26 June 2019

Namibia: Ohorongo Deal Faces Money Laundering Probe

THE Singapore Stock Exchange has suggested that an anti-money laundering investigation should be carried out into the proposed N$1,5 billion purchase of Ohorongo Cement.

Singapore Stock Exchange-listed company International Cement Group (ICG) announced in March this year that it had agreed to buy Ohorongo Cement, which operates a plant near Otavi in northern Namibia.

Chinese-linked ICG planned to get a loan, but Singapore officials are not convinced, and instead blocked the transaction.

"The company does not have sufficient cash resources to fund the purchase consideration. It intends to possibly obtain significant external loans from financial institutions and shareholders. Such loans, when considered with the potential losses of the target business, will result in a material adverse financial impact on the group," the stock exchange said last Friday.

According to the statement, there is no certainty that Ohorongo Cement will generate enough profits to service the loans.

"The proposed acquisition will put the company out of a healthy financial position," the statement said.

The Singaporean Stock Exchange also called on the ICG to ensure that pre-deal anti-money laundering due diligence is carried out by external auditors on the source of funds for any transaction.

"The audit committee and the board is to undertake that so long as the group operates in Kazakhstan, Tajikistan, Namibia and/or any other developing jurisdictions, the company is to put in place adequate and effective systems of internal controls and risk management controls relating to the company's sources of financing of acquisitions," the Singapore stock exchange officials said.

The ICG proposed to buy the majority shares (69%) of Ohorongo Cement from the German-owned Schwenk Namibia (Pty).

Ohorongo Cement managing director Hans-Wilhelm Schütte told The Namibian yesterday that he cannot comment because they are not the ones looking for a buyer but their majority shareholder, Schwenk Zement International.

"It is difficult for me to comment, because I also do not have all the information. I am only responsible for Ohorongo Cement at the operational point of view. It is very difficult for me to comment on what was submitted to the stock exchange and its details," he said.

He added that the blocking of the proposed buy-out will not affect their operations.

The acquisition proposal was also submitted to the Namibian Competition Commission (NCC) earlier this year for approval.

NCC spokesperson Dina Gowases said they are aware of the decision of the Singapore Stock Exchange.

However, the commission will investigate the proposed deal within the scope of its mandate to safeguard and promote fair competition.

"We will, at this stage, not make any comments regarding the SGX ruling. The proposed merger is currently under investigation and, therefore, we will not make any comments at this stage," she said.

On allegations of money laundering, Gowases said: "The commission has thus far not dealt with any mergers or acquisitions linked to money laundering."

The Namibian Stock Exchange's chief executive officer, Tiaan Bazuin, explained that acquisitions can generally be disapproved, based on the very substantial acquisition (VSA) rule if the acquired company is not profitable, and the value of the acquisition/share makes a substantial difference on the buyer's balance-sheet.

He said the VSA rule states that if a listed company is buying a big share or another company, it should be profitable, otherwise it will lead to the buyer not being profitable once the acquisition is done.

Bazuin elaborated that the unprofitability of the acquired company will drag the value of the buyer down, or cause the buyer not to be profitable. But if the acquired company is small, then the impact on the balance-sheet will be minimal.

The stock exchange applies these rules to protect investors.

The state-owned Development Bank of Namibia (DBN) announced in April this year that it will consult the government on the way forward regarding their stake in Ohorongo Cement, which has been taken over by a Chinese-linked firm.

The DBN owns 11% in Ohorongo Cement, and said in a statement yesterday that they had not been warned by Schwenk Zement International that the company was selling its 69,83% stake to the Singaporean International Cement Group.

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