Tycoons in nasty CFI control battle

Published: 21 July 2017

When Zimre Holdings Ltd (ZHL)'s Stalap Investments announced its offer to buy out CFI minorities last Friday, an all-out war between British tycoon Nicholas Van Hoogstraten and the Rudland brothers - Hamish and Simon - could have begun officially.

After initial resistance from the Zimbabwe Stock Exchange (ZSE) two weeks ago and the eventual approval last week, all seemed well for the Rudlands.

In retrospect, the ZSE's reluctance and its proposed transaction that would see the two companies - Van Hoogstraten's Messina Investments and Stalap - make a joint offer to CFI minorities, should have rung the alarm bells.

Van Hoogstraten, a sharp-tongued tycoon, who is quick to lampoon his perceived foes, sounded conciliatory and ready to put aside their differences.

"I have no personal problem with Robin (Vela) as Nssa (National Social Security Authority) inherited a can of worms at both CFI and RTG and I have a certain amount of sympathy with the Nssa position but they have to accept responsibility for the historic corruption and incompetence by their employees," he concluded in his responses last week.

"Likewise, I have no personal problem with Hamish who is also not personally responsible for the historic frauds at CFI."

Yet despite the nuances of peace, for Van Hoogstraten the battle had just begun.

As the markets opened on the first day of the week, CFI suddenly was an investors' favourate once again.

In Monday's trade, the stock gained 20% to close at 21 US cents from 18 US cents. Only 50 shares valued at US$11 were traded on the day in question and remained stagnant in Tuesday's trade.

On Wednesday, the counter gained 19,9% to close at 25,90 US cents, an amount above Stalap's offer price of 22 US cents.

Investigations show that the ZSE trading system does not allow a bid higher than 20% in a single day's trade.

This could signal a general interest to buy close to CFI's net asset value per share.

The Wednesday transaction saw a total 400 CFI shares exchange hands with a value of US$104. This brings the combined value of the transactions to Wednesday to around US$121.

Market analysts say a buy at the current price for CFI stock is not good value, saying the move smacked of market manipulation. CFI shares had gained 39% by Wednesday, a week after Stalap Investments announced plans to buy out minorities.

On a quarter-to-date basis, the gains represented gains of 54,2%.

Yet the identity of the beneficial shareholder remains a mystery thanks to the automated system. Even among market pundits, suspicion and calculated guesses were hazarded as no one knew for certain.

"It could be EFE (Securities), but there is no sure way of knowing," a market player said early this week.

The ZSE recently automated its trading system and abandoned its century-old tradition of open outcry where stockbrokers and dealers gathered every morning to trade securities on behalf of clients and literally cried out to buy and sell shares. With the new system, the identity of buyers and bidders is protected for three working days.

EFE Securities boss Edgeton Tsanga denies involvement in the Monday transaction, but confirms his company was involved in Wednesday's trade.

"The 50 shares were not done by us," he said. "We did the transaction on Wednesday."

Until Tsanga's confirmation recently, the market had been guessing and wanted to wait out until the transaction clears under the t+3 system (three days to clear) which came along with the automated system.

With as little as US$121 spent on the counter, capital gains of as much as US$8 million between last Friday and Wednesday after the market cap grew US$27,5 million.

Before the adoption of the new system, the ZSE was on a t+7 settlement, which means trades executed on the exchange needed seven working days to clear.

This week's developments have rattled the Rudlands and Vela, who formed an alliance to unseat Van Hoogstraten after failing to reach consensus on the way forward.

The offer, which requires a sponsoring stockbroker, financial advisors, legal minds and chartered accountants, who charge an arm and a leg for such services, could leave the sponsors - Stalap - with a huge bill with their service providers even after the abortion of the transaction.

"The parallel purchasing by Messina and EFE Securities undermines the integrity of the processes conducted by the ZSE and Secz in protecting investors and companies. The precedence being set by this unscrupulous behaviour will have long term effects in the market.

"The ZSE needs to take action and bring sanity to the market. Messina and EFE have no capacity or intention to pay more. We believe they are simply doing it to frustrate the offer by Stalap," Rudland said this week.

"Investors are watching. They will not be impressed or be taking confidence in the processes and protection that ZSE and Secz are meant to provide.

"As investors in this market, we must protect the market and its integrity, especially if we want to entice direct foreign investment into the market."

The recent developments charecterised by a seemingly counter offer to the market have also brought to the fore the need for the ZSE to protect deals it endorses given transaction costs involved in such transactions. Amid all the confusion, Van Hoogstraten's hand is apparent.

The recent share acquisition that has seen the share price surging, will easily be rated as one of the biggest upsets on the stock exchange.

Contacted for comment this week, Van Hoogstraten admitted to having placed orders for CFI shares, but said he was not aware how many shares his brokers had picked up on the market.

"I am not, as yet, aware of how many shares we bought this week," he said. "I confirm that Messina will certainly be making a counter offer and that their offer will be at least the 36 cents per share that was offered to Nssa prior to their ‘Mickey Mouse' deal with Stalap."

Van Hoogstraten says he will pay in forex for the shares to offshore accounts for the sellers of the scrip.

"Also, I should point out that the 22 cents per share offer from Stalap is only the equivalent of the land value that will be recovered by CFI on the reversal of the Langford Estates fraud - at least US$20 million divided by the 105 million shares in issue," Van Hoogstraten said. "Another important point is that Messina is able to pay US dollars or British pound directly to accounts outside of Zimbabwe whereas shareholders accepting the offer from Stalap will have to wait to get their hands on the actual dollars."

Questions have been raised over whether the ZSE has a deal protection mechanism to avoid a repeat of this week's developments that have set back Stalap's offer.

Moreover, the ZSE's earlier decision stopping Stalap from making an offer to minorities when it had no legal basis and the decision to cause a simultaneous offer to CFI minorities could have exposed possible conflict of interest among stockbrokers. In fact, many say the decision questioned the institution's independence in deals.

"The ZSE should not break its own rules," a legal professional who preferred anonymity said.

"This is selective application of the rules. Nowhere in their listing rules does it say a company which has reached 35% shareholding is compelled to make a simultaneous offer or joint offer as suggested. This undermines the credibility of the ZSE as an institution. It has failed to deal with cases of fraud and clear conflict of interest.

This comes after Econet went ahead with its plans to raise capital despite the ZSE's protestations."
- the independent