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Nicholas van Hoogstraten

Martin Kadzere Senior Business Reporter
THE $50 million loan offer to Hwange Colliery by one of its major shareholders Mr Nicholas van Hoogstraten (pictured) is hanging in the balance as the parties are differing on terms.
Mr van Hoogstraten offered the $50 million loan to Hwange through his vehicle Willoughby’s Consolidated, after the coal miner’s management approached him seeking a loan of up to US$20 million for recapitalisation and to refinance short-term debt.

Under the deal, the US$50 million cash injection was to be formalised and secured by issue of convertible loan stock with a 10 percent interest and a conversion rate of one new 25 ordinary shares for each $0,50 of loan stock convertible after four years. Willoughby’s wanted an initial five-year exclusive management control. The management would report directly to the Hwange board through a board appointed co-ordination committee comprising two directors from Hwange and three from Willoughby’s.

Government’s 37 percent shareholding was to be maintained while an option that would ensure that the Government’s eventual shareholding will not be less than 37 percent threshold was to be developed and agreed upon by the parties concerned. Mr van Hoogstraten had proposed the money owed to statutory intuitions be converted into five-year preference shares at a par value of $1 and a 5 percent interest rate.

He had also proposed that banks and other financial institutions be given an immediate 50 percent cash payout with the remaining 50 percent being converted into five-year preference shares at a par value of $1 and a 5 percent interest rate. The balance of the US$50 million was to be utilised on purchasing critical spares and equipment.

Hwange then responded with a counter offer where conditions deemed favourite to the company and other shareholders were captured. The counter offer, among others, rejected giving Willoughby’s exclusive management rights, but proposed the formation of an executive committee comprising three Hwange directors and two from Willoughby’s. The committee was to oversee the utilisation of the money in the next six years.

Hwange also wanted the loan to have a six-year term and carry a 10 percent interest per annum, payable bi-annually in arrears and wanted Government to maintain its shareholding.

Willoughby’s came up with a number of amendments to the terms proposed by Hwange.
“Willoughby’s had their terms which Hwange amended to suit its interests,” said one source familiar with the development.

“But when the document was returned to them, they insisted on issue of exclusive control of the management which is tantamount to giving away the company to a management without a track record of ability to manage a company like Hwange.  There is now concern that the investment is irredeemable and also issues to do with the re-pricing of the borrowing.”

According to the documents gleaned by The Herald Business, Willoughby’s has made the notes “irredeemable”, meaning the loan notes will have a fixed period of five years and Hwange Colliery will not have an option to make an early payment. This effectively means that the US$50 million will translate into a 35 percent ownership in the hands of Willoughby’s or 35 percent dilution of the current shareholders.

Considering that their shareholding is at 35 percent, it will increase to 58 percent post transaction.
Moreover, Willoughby’s has based the above conversion into ordinary shares at a price of $0,50 compared to the existing book value per share of $0,62.  The current market value of Hwange is 0,05c per share so the proposed conversion price in four years’ time is at 466 percent premium.

Analysts, however, said the ideal premium to book value should be 150 percent in line with what peers of Hwange are trading on other markets.
The loan notes will now be secured and also are not subordinated to any other liabilities. But Hwange Colliery had proposed to make the facility a subordinated loan.

The coupon remains at 10 percent, but this will not include any withholding tax which will now be the responsibility of Hwange.  Willoughby’s is insisting that management shall have exclusive control over all affairs of Hwange including full management control and decision making on all activities of the company and its subsidiaries. The SPV will also be in charge of decisions on awarding of all contracts.

In addition, it will have control over finance, accounting and treasury functions as well as human resource allocation, mobilisation, recruitment and training, transportation, logistics, sales and marketing and real estates and properties. The SPV shall also be paid 3 percent on gross revenue and 17 percent of pre-tax profits on each year.

This will aggregate the cost of the loan to an average of $9 million per annum assuming a turnover of $100 million and profits of $4
million benchmarked on historical performance.

Willoughby’s has also eliminated the provision of a rights offer trigger should they exercise their conversion. Their only point of concession is to acknowledge indigenisation and make an effort to sell down to 49 percent without defined period.