KUVIMBA Mining House — a shadowy entity entangled in Zimbabwean tycoon Kudakwashe Tagwirei’s controversial business empire — is practically trying to seize defunct steel-making giant, Ziscosteel, in a purported US$1.3 billion deal which has now run into sticking points amid a politically-driven hostile takeover bid.
OWEN GAGARE
The corporate-raiding and possibly asset-stripping manoeuvre is now facing hurdles as Kuvimba is resisting to undergo a required due diligence assessment. Besides, Kuvimba does not want to fully reveal its shareholding structure, shareholders, finances, and balance sheet to help negotiations.
Kuvimba wants a co-management contract with Zisco to revive the company, but the move is turning out to be a backdoor attempt to take over the fallen steel-making behemoth.
It wants an 8% management fee from gross revenue of operations over a three-year agreement, which would entail restructuring Zicso’s corporate model, turnaround strategy and recapitalisation plan, all now a sticking point. Zisco is offering 5% in management fees.
To get the deal through, Kuvimba is promising heaven and earth. It says it will inject US$1.3 billion in three years — doubtful according to sources — starting with raising US$300 million through a debt and quasi-equity arrangement.
Kuvimba says it will also raise US$1 billion internally from Zisco and re-invest it, which would boost its capacity to generate US$270 million to also be ploughed back into the company to unlock value and boost capacity to borrow more.
Zisco has debts totalling about US$500 million. But it is said to have iron ore lumps and fines worth about US$1 billion.
Industry and Commerce minister Sekai Nzenza says the deal has been approved by cabinet and relevant investment agencies. The government says a memorandum of understanding between Zisco and Kuvimba is on the verge of being signed, but does not disclose there are contested and unresolved issues which pose a threat to the deal.
Despite all these difficulties, Kuvimba this week brought in German investor SMS Group — a global steel giant — to push the deal to revive Ziscosteel.
The Germans met President Emmerson Mnangagwa and Nzenza, amid an unbroken deadlock.
High-level government and mining industry sources told The NewsHawks that there was a high risk the deal could unravel in the same manner as the proposed Kuvimba-Impala Platinum joint venture to establish the world’s biggest platinum mine in the Gretk Dyke earlier this year, unless political influence is brought to bear on Zisco to sign a bad deal.
The platinum deal stalled after Impala demanded greater transparency on Kuvimba affairs before considering a joint venture — the same thing Zisco is doing.
However, Kuvimba failed a basic transparency, accountability, and corporate governance test, as it could not disclose some of its ultimate beneficial shareholders and sources of finance.
On the Zisco deal, Kuvimba has frustrated a demand for due diligence and proof of funds.
At the same time, Kuvimba is demanding greater control over the special purpose vehicle (SPV) to implement the deal. Incomprehensibly, Kuvimba is insisting on having four directors to Ziscosteel’s two directors in the SPV, meaning total control to facilitate its clandestine takeover bid.
Having promised to inject US$300 million into Zisco to start with, as part of the envisaged US$1.3 billion total investment, Kuvimba is now only offering US$30 million — a drop in the ocean.
This has put the deal in danger despite Kuvimba having courted German investors SMS Group — a global steel giant — amid posturing by government officials, including Mnangagwa and Nzenza.
SMS is keen to partner Kuvimba to invest in Ziscosteel, but also wants to conduct due diligence before committing funds as indicated by managing board member, Michael Rzepczyk.
“We want to be a partner of Kuvimba and finally Zisco to bring the plant back into operation and to feed your market here and export markets and make a success story with steel here in the country,” Rzepczyk told local journalists.
However, he would not be drawn into saying how much they will inject into Zisco, only stating that they were still making an assessment on its needs and attendant costs.
After Kuvimba was officially chosen as a preferred investor for Zisco in February, there was concern that a major public asset had been placed in the hands of a relatively shadowy entity with murky ownership.
While Zisco is defunct and debt-ridden, it has iron ore fines worth close to US$1 billion, according to mining sources. Initially, the fines were estimated at US$500 million. This is double its debt.
Fines come from natural raw iron ore through a process of mining, crushing and screening, where ore is separated into lumps and fines. Iron ore is processed like this for the iron and steel-making industry.
Finance minister Mthuli Ncube and Kuvimba’s late former chief executive David Brown claimed the government owns 65% of the shadowy entity’s shares, while the remaining 35% equity is held by Ziwa Investments, a Zimbabwean subsidiary of the Mauritius-registered Quorus Management Services.
Kuvimba’s labyrinth of shadowy structures and web of intricate offshore entities — notably its relationships with Sotic International, Almas Global Opportunity Fund, formerly used by Tagwirei to invest in Sotic via the Cayman Islands, and Quorus — has not been publicly explained.
Almas owns 65% of Ziwa Resources. The 35% is legally owned by Zimbabwe-registered Pfimbi Resources, whose directors are Tagwirei and his wife. Although Kuvimba and the government deny Tagwirei’s involvement, if Kuvimba is owned 65% by the government and 35% by Ziwa, then it means he is involved.
That makes the management claim just a cover-up, which is the main problem. Corporate executives have raised concern that this is an opaque and strange deal. The government says it owns Kuvimba 65%, the other 35% is controlled by unnamed shareholders, yet it also owns Zisco.
Corporate gurus are asking: What sort of model is this?
“In other words, how does government revive Zisco, which it destroyed to start with, by merely putting it under another public enterprise? In the first place, we don’t fully know who actually owns Kuvimba. Who is Ziwa? Who is Pfimbi? What’s their relationship? How does Zisco come in on this new deal? Who benefits out of this?” a corporate executive asks.
The answers given by the authorities have at best been deliberately vague; at worst they amount to obfuscation and dishonesty.
To further complicate issues, Zisco is entangled in a US$36.8 million dispute involving Hong Kong-based NJZ Resources (HK) Ltd, its subsidiary Buchwa Iron Ore Mining Company (Pvt) Ltd and the Minerals Marketing Corporation of Zimbabwe (MMCZ).
The dispute, which has been raging on since 2019, is now under arbitration. The case arose out of a tender award dispute between NJZ and Buchwa, which, acting through its agent
MMCZ, neglected or failed to honour its obligations after the Chinese company performed its duties.
As a result, NJZ says it suffered extensive losses and damages amounting to US$36.8 million.
Buchwa operated an iron ore mine, Ripple Creek, and the limestone quarry situated next to the steel works. These operations supplied Zisco with iron ore in the form of ore lumps and fines, as well as the limestone required as flux for the furnace in iron and steel-making processes.
At its peak, Zisco produced one million tonnes of steel annually and employed up to 8 000 people. It was part of the backbone of Zimbabwe’s economy, working in an integrated way with Hwange Colliery and the National Railways of Zimbabwe.
However, Zisco was destroyed through extended periods of mismanagement, corruption and looting. In 2005, for instance, a scandal exploded at Zisco showing the company had been looted by ministers, politicians and top management.
Previous efforts to resuscitate what was once sub-Saharan Africa’s largest integrated steel-producer have stalled and suffered stillbirths, including Essar Holdings’ US$750 million investment proposal in 2015.
The Indian investor had committed to take over Zisco’s debts to various creditors, which stood at US$500 million, but the deal collapsed amid divisions in the government over it. Later, the authorities’ decision to transfer the US$225 million assets to ZimCoke for a song sparked a fierce board dispute.
ZimCoke paid ZW$1 million in May 2019 as a transaction fee to take over Zisco’s critical coke ovens and an array of other assets from the integrated steelworks, whose assets have been stripped. Zisco’s non-core assets were sold to influential politicians and their cronies at giveaway prices.
But Zisco’s Kuvimba deal has raised a stink in the public domain.
“If Kuvimba is a public enterprise, Zimbabweans have a right to know how the company is structured, organised and controlled. Repeated questions from the media and other stakeholders on its ownership have not been satisfactorily answered,” another business executive told The NewsHawks earlier.
Records for Kuvimba are not available in Zimbabwe’s company registry.
However, according to United States-based civil society organisation The Sentry’s investigative report titled Shadows and Shell Games: Uncovering an Offshore Business Empire in Zimbabwe, Ziwa was registered by lawyers at Tagwirei’s law firm, linking the tycoon to the mining house.
The directors of Ziwa included Brown and Simbarashe Chinyemba, both of whom have previously appeared in companies associated with Tagwirei. Brown has since resigned as Kuvimba chief executive.
“By analysing hundreds of company documents, court filings, and communications, The Sentry’s investigation shows how Tagwirei used complex corporate structures to build and hide his wealth, potentially benefiting from preferential government treatment along the way,” the report said.
“Tagwirei has invested in gold, nickel, platinum, and chrome mines by hiding behind South African businesspeople and offshore structures in Mauritius and the Cayman Islands and by using lawyers and financiers who are seemingly happy to turn a blind eye to accusations of cronyism and corruption.
“New documents uncovered by The Sentry also show how Tagwirei has used similar networks to hide his financial interests in Zimbabwe’s new public-private partnership mining company, Kuvimba Mining House, with Zimbabwe’s Finance ministry reportedly collaborating to deflect public scrutiny from these arrangements.”
