Nicholas Van Hoogstraten spurns Hwange
THE Hwange Colliery Company Limited board last year made futile attempts to reopen negotiations for a US$50 million bailout from British tycoon, Nicholas van Hoogstraten, after the beleaguered company turned down his offer in 2013, the Financial Gazette’s Companies & Markets (C&M) can report.
The overtures for funding were made about eight months ago.
This was about the time when the cash-strapped operation, owned 37 percent by government, lurched from one crisis to another.
Dramatic events took place at Hwange last year, with the listed firm surprising investors after splashing over US$30 million on second-hand mining equipment some of which later turned out to be derelict.
A crisis caused by lack of capital and prolonged losses deepened during the year to December 31, 2015, threatening to drag the 91-year old giant into insolvency.
The problems have been amplified by developments on the international commodities markets, where a slowdown in prices has wreaked havoc on mines worldwide.
However, he demanded a raft of reforms that were likely to hand him management control of a company not only viewed by the State as strategic due to its importance in power generation, but also employs about 3 000 workers and supports a town of about 55 000 people.
The offer came after the Hwange board had turned to the deep pocketed van Hoogstraten, whose family interests control about 30 percent shareholding in the firm, for a US$20 million lifeline.
C&M can exclusively reveal that with debts mounting, and the firm facing industrial unrest from its unpaid workers, amid a working capital strife, the board made a surprise knock on van Hoogstraten’s door again, but the tycoon is said to have indicated that the “whole ball game has changed”.
Van Hoogstraten confirmed the engagement last week, but said pouring millions into Hwange now would be too risky.
At the time of his offer, he had arranged deals “in the real world” to help him tackle the crisis.
“They engaged me nine months ago to see if that offer was still available, but I said the whole ball game has changed,” said van Hoogstraten, who spoke exclusively to C&M at his mansion in Harare.
“At that time, the price of coal was between US$90 and US$100 (per tonne), now it is about US$25 per tonne. This offer was put on the table three years ago and I have to evaluate it,” he said.
The effects of a price slump resulted in retreating revenues during the year ended December 31, 2015.
Hwange said turnover during the period slipped to US$67,5 million, from US$84 million the previous comparable period.
Hwange posted a US$115 million loss during the review period, from US$38 million during the same period in 2014.
Asked if his investment in Hwange would not be eroded in the absence of a bailout, van Hoogstraten said he had already lost “big time”.
“No, I will not consider it,” he said, combing through a sea of files of investments spanning from the Rainbow Tourism Group to CFI Holdings and Hwange.
“The first offer you get from me is the real one. Four years ago, that company could be turned around in one year,” he said, indicating that his stake in the colliery was “not worthy anything now”.
“My wealth is in London, Frankfurt and New York; it is not in Zimbabwe,” he said.
His decision not to revisit the deal could spell doom for the country, which relies heavily on thermal power from the 920- megawatt Hwange thermal power station which has been supported by the mine for decades.
The British multi-millionaire is the only shareholder capable of releasing funding to the tri-listed coal miner to keep it and the economy running. Government, currently grappling with its own financial problems, is not in a position to help.
Although demand for coal had stuttered due to the increasing dependence on oil and gas for transport and other industrial processes, coal appears to be making a significant comeback, particularly in heavy industries and its dominance as a fuel of choice in electricity generation and cement works across the globe is winning it great interest on international markets.
Hydro generators are being viewed as prone to droughts, particularly in the southern African region, resulting in new power generation projects focusing largely on coal-dependent thermal power plants.
A weak Hwange, or worse still, its closure, would trigger a fresh round of firm closures in the country, as the only other alternative power plant, the Kariba hydroelectric power plant, is undergoing a US$553 million expansion set to be completed in 2018.
In any case, global warming caused by climate change has placed serious challenges on rainfall patterns, which forced the Kariba plant to reduce output by half last year after water levels declined.
The ripple effects of the closure of Hwange would cascade into other industries and trigger more job losses. Unemployment in Zimbabwe is currently at over 90 percent.
In Zimbabwe, coal remains a critical resource, and government had until recently kept the sector closed to private players, a policy that is also in place in many countries that feel that opening up the finite resource to foreign players would be unsustainable.
The tycoon claimed that several coal mining firms now scouring the fringes of Hwange Colliery were benefiting from its facilities.
“They are scrapping coal at the top because it is alluvial and cheap to mine,” van Hoogstraten said about new coal mining firms in the country.
“They have entered deals with foreigners and all the money is externalised.
“It is not benefitting the fiscus. It is a fraud. It is only benefitting fraudsters. All these freebies are benefiting from Hwange Colliery’s facilities. In the real world, we don’t enter into these Mickey mouse arrangements without engaging professionals,” he said.
Van Hoogstraten said Hwange had also been crippled by global developments.
“We are moving from one disaster to another. We have never known anything like this before…negative interest rates and massive debts. Nobody knows where we are going. It is a dangerous situation,” he said.
At the time of the offer in 2013 first reported by C&M, van Hoogstraten’s Willoughby’s Consolidated, which is one of the tough talking investor’s family businesses, wrote to the Hwange board, in a letter that was copied to the Minister of Mines and Mining Development, Walter Chidhakwa, and President Robert Mugabe, indicating that it was ready to inject fresh capital into the mine.
But he proposed wide-ranging conditions, including taking over management control, before releasing the US$50 million.
Under the proposed transaction, Willoughby’s wanted a five year technical services and management agreement with Hwange.
The effective management control, C&M reported, would be made through Willoughby’s designated Special Purpose Vehicle (SPV), which would directly report to the Hwange board.
A coordinating committee comprising three of Willboughby’s representatives and two Hwange directors would be put in place, after which the US$50 million loan would be formalised and secured through issuance of a convertible loan stock at 10 percent interest and a conversion rate of one new 25 cent ordinary share for each US$0,50 of loan stock.
This would be convertible at the end of the fourth year.
Government would maintain its 37 percent shareholding, while debts owed to the State and the National Social Security Authority (NSSA) were to be converted into five-year preference shares at a par value of US$1 and five percent interest.
Preference shareholders have preference when dividends are paid out.
“Banks (that are owed by Hwange) will receive an immediate 50 percent cash payout with the remaining 50 percent converted to preferential shares,” part of Willoughby’s proposal said.
Willoughby’s, which undertook to sign long-term agreements with the National Railways of Zimbabwe to use its railway system, also planned to spend up to US$8 million on wagon and locomotive importation for Hwange.
It planned to purchase additional ovens to push output to 150 000 tonnes per month.
“We also target to increase production of thermal coal to 500 000 tonnes per month,” it said.
At the time, Hwange owed the Zimbabwe Revenue Authority and NSSA a combined US$50 million.
Willoughby’s blamed “corruption, poor management and self interest transactions” for the crisis at Hwange.
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