Jim Armitage: Shades of ENRC? The Zambian bank that’s eyeing a London float
Kofi Annan’s panel criticised deals ENRC has done on mining concessions
Jim Armitage is the City editor of The Independent and London Evening Standard group of newspapers. He has been a reporter and editor for more than 20 years and was recently shortlisted for the Press Gazette financial journalist of the year and The Society of Editors financial journalist of the year awards. He contributes news, investigative reports and comment to the Independent titles plus a daily column in the Evening Standard.
Saturday 11 May 2013
Global Outlook The mining giant ENRC found itself splashed all over the front page of the FT yesterday for all the wrong reasons. Now, I hear of another stock-market flotation heading London’s way that has a weirdly similar feel to it.
For reasons of what are said to be greed and naivety, ENRC, based in Kazakhstan and controlled by a trio of central Asian oligarchs, was welcomed to the London Stock Exchange with a thick red carpet.
The teams of bankers, lawyers and brokers who brought the company here billed many millions of dollars. They are accused of turning a blind eye to what quickly emerged as a host of opaque dealings and dismal corporate governance.
Yesterday, yet another major organisation – Kofi Annan’s Africa Progress Panel –criticised deals ENRC has done on mining concessions in the Congo. It alleges it bought lucrative mining assets from controversial Israeli tycoon Dan Gertler, who, it is claimed, in turn bought them for what appears to be a knockdown price from his faithful friend, the Congo president, Joseph Kabila.
Mr Annan’s team yesterday calculated that, in five deals it was scrutinising, mining concessions were sold to offshore companies like those allegedly controlled by Mr Gertler at a sixth of the price of independent valuations.
They were then sold on to big mining firms like ENRC at rates of return averaging 512 per cent. The lost value to the people of Congo? $1.36bn (£876m) between 2010 and 2012. Mr Gertler refutes the report’s findings.
A famed Congolese deal that has received much publicity was for a mine seized by Kabila’s government from a London and Canadian business, First Quantum Minerals.
It was then sold to Mr Gertler, who sold it on to ENRC for an enormous profit. First Quantum subsequently successfully claimed $1.25bn compensation from ENRC for the deal.
Mr Gertler has consistently denied any wrongdoing and said he paid a fair price for what were extremely risky assets.
ENRC says its acquisitions followed ‘appropriate regulatory and board best practice’.
But now it emerges that another business with substantial African assets, Finance Bank Zambia, is looking to float in London as well. In what appears to be a similar series of events, Finance Bank Zambia was seized from its previous owner, South Africa’s FirstRand Bank, on the orders of Zambia’s president Michael Sata. Mr Sata handed the bank on to his political ally, the wealthy businessman Rajan Mahtani, who is now the executive chairman.
Unlike First Quantum, FirstRand Bank has not sued. That may be because it is worrying about other businesses it has in Zambia. But some say that refusal to sue is because Finance Bank originally came into FirstRand’s hands in peculiar circumstances, too.
You see, Mr Sata’s predecessor Rupiah Banda repossessed Finance Bank Zambia in December 2010 in extremely unusual circumstances which wiped out shareholders. Rajan Mahtani, an enemy of Mr Banda, was in charge of the bank at the time and was a major investor.
Precisely how much Mahtani family companies owned is contested, but under the Banda regime, the Zambian central bank accused Mahtani of going over the 25 per cent ownership limit and engaging in “insider lending” deals. Mr Mahtani said this was “nonsense” but the central bank seized Finance Bank Zambia anyway, handing it over to FirstRand.
So far, so complicated, no?
Mr Mahtani has just unveiled plans for a flotation of the business in London, Zambia and Johannesburg. It wants to raise $250m.
Now, I wonder, in the light of the ENRC case, will London have the appetite for the business with such an unusual history?
So far, so mixed for the new president
Some funny things have been happening around the regime of the reformist President Sata of late. A court case heading to London in the coming months revolves around another forced nationalisation – that of the country’s telephone company Zamtel.
This was seized by the Sata regime from Lap Green, the Libyan telecoms giant made great on the continent by Colonel Gaddafi’s oil wealth.
An investigation ordered by President Sata claimed the original sale to the Libyans was fraudulent, undervaluing the business. Lap Green begs to differ, and is seeking $480m compensation. Why do the Libyans want to present their evidence in court in London, you may ask?
Because the Sata government refused to guarantee the safety of Lap Green witnesses, some of whom have claimed they are being harassed and intimidated.
Sata was swept to power in 2011 on a populist ticket to fight corruption and improve the lot of Zambian workers, thousands of whom toil for Chinese mining companies in dismal conditions.
So far, gains with the Chinese have been fairly limited, although some progress has been made on wages and royalties. Meanwhile, opposition and church leaders say they are suffering arbitrary jailings and harassment.
In March, a Commonwealth committee visited to hear their concerns and called for dialogue between political parties.
Businesses in the region are becoming increasingly vocal in their concerns about his regime. Some grumble that his Anti Corruption Commission, which has received £3m in aid from Britain since 2009 , is being influenced by him – charges he and the ACC deny.
As British taxpayers, we should hope Mr Sata doesn’t lose sight of his anti-corruption goals.
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