In a 2014 interview with Standardbusiness, Hwange Colliery Company Limited (HCCL) managing director Thomas Makore said he had the key to the company’s turnaround.
BY MTHANDAZO NYONI
“I have experience to run businesses having led organisations that are multinationals.
“I worked in the turnaround of companies and some of my major areas of interest are customer relation management, operation management and strategy,” Makore said then.
“I believe with my skills and qualifications, I am able to contribute to the turnaround of Hwange and be able to raise funding to address the immediate challenges and help the company to grow sustainably.”
However, nearly three years into his reign, the company’s fortunes have worsened, with analysts imploring government as the largest shareholder to fire the current management at the firm and place it under judicial management.
Government holds 37% shareholding in the struggling coal miner.
HCCL’s balance sheet has been deteriorating in the last three years from a positive shareholders’ equity of $37,2 million in 2014 to a negative $167,7 million in 2016.
It has since tabled a scheme of arrangement to clean its balance sheet and turnaround its fortunes.
But economic analysts who spoke to Standardbusiness last week said any efforts to revive HCCL without restructuring it were futile.
“The chief cause of the collapse of the company is mismanagement arising from weak corporate governance. This is acknowledged by the company in the scheme of arrangement publication,” economic analyst Reginald Shoko said.
“The proposed scheme of arrangement does not address the main source of the problems.
“The company has been let down by a leadership appointed by existing shareholders. The proposed scheme retains the leadership of the same shareholders.”
Shoko said creditors should be afforded the opportunity to appoint a new leadership.
“This is the only available option to secure their interests. The existing leadership was appointed by shareholders and it is to be expected that the leadership will represent the vested interests of the appointing authority,” he said.
Several efforts have been made to revive HCCL but to no avail.
In 2013, British tycoon, Nicholas van Hoogstraten, who owns 30% shareholding in the company, offered a $50 million bailout to the mining firm but the board turned down his offer.
Some of the reasons why government turned down his offer were that he wanted to take over management control before releasing the $50 million.
This, therefore, cast doubts on whether the government was serious about reviving the company.
Besides, in 2015 government bought new equipment worth $32 million for the firm but that also did not solve anything as mining output declined to 969 million tonnes in 2016 from 1,786 million tonnes in 2014.
As a result, the company is now draining the cash-strapped government as recently the Reserve Bank of Zimbabwe gave it $7 million to pay employees who are owed millions of dollars.
Analysts said the scheme of arrangement as proposed by the board would not work as it was being driven by directors appointed by government as the main shareholder.
They said the same directors were responsible for running the company to its current state.
Shoko said government erred by changing the composition of creditors by issuing a shareholder loan in the form of treasury bills (TBs) to Mota Engil without following due process in terms of the articles of association and company’s act.
This was done after obtaining the court order seeking for the scheme of arrangement, he said.
The government, through the ministry of Finance issued TBs of $41 million and $18,2 million in settlement of the Mota-Engil debt and RBZ/PTA Bank loan, respectively.
This, according to analysts, triggered the debt overhang to skyrocket as borrowings trebled in 2016 to $91 million from
$29,8 million in the previous year.
Mota-Engil signed a five-year contract worth $260 million with HCCL in January 2014 and was producing 200 000 tonnes of coal per month but quit last year after HCC, failed to settle its $50 million obligations.
It only resumed operations this year.
“This has the effect of predetermining the outcome of the creditors’ meeting,” Shoko said.
“The state of the company demands that creditors take charge of the corporate governance process of the company within more appropriate legal processes to redeem the company.”
He said the accumulation of creditors was part of the mismanagement of the company and the scheme validated and concretised claims by creditors.
He said the verification exercise by a firm of auditors was not a validation process to eliminate claims arising from mismanagement.
“Mismanagement by its inherent nature would have created fraudulent transactions,” Shoko added.
“The scheme of arrangement overlooks this fact, which could be determined by a forensic audit process.
“There are creditors that are crowding out authentic creditors who are part of the scheme of arrangement.
“The company could get relief if fraudulent creditors were isolated. As given, the scheme places all creditors at the same level.
“The government as a shareholder should have insisted on a forensic audit ahead of committing public funds to the company where it has an interest with other third parties.
“The actions so far undermine minority interests in respect of both shareholders and creditors.”
Economic analyst, John Robertson said government should make urgent arrangements to put HCCL on the market and commission international agents to start looking for potential buyers.
He said if the same was done for the National Railways of Zimbabwe and buyers were found, the coal miner would be able to reach internal and export markets.
“If conditions are left unchanged, both these companies will continue to deteriorate, damaging Zimbabwe’s prospects of recovery,” Robertson said.
“The shrinking capacity and financial losses at Hwange have already caused part of the inefficiencies suffered by industry and four separate power stations, so their revival will be of service to the nation.”
Shoko said there were legal options available in dealing with the status of HCCL.
One of them, he said, was the scheme of arrangement which was proposed by the management.
The problem, however, was that the scheme was fraught with flaws as it gives continuity to the current leadership, making it difficult for the company to break from its past of mismanagement and inefficiencies.
The other option is placing the company under judicial management. Shoko said the option proposed by management was an element that can be applied by a judicial manager.
“A judicial management process will bring in new blood, fresh ideas and accountability to creditors and the courts. It is more comprehensive and offers wider powers to deal with the problems facing the company,” he said.
Technically-insolvent HCCL narrowed its net loss by 22% to $89,9 million in the full-year to December 2016 from $115 million recorded in the previous year.
Its liabilities outstripped assets by $168 million.
Revenue declined by 41% to $39,9 million from $67,5 million recorded in the preceding year, chiefly on poor sales.
Administrative costs stood at $47,6 million, 22% lower than the $60,6 million recorded previously.
Total annual coal production volumes decreased to 38% as the mining contractor’s contribution to production volumes declined to 58% in 2016 from 63% in the preceding year.
Meanwhile, Mines minister Walter Chidakwa shot down the suggestions on the revival of the coal miner by analysts, saying the current scheme of arrangement will work.
“We are now working towards the recovery of the company. I’m not guided by the analysts but someone close to the situation,” he said, adding that the company was “absolutely” going to be revived.
Butler Tambo, an economic analyst advocated an end to corruption and mismanagement as well as public disclosure of parastatal activities, performance-based contracts and raising the cost of corruption in parastatals.
“There should be transparency in parastatal activities that include recruitment procedures and practices as well as transparency in deals and contracts,” he said
Tambo said one would advocate a move towards performance-based and time-bound contracts for all top managerial posts in public enterprises.
“This would serve to drain away any mentalities of entitlement, where officials may fail to see the merits of good corporate governance, blinded by the opium of assured permanency of their jobs,” he said.
“This should make it easier to hire and fire poorly performing executives and in also putting a cap to their salaries or pegging salaries against the performance of their entities.”
Makore could not be reached for comment.