Exxaro BEE battle
FIN24 / Oct 15 2017 06:00 / Dewald Van Rensburg
Johannesburg - There is a battle within one of the consortia involved in R40bn mining group Exxaro’s historic BEE deal over alleged shenanigans, including the misuse of dividends.
A faction in one of the company’s original broad-based BEE (BBBEE) investor groups has applied for an interdict to freeze its group’s part of the imminent windfall of cash and shares in the new Exxaro BEE structure.
This follows years of dysfunction at the South African Women in Mining Association (Sawima), and the associated investment company, the South African Women in Mining Investment Holdings (Sawimih), that show how fragile even the most promising of South Africa’s nebulous broad-based empowerment schemes can be.
Sawima/Sawimih represent roughly 1 400 women across the country, who have mostly contributed small sums to become part of various BBBEE schemes since 2003, including Lonmin’s Incwala and Sasol’s Inzalo.
Exxaro is, however, the cornerstone of the group.
The interdict application in the High Court in Pretoria is being brought by a number of Gauteng-based shareholders in Sawima/Sawimih, who claim that the current management has produced a flawed shareholder register on the eve of the Exxaro payout.
A court hearing for the interdict has not been set down yet.
A leader of this aggrieved group, Belinda Moleko, told City Press that they had no insight into the value of their investment because of years of zero financial accounting and the absence of AGMs between 2012 and 2016.
Moleko also believes that former and current management have been hiding the misuse of dividends over the years and incurred pointless expenses, such as fancy offices.
However, Mantombi Maphanzela, the current chairperson of Sawimih, dismissed these allegations out of hand.
“We took over two years ago and have been trying to put things right,” said Maphanzela.
The Gauteng group’s complaints about the shareholder register were akin to making a mountain of a molehill, she insisted.
There is a small group of women who invested over the years, but cannot be identified because they made deposits without their names as references, she said.
Maphanzela insists it is a mere handful of people – as little as 20 out of 1 400 investors.
“It is for them to prove that they invested. We cannot allocate to persons we cannot verify,” she told City Press.
Moleko’s Gauteng group tried to intervene through the courts before – by seeking an urgent interdict against a Sawimih AGM in March this year, where the share apportionments were made.
That court bid was thrown out.
In that case, Maphanzela wrote a scathing affidavit, accusing Moleko and her allies of “malicious conduct” and of making unreasonable demands.
“They are such minute investors,” she said.
“They say they represent Gauteng, but that is not the case. They are welcome to go to court – that is their right as shareholders. We are not worried. We will prove that they are lying.”
The empowerment deal that created Exxaro in 2006 resulted in more than 50% of the company being owned by an umbrella holding company called Main Street 333 (MS333).
This consortium consisted of further consortiums which, in turn, consisted of large broad-based groups.
Sawimih and Sawima indirectly acquired about 5% of MS333, which translated into roughly 2.5% of Exxaro.
Sawima, founded in 1999, aimed to be a flagship empowerment vehicle for women and had the endorsement of the then minister of minerals and energy Phumzile Mlambo-Ngcuka.
It launched Sawimih in 2003. However, Sawimih has been in a shambles for years because of leadership battles and a complete lack of financial accounting.
From 2011 onwards, things got very rocky, with no AGMs being held and massive losses accruing.
The current leadership, under Maphanzela, sees itself as the turnaround team.
Maphanzela and another former director who returned in 2015, Noluthando Langeni, personally lent Sawimih R2.4 million to save it from bankruptcy. Part of the Exxaro payout would repay this debt, said Maphanzela.
The Gauteng group’s court application also seeks to compel MS333 to provide records of all dividends paid down into the BEE consortiums – and to force the current Sawimih leaders to provide detailed financial and banking information.
Sawimih produced a suite of financial statements early this year, covering several past years.
Audit firm SizweNtsalubaGobodo gave these a massively qualified audit, saying there was a “lack of appropriate accounting records” on which to base an opinion.
It also appears that unnamed “certain directors … have made unauthorised payments to themselves amounting to R2.4 million”.
With practically no income, Sawimih is making steep losses – and has liabilities exceeding its assets to the tune of R87.4 million.
“There were problems, and I am not going to pass on responsibility,” said Maphanzule.
“I was a founder of Sawimih and I made people invest in it. That is why I came back. This board has done what they can to fix it.”
Not a bonanza
Maphanzule said the Gauteng group seemed to have an inflated sense of the value of the Exxaro unwind.
Dividends had been used to service debt, she said.
There are still debts to settle and Maphanzule said the ultimate payout to Sawimih would only be about R102 million.
Of this, she said, R56 million would be reinvested in the new Exxaro BEE structure.
The balance of R46 million will be taxed and some of it will repay Maphanzule and Langeni.
Only then will the remaining cash be distributed among the 1 400 or so shareholders in proportion to their initial contributions.
On average, that means a cash distribution of, at most, R30 000 per person, although different women have different shareholdings.
Like all locked-in and debt-encumbered BEE investors, Sawimih has been vulnerable to the wild swings in mining share prices over the past decade.
In 2011, then director of Sawimih Melody Kweba told parliamentarians that Sawimih investments were worth R583 million.
Back then, Exxaro shares were worth R180 each and they rose to a high point of more than R200 in 2012.
Then they crashed to as little as R40 at the start of 2016. Today they are back to about R140.
If the Exxaro shares had been unbundled at the low point in the company’s share price, people would have lost money and the debts would not have been paid, Maphanzule told City Press.
LINK - http://www.fin24.com/Companies/Mining/exxaro-bee-battle-20171013