the withdrawn application, Muganyi said the companies have been coming under increased pressure from their creditors some of whom have instituted legal proceedings and obtained judgments. “The company’s assets are therefore at the risk of being attached and sold into execution. There is a danger that, besides the bad publicity arising from the judgments, there is a real likelihood that an uncontrolled run of the asset grabbling by creditors may take place.”
The application was withdrawn on Wednesday, but not before BNC had been ordered by the ZSE to come clean on the contentious matter. Close sources allege the ZSE could have been manipulated by the Chinese shareholders who took advantage of procedure to influence developments.
Insiders questioned why the ZSE failed to demand full disclosure and compel the company to issue cautionary statements when its parent was put under administration last year.’
In similar circumstances involving developments at shareholder level, Delta issued a cautionary statement advising the markets that its major shareholder SABMiller was on the verge of being taken over by AB Inbev. But despite several shareholder changes at BNC, the miner has failed to update the market.
Responding to Business Weekly, ZSE chief executive Martin Matanda said: “I can confirm that ZSE only engaged the issuer this week. The company will issue a statement to clarify the position.”
Matanda said the ZSE will only issue a statement or take action after it has been furnished with full details with regards the goings on at the listed company.
Besides judicial management, companies can employ several defence strategies to ward off takeovers and asset stripping. Close sources say that the other defence strategy would be to dilute shareholding mainly in BNC by converting the bonds into equity. This is closer to what the market refers to as a poison pill.
Eyebrows were also raised why the Securities Exchange Commission (SEC) has remained mum when bond holders, mainly drawn from the asset management industry were at risk of losing invested funds.
BNC issued a $20 million bond issue to restart the Trojan smelter. According to terms and conditions of the Trojan smelter restart bond, the payment of the principal amount was subject to an 18 months moratorium from date of issuing the bond. Payment of the principal bond amount was to be made through eight equal payments of $ 2,5 million each at the dates specified as per proposed repayment schedule. The funds would be repaid into a sinking fund capitalized to the required extent by proceeds from the sale of nickel. The sinking fund was to be established, regulated and securitized in terms of the bond trust deed, managed by an independent trustee. Contributions to the sinking fund commenced after the 18 month, the moratorium period. The Trojan Mine smelter restart bond has a coupon rate of 10 percent per annum, payable semi-annually in arrears. The bond was guaranteed by ASA, the parent firm of BNC.
However, Manhando said the miner has capacity to pay and had never defaulted in its payments. This affirmation was supported by an unnamed bondholder who said that “in spite of the challenges at shareholder level, the company was still operational and poised to report a profit and therefore we are comfortable with the current bond arrangements.”
Manhando was buoyant that the miner would have enough resources to pay its obligations in the short to medium term as nickel prices are expected to rise threefold.