Embattled business magnate Mutumwa Mawere on Monday denied ever getting government support to acquire SMM Holdings from UK’s Turner & Newell Plc at a cost of $60 million in March 1996.
Mawere, who was speaking under oath before the Parliamentary Portfolio Committee on Mines and Minerals, said he purchased SMM Holdings and Turnall Holdings Zimbabwe (THZ) from Turner & Newell through Africa Resources Limited via sale and purchase agreement after failing to secure domestic and offshore bank credit.
Africa Resources was incorporated in the British Virgin Island.
“(Legal Affairs minister Patrick) Chinamasa claims that Mawere used a government guarantee to acquire SMM,” Mawere said.
“The truth is that the acquisition financing was secured by pledging SMM shares to T & N. The vendor was the lender. It was a sale and purchase agreement. There was no government guarantee and no security. The only security pledged were the shares in the two companies.”
Mawere’s remarks are a response to Chinamasa’s remarks in the august House in 2004 that “Mawere did not use any savings but he used government guarantees to purchase the company”.
A Member of Parliament had asked Chinamasa to explain the rationale behind the Reconstruction of State Indebted Insolvent Companies Act, which government used to take-over SMM in 2004.
In chronological order, Mawere explained that he made an “unsolicited” bid for SMMZ and THZ in 1995 while he was still working for the World Bank and the same year T&N eventually agreed to a sale deal.
Mawere further said T&N initially wanted to sell the company to him, but later agreed to a sale and purchase after he failed to secure bank credit.
He said he approached three banks for funding, a Dutch development agency, a German development agency and a French development agency.
“The French development agency came to Zimbabwe in 1995 and carried out a due diligence,” Mawere said.
“Their difficulty was financing an asbestos company. They couldn’t get the deal approved.
“I then contacted the chairman of Anglo-American. First Merchant Bank was controlled by Anglo-American. Anglo-American then arranged a meeting in November 1995. The bank told me that the transaction was best handled by a commercial bank.
“I then approached Barclays Bank and Standard Bank and on contacting their parents in London, they were told that asbestos was a risky business.”
“At this point I went back to T&N and told them it was not possible to obtain bank credit for an asbestos business.”
The business mogul said T&N then agreed to sell its entire shareholing in SMM and THZ to Africa Resources under a sale and purchase agreement.
Under the agreement, the $60 million “was to be paid from export proceeds”, while working capital for SMM would be financed through borrowings from the local market.
Mawere said that agreement did not encounter any exchange control hurdles since capital controls had been lifted under the economic structural adjustment programme.
“No guarantee was ever used in the acquisition of SMM,” Mawere said.
“We then used indigenous banks to secure working capital for SMM, which gave facilities to local companies through what were called memorandum of deposits (MOD).
“These were National Merchant Bank (now NMB Bank), Trust Merchant Bank, Heritage Investment Bank and Universal Merchant Bank.”
The facility, he said, came from a Belgian bank called KBC Bank.
“In December 1997, the Reserve Bank of Zimbabwe said all MOD facilities would be terminated. It meant that local banks had to take money from exports and not renew the facilities.
“We then approached KBC and negotiated that the money be given directly to us. KBC agreed to give us a five-year medium-term facility of $60 million. But SMM had to surrender export proceeds. The RBZ then said:
‘You can’t get the money directly. They wanted the Minerals Marketing Corporation of Zimbabwe (MMCZ) to be the conduit’.”
In March 1998, according to Mawere, KBC then asked for a guarantee from government that the exports proceeds pledged would be surrendered to KBC. Under the loan deal, SMM was not allowed to incur new borrowings.
The guarantees were then signed by ministers Simba Makoni and Herbert Murerwa on behalf of government.
The loan, which was fully settled in 2002, was committed to the refinancing of NMB, Heritage Investment Bank and Universal Merchant Bank.
“Now the guarantee was not for the acquisition of SMM for this had already been concluded in 1996.
“It was used to secure a loan to restructure domestic debt.”
Mawere further argued that Africa Resources did not default in payment as government alleged, as the company was no longer permitted to make external payments.
“We had reduced our obligation to T&N by $42 million. SMM then approached minister Makoni to use the same guarantee to borrow from local markets just like any other export since we had reduced our debt to $18 million.”
The application was rejected.