Mushayavahu opens up on $29m offshore loan

Published: 03 March 2014

FBC Holdings Ltd boss John Mushayavanhu says he bought a 51% equity stake in Zuva Petroleum through a 15-year $29,325 million off-shore loan from Glencore, businessdigest can reveal.

In an interview this week, Mushayavanhu said he would start repaying the loan end of this year.

He acquired Masawara's 73 former BP & Shell Marketing Services (BPSMS) assets through his investment vehicle, Woble.

According to documents seen by businessdigest, the loan was approved by the external loans coordinating committee on January 13 2014 at an interest rate of London Interbank Offered Rate (LIBOR) of 2,5% per annum.

The loan also has a penalty rate of 3% per annum. According to the same documents, the source of repayment would be from dividend income, and proceeds of any share buys backs.

Should Mushayavanhu fail to pay, the lender - Glencore - will realise the security.

Businessdigest also established that the regulatory approvals were granted on condition that in the event that the lender has to realise security, they will have to immediately sell the shares to an indigenous entity in line with the country's indigenisation regulations.

Indigenisation laws compel foreign investors to sell controlling equity in their businesses to indigenous Zimbabweams to addresss historical wealth imbalances.

For instance, if Mushayavanhu were to default before any repayment is made, he would lose the company.

When asked if this was the ideal financing model, Mushayavanhu said: "The ideal situation is to pay cash for the shares and not resort to borrowing. But show me someone who has $29 million in cash in this country. Under the circumstances, we have no choice but to resort to borrowing in order to localise the Zuva business.

It will take 15 years to repay, but by then the business would be fully localised. I don't see any other option. I am surprised that people now view this borrowing as fronting when infact it is the only feasible way of localising the asset given the tight liquidity condition prevailing in our economy."

Besides accusations of fronting, there was talk in the market that Mushayavanhu had borrowed this money from his bank, but he says he never got a cent from the bank.

"I am a seasoned banker and I know the impact of insider borrowing on the bank's solvency and would never approach my bank for facilities no matter how small the request. If anything, the bank stands to benefit from Zuva's daily banking as Zuva is a cash business and does not borrow," he said.

"Corporate governance structures at FBC are so robust that it would be virtually impossible for me to think of borrowing from the bank as such an application would never be approved by our board. This is why FBC has remained a strong bank when others have fallen by the wayside."

Mushayavanhu said the Zuva transaction was similar to how business tycoon Mutumwa Mawere acquired AA Mine in the 90s.
"This is the same structure Mawere used to acquire AA Mines way back in the nineties," said Mushayavanhu.

But critics say he is fronting, a charge he denies.

Investigations revealed that Glencore has an interest in Alveir, which owns 49% of the Zuva business.

Under the deal, Glencore will be supplying product to Zuva through an off-take agreement or supply agreement, effectively giving them a captive market.

Market speculation had also linked this deal to Strauss logistics, but Mushayavanhu said the logistics and transport company had historically provided services to Zuva and will continue in that role.

"They have no shareholding interest in the Zuva business and are merely service provider. I don't have shareholding in Strauss," he said.

Masawara announced recently that the two parties had agreed to increase the price tag of the assets to $29,3 million from the initial $24,8 million.

Asked why the price had increased. Mushayavanhu said: "The price was subsequently increased to $29,325 million due to delays in finalising the transaction. I still consider it a viable purchase given the potential I see in the Zuva business."

A National Indigenisation and Economic Empowerment Board report suggests Masawara never owned the Zuva shares in the first place, implying the London Stock Exchange listed firm was a front for Glencore, which funded the purchase.

"We certainly paid the purchase price to Masawara as the rightful owners of Zuva. So I don't know how they could be fronting and receiving the money at the same time," he said.

But others say a number of people had been eyeing the assets and could be seeking to present Mushayanhu as a front.

He spent a year seeking various regulatory approvals, prompting a $4 million price increase.

Then Indigenisation minister Saviour Kasukuwere approved the Masawara/BP deal under the conditions that Masawara would dispose 10% equity stake to an employee share trust, dispose 50% of its retail sites to its dealers, sell shares to youths, women and the disabled and treat the leases of all dealers fairly.

The Youth Development, Indigenisation and Economic Empowerment ministry at one point gave Masawara plc a 14-day ultimatum to demonstrate that it had complied with indigenisation requirements that were pre-conditional to its acquisition of BP & Shell Marketing Services Zimbabwe.
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