RTG chairman in NSSA deal storm
A MAJOR shareholder in hotel and leisure concern, Rainbow Tourism Group (RTG), has clashed with the group’s chairman, John Chikura, over a debt restructuring deal involving another key shareholder.
Chikura has been accused by a representative of the Hamilton Group, an investment vehicle controlled by British tycoon, Nicholas van Hoogstraten, of failure to consult the group’s representatives and commandeering the board to push through his agenda.
Hamilton alleges that the RTG chairman had withheld crucial information and agreed to proposals that served the interest of one shareholder.
Van Hoogstraten’s combined stock in the country’s second largest hospitality outfit is at 36 percent.
Government has majority control in RTG through the National Social Security Authority (NSSA), a pay-as-you-go pension scheme, which has a 40 percent shareholding, and the Ministry of Tourism, with about four percent shareholding.
Van Hoogstraten stormed out of a disputed annual general meeting (AGM) a fortnight ago as it became clear that his bid to block a resolution to restructure a US$3,6 million loan from NSSA would fail.
The AGM came a few days after another ill-fated board meeting to thrash out the “troublesome” debt to NSSA was inconclusive.
At the meeting, both sides dared each other to go public about the behind the scenes fallout. Exclusive details of confidential exchanges between van Hoogstraten’s son, Maxmillan Hamilton, and Chikura obtained by The Financial Gazette’s Companies & Markets point to a crisis that is fast gravitating towards a corporate quarrel likely to expose NSSA, whose behaviour in previous corporate wrangles has been of grave corporate concern.
Chikura is also the chief executive officer of the Zimbabwe Deposit Protection Corporation, which has recently taken over the role of curator and liquidator for failed banking institutions in the country.
Tempers boiled over when Hamilton slammed Chikura for not appraising the Hamilton Group of a NSSA term sheet spelling out how the US$3,6 million would be serviced.
He also hit out at Chikura for agreeing to confidential clauses in the NSSA document, which he said shut the Zimbabwe Stock Exchange-listed group out of public scrutiny.
He took the RTG chairman to task for failing to respond to his inquiries and noted that “at no time has it been accepted by RTG that the startup costs of the Rainbow Beitbridge Hotel (RBH) (the US$3,6 million loan) were to be charged to the company”.
“It is utter nonsense to expect and require the loan fee, and interest to be paid within seven years especially as it is clear that from day one the ‘loan’ would be in default and incur the onerous penalty rate of five percent above the basic six percent and one percent fee. Obviously, the directors have not even considered this aspect,” Hamilton wrote to Chikura on May 12.
In a follow up letter, the tycoon’s son took the RTG chairman to task over the rescheduling of the loan and demanded explanations about why it had been reclassified.
The Hamilton Group feels that if the US$3,6 million had been kept on the books as short term, RTG would be “insolvent”, and that this was what the board was trying to avoid by making it a long term.
It also claims that under this arrangement, NSSA would emerge as the biggest beneficiary of the transaction at the expense of other shareholders.
“A copy of circulars to shareholders dated 23rd and 30th March together with a proxy form for the AGM…notes the disputed ‘loans’ from NSSA have been reclassified as ‘long term borrowing’ after having been restructured,” Hamilton wrote on June 9.
“This is entirely dishonest and misleading to the minority shareholders and ourselves and contrary to what you stated in your letter to me of June 2,” he said.
“We also understand that this document (the term sheet) was the subject of an e-mail ‘round robin’ and last minute ‘resolution’ of ‘the board’ without any formal deliberations or professional advice. There are at least two very important and serious matters with which we do not agree and would point out that during the consideration of these, the board representative of NSSA and First Mutual Limited (FML) should have recused themselves as they are conflicted,” he said.
FML controls about 20 percent shareholding in RTG, which has been placed on sale. NSSA is a controlling shareholder in FML.
NSSA extended the loan to RTG as start up costs for the ill fated US$50 million Beitbridge hotel, which was closed last month by the Tendai Madziwanyika-led RTG executive, which said its losses were undermining the entire group. Madzivanyika had opposed the plan for the hotel, saying it would be a perennial loss-maker RTG could not afford to bear.
RTG operates eight hotels.
These include the five star Rainbow Towers (formerly Sheraton Hotel and Conference Centre), the Bulawayo Rainbow, the Victoria Falls Rainbow, the New Ambassador Hotel, the A’Zambezi River Lodge, the Kadoma Hotel and Conference Centre and a hotel in Beira, Mozambique.
Hamilton asked Chikura if external auditors had been appraised of the “illegality of the document” (the term sheet) and demanded that it should not be implemented.
He also asked why the term sheet had not been given to the second largest shareholder.
The trail of confidential letters indicates that when Chikura posted the documents, he courted the ire of the Hamilton Group.
“It is a disgraceful document which only serves the interests of NSSA!” Hamilton wrote to Chikura on May 12.
“I am not at all happy that, despite the gravity of the issues raised, it is now two weeks and I have received no response. I require a detailed response from you within the next three days failing which I will be left with no alternative but to bring these matters to the attention of the regulatory authorities, the company auditors and the media,” he said.
In his response, the RTG chairman said the indicative NSSA term sheet was the basis for entering an agreement to bail out the company.
He wrote that NSSA had placed conditions that had to be approved at an extraordinary general meeting (EGM).
During the last AGM, a furious van Hoogstraten demanded to know why there had not been a notice for the EGM.
In his response to Hamilton, Chikura, who would emphasise the same points at the AGM, said whatever the RTG board had done was in the interest of saving the group.
“It is important to note that NSSA has tabled two indicative term sheets all in a bid to restructure the company’s balance sheet for the benefit of all shareholders. The indicative terms sheet tabled by NSSA only becomes binding following concurrence by shareholders at an EGM where NSSA itself will not vote. In my discussion with NSSA, they have indicated that they are also ready to consider any proposals from the Hamilton Group. It is clear that the proposals by NSSA have been their best attempt at helping out the company, considering the fact that the loan is overdue and in need of restructuring. It is therefore important to ensure that the tone of our engagement is always positive and we avoid accusatory language,” he said.
But he drew more fire.
“I fail to understand, and you do not address the reasons why it has taken you three weeks to respond. You have still failed to deal with any of the very important issues that I raised… Why was the revised term sheet subject of a ‘round robin’ so called ‘board resolution’…when it had not been seen or approved by ourselves? NSSA are not…acting in any interest other than their own. The previous management of NSSA are largely responsible for the current precarious financial position of RTG and NSSA. It is well documented that, for many years, NSSA supported the corrupt and incompetent boards…and my family interests as the then largest shareholders were seriously prejudiced. The current dire financial position of NSSA has been brought about by the same corruption and incompetencies as they saw and encouraged at RTG.
“The Hamilton Group, with our very substantial wealth, and many years of experience of hotel ownership and management, has always been prepared to assist RTG but has, for many years, been frustrated by the corrupt and incompetent interests,” said Hamilton, who said it had taken the second largest shareholders one year to get minutes of the last AGM.
A conciliatory Chikura responded on June 9, emphasising the need for key shareholders to meet.
“I acknowledge your reservations to the attempts by NSSA to restructure the loan that was advanced to RTG through successive term sheets in December 2015 and March 2016. It is critical therefore for shareholders to meet and agree on how to remove this troublesome loan…It is imperative that going forward the capital structure of the company be resolved in a manner that removes direct financial assistance from shareholders. Such a way forward will remove suspicion in shareholder dealings with the company (and) open the way for positive and constructive shareholder engagement (and) avoid reputational damage for the company,” he added.
“Please take note that all the parties have concerns not only with the balance sheet structure of the company but also in the manner in which the other has been (or not), attempting to solve the capitalisation challenges facing the company,” he said.
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