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(ZIMPAPERS) Essar plans on RioZim crumble

Essar plans on RioZim crumble
Monday, 04 April 2011 21:21
By Martin Kadzere

ESSAR Africa Holdings' plans to buy a 51 percent stake in the Zimbabwe Stock Exchange -listed RioZim have collapsed because the deal would have violated the indigenisation and empowerment laws.

Herald Business understands that RioZim wanted Essar to underwrite its US$40 million rights issue. But the Indian firm insisted on buying 51 percent equity of the diversified resource firm.

The collapse of the deal comes at a time when Essar, which recently acquired 54 percent of the Zimbabwe Iron and Steel Company, is evaluating options to
capacitate Hwange Colliery and Zesa Holdings.

Essar wants the acquisition to work to its advantage by ensuring it gets enough supplies of coke from Hwange and uninterrupted power supplies from Zesa when Zisco resumes operations in the next one-and-a-half years.

RioZim managing director Mr Josphat Sachikonye confirmed to a local news agency last week that the Essar-RioZim equity deal had collapsed.

Mr Sachikonye said the deal was off because Essar was insisting on buying a 51 percent stake, which would have been in conflict with the indigenisation laws.

The laws stipulate that foreigners cannot own more than 49 percent shareholding in Zimbabwean companies.

"We have been talking to them (Essar) about the possibility of investing in RioZim," he said.

"Essar wanted 51 percent of RioZim but there is no room for that. If the law says you cannot do that, then you cannot do that. You cannot be a majority shareholder in a local company."

The acquisition of Ziscosteel by Essar was excluded from the indigenisation and empowerment law. Essar also sought to build a power station at Sengwa in a project requiring a staggering US$3 billion.

The power would then be fed into the Ziscosteel Redcliff plant that Essar now runs.
Last year, RioZim shareholders approved the US$40 million rights issue in an exercise aimed at transforming the group's mining operations. The rights issue is probably the biggest cash caller on the local market by a single company since the country adopted the multi-currency system.

RioZim intends to use most of the funds to finance new mining projects, including reviving the Cam and Motor Gold Mine in Kadoma.

Labels: ESSAR AFRICA HOLDINGS, INDIGENIZATION AND EMPOWERMENT ACT (ZIMBABWE), RIOZIM

posted by MrK @ 3:30 AM