This week, once again writing on the subject of compensation instead of reverting back to my life story, makes me a liar. Apologies to my regular readers who have stayed with me for the past couple of years, please bear with me another week.
The reason for this departure is due to the fact that, like many ex-Zimbo farmers in the diaspora, I watched the live stream of Monday morning’s ‘Road Show’ organised by the Compensation Steering Committee (CSC) and the Commercial Farmers Union (CFU). The Minister of Finance was in attendance, in fact, he was the main vendor of the deal with much to say.
As the meeting progressed I wondered if the CSC had gotten themselves so entrenched in selling the deal they are no longer presenting what is on offer in a fair manner. They had changed from a steering committee to a pressure group. Is calling them that giving them the benefit of doubt rather than something more sinister? Hence my decision to write about the agreement, deal, one more time. Now I wonder if it will be the last.
"The contradictions in the meeting along with the desperation of the presenters assurance to convince us to take it to the next stage made me ponder and worry that our tactic agreement would be more important than the authenticity of the deal and it ever coming to fruition. Why?" - Peter McSporran
Over the past twenty-odd years being involved with both investing in and lending to agricultural businesses in Africa, I have seen from time to time that if negotiations are extended, the deal lead and his team become so focused on closing the deal, they forget that perhaps it was flawed from the beginning, or what is more common, circumstances have changed in that time or other unknown factors have come to light during the due diligence. This may be related to the business plan, the credibility or reputation of the sponsors including legacy matters such as undeclared debt or a history of debt default or even land title disputes to name a few, not forgetting ESG which is now very much part of any deal. Regardless, due to their prolonged association with the sponsors, the deal itself becomes all-important. Rather than stopping and calling it a day, they persevere. Further, they may well have built up such a relationship with the sponsor that rather than representing the lender or investor, they now sympathise more with the borrower or investee. They push on with the deal until finally it is rejected by the investment or credit committee.
“The agreement on the table is a business transaction, a deal. The Government, the seller, wishes to sell to you. You being the buyer of the bonds in exchange for your title deeds. The value attached to your title is known at the time of sale, the real value of the bonds at redemption is unknown.” - Peter McSporran
What struck me between the two meetings, SAAI and CSC was the contradicting views of the presenters on some important issues in the separate meetings. Easiest to show in bullet form.
At the SAAI meeting, they stated any compensation would only occur when the rule of law returns to Zimbabwe. The CSC claim their proposal did not require this, money would be available.
At the SAAI meeting as pressure from both local and international mounts, the Government will have to revert back to the rule of law. At the CSC meeting, this was scoffed at.
At the SAAI meeting, it was said a holistic approach would be required to access international funds. That is any compensation money from offshore would be entrenched into some global agreement to enable Zimbabwe’s agricultural recovery. In the CSC meeting, this was not said to be necessary for the initiation of the deal.
At SAAI, litigation was seen as applying international pressure. This was scoffed at once more by a CSC member at the top table.
At the SAAI meeting, it was said a fund should be set up to relieve the pressure on the aged and destitute. At the CSC, our age and financial position were used as a lever.
Scoffed seems harsh, but watch the recording of the meeting showing the interchange between Andy Pascoe and Harry Orphanides on litigation.
It seems the CSC considers the deal on the table to be a simple swap for bonds in place of our title deed. A swap is far too simple for a complicated high-value transaction such as buying $3.5 billion worth of Government paper without underlying guarantees or even funds to buy them back at maturity.
Interestingly, during question time, one of the best comments on the agreement at the ‘Road Show’ came from the floor.
“We are not taking a haircut, we are being given a crew cut.” - David Wakefield
In a normal investment transaction, the investment or credit committee of any bona fide fund, lender or investment company will advise the board on whether to enter the transaction. It will have access to external expertise on the type of investment along with in-house and independent financial, legal and ESG experts sitting as part of or as advisers to the investment or credit committee. Analysts will have run every possible scenario on multiple spreadsheets on the financial model. Not only are the positives stated, but all of the possible risks are also articulated. At this meeting, the deal team and the investment will meet their fate. Yes or no. Luckily, most professional investment managers obeying good business practices will never take a bad deal to the stage knowing it will be rejected. However, the odd one does for the reasons I have mentioned earlier. The deal is normally killed at this stage before it even gets presented to the board. The board’s decision is guided by the credit or investment committee. In this case, we have not seen this type of due diligence or access to professional views on the deal on offer.
Finally, the board will agree on the conditions precedents (CPs) to be in place before the investment, draw-down or disbursement of funds takes place. Once again, I am not aware of any.
Unfortunately, in this instance, the deal team in the form of the CFU and CSC, have got to the stage of presenting the deal without the scrutiny of an investment committee, let alone any independent legal and financial review. They want the investors to invest in the Government bonds and are desperate to sell them to us in exchange for our titles. Many of the unanswered questions have to be accepted on trust. In finance, there is no such thing as trust without strong enforceable agreements. What we see as fatal flaws in this agreement are ignored or at best glossed over.
Some of the flaws and how the agreement could be improved and made more fair were eloquently articulated by Barry Munro and James de la Fargue on Monday. Their advice was summarily rejected. Seemingly, in an important $3.5 million deal, there is no time to revisit the original agreement. What? This represents years of hard work and endeavour. What do a couple more months mean?
Nor did they say they would present an independent financial and legal review before going ahead with drafting the required documentation for the transaction. In doing this, discovery will be a massive exercise. Are they planning to issue bonds to the name on the title, even if it is posthumous?
“I do not think they understand the complications involved in this. Many titles are in deceased names, company names, trusts and defunct trust names and partnerships. Who do they issue the bond to?” - Peter McSporran
In fact, it has been repeatedly saying the Global Compensation Deed (GCD) is flawed and simply adding an addendum will not rectify this. Once again, no cognition was taken of this. The present deal on the table would never have reached this point of presentation in normal business circles. Even the poorest investment manager would have known at an early stage he was wasting his time.
So possibly, they are not being devious in trying to sell this worthless paper. It is just they have gotten so buried in trying to seal the deal for its sponsor, the Government they are blinded to the obvious problems within it. They have forgotten whose interests they are meant to be protecting, ours.
“You feel like a swim. When you get to the water's edge, you find a fifty-foot cliff. There is no other water available to swim in. Do you still decide to take the swim even if you are unlikely to survive the plunge, let alone having the ability to scale the cliff after you take the plunge?” - Peter McSporran
I found the tone of the meeting bullying. Take this deal, it is the only one on offer. Not the normal transaction process of a willing buyer or seller. The stick was; if you do not accept this deal, the Government will close the door to any further negotiations. Put simply, the Minister, Harry Orphanides and Andy Pascoe all said, “Take this deal. If you do not agree to it, it will be withdrawn and no other will be on offer in the future.” Andy at least sounded fairly passive in tone, while Harry was downright aggressive, even seen to be prompting Andy at times.
“Where there is a stick being applied, there is always a bully holding it. Someone wielding the stick for the bully is known euphemistically as an enforcer. A threat over your future well-being is much more brutal than the physical pain of a beating.” - Peter McSporran
What they failed to mention was that the Government is desperate for acceptance, so they can tell international financial institutions and donor Governments they are dealing with their existing debt and addressing the land dispute to enable them to raise funds for themselves. The stick was further weighed by the Minister declaring there were only three in Cabinet that supported the initiative and they would not be around forever. The deal must be done now! If this was the case, he failed to say how he would get the required statutory instruments (Sis) to complete the transaction through parliament. His desperation for a quick fix is evident for all to see. The big question is whether it is a substantive fix or window dressing.
When it was suggested that CSC and CFU should perhaps consider working with the support offered by the SAAI, this seemed to once again be summarily rejected. Andy went on to say he is friends with Dr de Jager but happily sat there whilst Harry was derogatory about SSAI having funds. De Jager has never claimed they have funds. He had said it would take time to raise them, especially considering the holistic requirement of such funds to be made available. Dr de Jager did question if the present deal would be honoured casting doubt on this, especially on its means of funding. Then to my surprise, Harry stated that taking the legal route was a non-starter. They both ridiculed the court cases that had already been won in regard to land claims and compensation happily pronouncing in front of the minister that while international governments recognised them, the Zimbabwean government did not. It simply ignored these rulings, forgetting to state they are one of the many reasons Zimbabwe is facing problems in trying to raise money externally.
Harry then referred to a meeting held between the leadership of the war veterans, Dr de Jager and Andy. Harry asked Andy if Dr de Jager brought up the issue of litigation. Andy smugly said, “No.” And Harry laughingly remarked that would have been an unwise thing to do. Perhaps unwise is the wrong word, rather he inferred, stupid to do so. So even today, the rule of law does not apply on land, only the word and direction of the War Veterans. Sitting next to them was the Minister of Finance, who is asking us to trust them while making no effort to refute Harry’s statement. No contradiction by him is proof that, as we all know, there is no rule of law in Zimbabwe. This means in the event of default, there will be no recourse in the courts. Do not forget they are Zimbabwean Government Bonds, not international bonds.
A more pertinent question Andy should have posed to Douglas Mahiya was, “What will the reaction of the war veterans be to seeing farmers compensated with $3.5 billion by the Government?”
Later in the meeting, Andy contradicted himself and the others’ stance on the rule of law by giving assurances and outlining the many legal, although unsubstantiated safeguards related to the deal supposedly including the holding of title in escrow. Do you think you will get your title back if the Government has paid as little as 10% to you in redeeming bonds? No. There is no rule of law, they had already told us that.
The fact that they are desperate for a quick answer informs us that the Government, perhaps for the first time, is under huge pressure to resolve the issue. The very court cases the CSC mocks are very much part of that pressure, even though the Government may pooh-pooh them. Zimbabwe is in huge debt and has to address this by tidying up its governance to gain further finance. At this stage, Andy informed the meeting that paper held by international financiers such as the World Bank, IFC or EIB would take precedence over local paper. What did that mean? I think it is further proof they would be highly unlikely to keep their word on a payment date even if they wanted to. There is a long line of senior creditors. Something else that is discovered in normal due diligence.
Interestingly enough, Harry suddenly became an expert in international law and suggested that the ZIDERA Act is illegal under American law. Despite this, he felt these bonds should be outside the sanctions, notwithstanding the fact that it is proposed their redemption will be partly funded by Kuvimba Mining which is suspected of having a sanctioned individual within the shareholding and therefore already struggling to raise foreign loans.
The rush to do the deal was queried by a number of people from the floor. In fact, it was one of the reasons given that the whole agreement could not be rewritten or undergo scrutiny before the mood of the farmers could be gauged, as time was of the essence. Andy announced it was not to be a referendum they were looking for, but rather, the tacit agreement to go ahead. On one occasion when asked about timelines on payment, he pointed to the board. Year one is not a calendar year on the chart. Once again, I found this disingenuous. There are so many things required, not least a number of parliamentary approvals including but not limited to the agreement in its entirety, recognising the added debt officially, the required Sis for the issuing of bonds, changes to the law to allow the funds to be paid outside the country in foreign currency including the tax exemptions. This does not encompass all the discovery on who the present beneficiaries are to title. Valcon has the original names, is this enough? As I stated previously, to enable legal transfer we are possibly talking years, not months here. Year one will certainly not be this year, 2023, nor perhaps even next year.
Finally, the source of funds is another thing that was glossed over. The Minister voiced that the financial situation in Zimbabwe was much better and at the same time he said that Government could not afford to pay more than 1% interest. Later on, Harry alluded to the fact, perhaps to the Minister's dismay, that recent monies offered to the Government were at 15%. This would have been a good benchmark to establish the interest applied to our bonds.
In saying that, they could not pay more than 1% interest, that is; $35 million for the first few years, how the hell are they going to pay the $385 million in year four? Oh, he said, we will sell assets and the sale of your shares in Kuvimba Mining will more than cover this. So, as a good investment manager, I decided to look at Kuvimba Mining, after all, it is included as part of the payment, by whom I am not sure. It did not take me long to find both ownership and its assets were not fully known. There is even a question on the legality of how the assets were obtained. A huge question has been raised; where would the Government have found the assumed $2 billion to buy the assets of these cash-strapped businesses? A number of press articles, including Africa Intelligence, are suspicious
that a major shareholder may well be the sanctioned kingpin tycoon, politically well-connected Kudakwashe Tagwirei. Andy, perhaps to help give credence to the value of our so-called shares in Kuvimba Mining said he had been appointed to the Board. He said this with a smile, while also confirming that the board did not know all the assets they were purported to own nor did he know the identity of all the shareholders. Does he not know the responsibility he has as a company director or understand his own exposure especially if transactions by the company are illegal or dubious in process?
As a partly owned state entity, its purchase had not been discussed in parliament, let alone approved. Hence the questions raised in the house recently by Rusty Markam. In his answer to Rusty’s question, the Deputy Minister of Finance said the acquisition of many of its assets
was under the Joint Ventures Act, therefore not requiring tenders. In taking over these so-called distressed companies, it would ensure workers' salaries would be paid. It did not mention debtors. In short, he said it was to save jobs. Meanwhile, Kuvimba Mining is trying to raise $1.5 billion to resurrect ZISCO and a further billion for its gold and platinum projects. It does not seem to be a cash cow, more a cash swallower.
Andy then went on to try to convince us that Kavimba’s lithium resources held by one of the subsidiaries, Sandawana Mining, would more than ensure the value of the shares to cover the first $350m payout in year four. On research, this may also not be true, once again due to corruption and political interference. There are a number of reports about those planning to exploit Sandawana’s resources. Hinting once again the sale will be to the benefit of the well-connected rather than the state. One of those is the President's niece, Henrietta Rushwaya. She is the president of the Zimbabwe Miners' Federation
She (Henrietta Rushwaya) has cut a deal with the new owners of Sandawana, Kuvimba Mining House, whereby only her ZMF artisanal miners will be authorised to collect and sell lithium ore in the area. Civil society groups that have supported artisanal mining communities during the diamond rush and the battles over gold mining are concerned that the potential for violence is high. The politicised militias that controlled the extraction and sale of artisanal gold over the past decade could easily try to take over the lithium zones too. - African Confidential
This blog has now gone over the prescribed word content for the week but finally, for those that do not know, Datvest, where our shares in Kuvimba Mining are presently lodged and where our titles may be placed in escrow is owned by CBZ Holdings which is a Government-controlled company. Digging deeper once again, it seems through various vehicles, that Kudakwashe Tagwirei is a major shareholder in CBZ.
The final and most important part of the presentation is the magic carrot. Just agree and we will give you the bonds and pay you interest for the first three years. In year four you can withdraw if you decide not to cede your title deeds. This clearly shows that what the Government wants ‘now, now’ is to tell the world it has resolved the land issue to try and gain some credibility. In truth, it may remove much of our sympathy and leverage for the next four years or until they renege, which they surely will.
This is not a deal, it is entrapment.
“Remember one step over that cliff commits you to the swim whether you still want to or not. I will not be taking that step.” - Peter McSporran
Disclaimer: Copyright Peter McSporran. The content in this blog represents my personal views and does not reflect corporate entities.
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