21 February 2011

Zimbabwe: Zisco/Essar Deal Still in Limbo

A DEAL to sell troubled steel maker - Ziscosteel - is in limbo after government and Essar differed on the value and whether the Mauritian based company would buy the Kwekwe foundry alone and not its iron ore resources.

Essar representatives have since gone back to their headquarters to consider whether it is feasible to acquire Ziscosteel without its iron ore reserves. Zisco owns key iron ore reserves in Zimbabwe.

State Enterprises Restructuring Agency (SERA) executive director Edgar Nyoni made the revelation when he appeared before the State Enterprises and Parastatals Management parliamentary portfolio committee on Tuesday this week.

Zisco/Essar deal has been on the cards since last year when the Mauritian based company agreed to buy 54% of the steel making company for a reported $60 million. The company also assumed Zisco liabilities.

"The Zisco/Essar deal has not been completed after Essar went back to consult its parent company," Nyoni said, "It will take a little longer to tie up the deal."

Nyoni added that the hold-up has been caused by differences in evaluating how much Zisco was worth.

"Essar thought that iron ore resources were part of the deal," Nyoni added, "It was not clear if the valuation of the company included its mineral resources or simply net assets and its financial statements."

Nyoni said this in response to committee chairman Larry Mavhima questioned if the reports the deal was being delayed by evaluation differences were true.

Mavhima said that the country had to be careful not to undervalue iron ore resources owned by Zisco when it concludes the Essar deal.

"The government should be careful not to sell all its iron ore resources to a single company in the deal," Mavhima said, "We should not repeat what happened in Zimasco and Anglo American who own most of the chrome and platinum resources in the country."

Nyoni responded that Zisco valuation was hampered by technical incapacities and its debt overhang.

"The deal should have been evaluated by independent financial advisors, independent of the government," Nyoni said, "The issues of Zisco debt also contributed to the low valuation. There is no much value if you have a $270 million debt."

Essar is also said to have expressed an interest in refurbishment of Hwange Thermal Power station tower seven and eight as a strategic partner.

Finance minister Tendai Biti revealed this in parliament on Tuesday.

"Essar has submitted an expression of interest in refurbishing Hwange," Biti said, "The bid documents are being considered by the government."

State Enterprises and Parastatals ministry permanent secretary, Eliah Mutowo, said that the government should move away from private placements as a means of recapitalising its companies.

"Private placement is not the proper way to privatise," Mutowo said, "This method distorts the value of the company. Tendering is a better option as you can see how other potential buyers value the company."

Mutowo added that, "Ministers, however, seem to be interested and are pushing hard for private placements."

The government plans to immediately privatise and restructure 10 state owned enterprises - National Railways of Zimbabwe, Air Zimbabwe, Noczim, GMB, Agribank, Cold Storage Company (CSC), Zisco, TelOne, NetOne and Zimbabwe Power Company.

Progress has since been registered on Noczim which was unbundled into two companies PetroTrade and National Oil Infrastructure Company (NOIC) that will trade in fuel products and management of fuel importation and storage infrastructure, respectively.

Plans to lease CSC Bulawayo abattoirs are at an advanced stage, according to Sera.

Most parastatals in the country had become an albatross around the economy's neck as they have become a continuous drain on the fiscus.

The restructuring or privatisation is expected to release other resources for capital projects like roads, communication and social infrastructure.

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