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Status Report on Minority Shareholders' Queries Sept 2013

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Status Report on Minority Shareholders' Queries du 13 Septembre 2013

ZCCM Investment Holdings Plc
Status Report on Minority Shareholders' Queries
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1. Nomination and appointment to the ZCCM-IH Board of a Person to represent Minority
1.1. Background
GRZ holds 87.6 % whilst the minorities hold 12.4 % of the shareholding in ZCCM-IH. The Articles of
Association of ZCCM-IH provides for a minimum of seven and maximum of eight directors of the board.
Currently there are seven board members appointed by GRZ. The Articles do not provide for the
appointment of a person ta represent minorities on the board. However, in the spirit of good corporate
governance, ZCCM-IH, in March 2012 invited minority shareholders to nominate a person to sit on the
ZCCM-IH board. Nominations were received, reviewed by Management and then submitted to the Board
in October 2012 for consideration. During the deliberations at the Board Meeting, it was noted that in
September 2012, the Government of the Republic of Zambia (GRZ) communicated to ZCCM-IH that it
had agreed to the Board's proposal of a balance sheet restructuring exercise.
1.2. Board Decision
In view of the impending restructuring of the Balance Sheet via a rights issue, the Board of ZCCM-IH
resolved to defer the said appointment to await completion of the balance sheet restructuring. This was on
the basis that the composition of minority shareholders is likely to change after the balance sheet
restructuring exercise as new shareholders may take up shares that may not be taken up by existing
1.3. Status
In the meantime the Board has noted that the market and minorities need to be informed on the ongoing
balance sheet restructuring exercise and repositioning of the company. Therefore a detailed market
announcement is currently under preparation, and will be published before 30 September to provide
updated information to the market and the minorities.
2. ZCCM-IH' Balance Sheet Restructuring by way of a Rights Issue.
2.1. Background
ZCCM-IH currently has significant loans mainly arising from the restructuring programs undertaken prior
to and during the privatisation of ZCCM in 2000. The majority of these loans are owed to GRZ and
continues to be carried on the books of the Company. Details and salient terms of these loans are
disclosed in audited financials reports each year and are publicly available. As at 31 March 2012, the
ZCCM-IH audited financial statements reflected loans amounting to ZMW l,998 Million (approximately
US$363 million) owed to the GRZ. This has meant that ZCCM-IH has been technically insolvent for a
number of years and thus has required GRZ to confirm to the external auditors of the Company, each
year, that the amounts due will not be demanded within the next 12 months.
These loans have placed a significant burden on the Company with the result that ZCCM-IH bas had a
weak balance sheet from 2000. Until recently, the Company reserves have always been in negative with
the result that even in periods when profits have been made and the cashflows healthy, a dividend cannot
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be declared. In addition, a weak Balance Sheet has meant that options for financing investments (which
include borrowing) have been limited hence restricting Company growth and shareholder value.
The Company had been in discussions with GRZ over these loans and recently (as indicated above) GRZ
accepted proposals from the Board to restructure the balance sheet through a Rights Offer transaction.
2.2. The proposed rights offer
A “rights offer” is an offer made to existing shareholders of a company to subscribe for new shares on a
pro rata basis. It is a common mechanism for raising a large quantum of capital relative to existing market
capitalisation, particularly where shareholders do not wish to be diluted.
The Rights Offer process is lengthy and highly regulated to ensure all shareholders are fairly and
equitably treated.
The offer is made by way of "renounceable rights" which are listed and can be traded so shareholders
may sell or renounce their rights if they do not want to subscribe for the new shares on offer.
Provided the rights trade at fair value, shareholders who sell their rights are economically indifferent to
those who exercise their rights. Shareholders who elect not to follow their rights will have their interests
in the Company diluted.
A Rights Offer also allows unallocated rights to be placed to new shareholders or underwriters.
The proposed Rights Offer has a number of critical and important objectives that include the following:
 Offer new shares to existing shareholders to raise capital to restructure the ZCCM-IH balance
sheet and thereby unlock the value of ZCCM-IH for the benefit of all shareholders ;
 Ensure ZCCM-IH remains financially solvent and able to continue as a going concern;
 Inject additional fresh capital into ZCCM-IH which the Company can utilize for strategic
investments and developments; and
 Avoid involuntary dilution of any class of shareholders.
2.3. Expected Benefits from the Rights Offer
It is envisaged that successful implementation of the Rights Offer will lead to several benefits and
advantages for all shareholders and stakeholders at large. These include the following:
 The proposed Rights Offer will enable Management of ZCCM-IH to proceed with the
restructuring of the ZCCM-IH balance sheet;
 After the implementation of the Rights Offer exercise, GRZ debt will be reduced or eliminated,
leaving ZCCM-IH with a clean balance sheet and therefore be in a better position to consider
payment of dividends to all shareholders going forward.
 A balance sheet with little or no debt will enhance the attractiveness of ZCCM-IH to investors. In
turn this may lead to increased and active trading of the Company shares on the stock exchange
for the benefit of all shareholders.
 The shareholding structure of the Company will not change as a consequence of the Rights Offer.
After the Rights Offer, the shareholding of GRZ will still be 87.6% whilst the minority
shareholders will still hold the balance of 12.4% shareholding;
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 It is envisaged that ZCCM-IH will raise some fresh capital from the Rights Offer and the funds
will be used to diversify and enhance the investment portfolio;
 The Rights Offer route allows for equal treatment of all shareholders since they all have a right to
exercise or renounce their rights. Minorities have the right to participate in the Rights Offer and
maintain their shareholding by exercising the rights and subscribing for the new shares that will
be issued.
 The exercise will allow a valuation of ZCCM-IH to be undertaken.
2.4. Status
ZCCM-IH has initiated processes to restructure the Balance Sheet. Stockbrokers Zambia Limited and
Imara (a regional and Pan African financial services group listed on the Botswana Stock Exchange) have
since been appointed as lead financial advisors for the Balance Sheet Restructuring Exercise (the
transaction). They have also, since appointed other advisors for the transaction such as lawyers and
The financial advisors have recently completed the valuation of ZCCM-IH's interests in Associate and
Subsidiary Companies. Besides being a critical component of the transaction, the valuation results will be
included in the 2013 Financial Statements to reflect ZCCM-IH's interests at fair value.
With respect to the debt figure, ZCCM-IH is currently liaising with the GRZ to verify and quantify the
loans in preparation for the proposed Rights Offer.
The timetable for the completion of the transaction is indicated as 31 December 2013.
2.5. Director's action in the transaction
As has been highlighted above, the transaction will greatly benefit the Company and will be implemented
in compliance with the relevant laws and regulations. Therefore contrary to some minority shareholders'
insinuations that the Board of Directors is not acting in the interest of the Company but rather the interest
of the majority shareholder, it is clear that is not correct. The transaction is being progressed for the full
benefit of the Company and the shareholders.
3. What ZCCM-IH is doing with respect to the recognizing the shareholders in Euroclear (TPI)
3.1. Background
ZCCM-IH shares were listed on Paris Stock Exchange (now Euronext Paris) from October 1970 on the
Free Market (unregulated Market) via initiation by shareholders depositing shares on the exchange
through nominees. It should be noted that the Company had not made a formal application to list on the
Paris Stock Exchange and hence to date, the Members Register only records the nominees as the
shareholders. Euroclear has to date been recognised and considered like any other shareholder on the
register and therefore communication sent to shareholders on the register is sent to the nominees as the
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3.2. Identifying shareholders represented by Euroclear using shareholder data file requests
Following requests from persons owning shares behind the nominees represented by Euroclear France,
ZCCM-IH has contacted Euroclear regarding the use of TPI (a service used to obtain shareholder data
files) which should enable ZCCM-IH identify and obtain the listing of shareholders represented by
As an initial step, the Board and management of ZCCM-IH engaged a Transfer Secretary to take over the
management of the Members Register. Corpserve Transfer Agents Ltd was appointed in 2013 and have
since embarked on carrying out a thorough review, audit and reconciliation of the Members Register.
Corpserve's scope of work has also included engaging Euroclear on formalizing the use of TPI.
Euroclear, however, requires that the Company confirms that the Zambian legal framework and the
Articles of Association of ZCCM-IH authorizes the Company to obtain disclosure of the shareholders
under Euroclear. Preliminary review indicates that there may be a need to amend the Articles of
Association of the Company in order to conform to the statutory requiren1ents in France and the
Euroclear regulatory requirements. We have also been advised that the cost of getting the full list and
details of persons represented by Euroclear for ZCCM-IH is approximately €7,000.
ZCCM-IH has further requested for a legal opinion internally and externally to confirm that accessing the
list, identifying and communicating to persons under Euroclear is within the relevant Zambian laws and
the SEC and LuSE rules and regulations. We anticipate that this legal opinion should be provided by 15
September 2013. Once the legal opinion clears this aspect, ZCCM-IH will immediately request its
transfer agent, Corpserve Transfer Agents Ltd, to proceed and request for the identity of the shareholders
for the purposes of communicating to them directly as opposed to Euroclear.
We anticipate that with this legal opinion, every corporate action in future will be communicated directly
to those represented by Euroclear.
These initiatives and current on going consultations are a clear indication that the Board and management
of ZCCM-IH regard this as a very important exercise and value ail shareholder requests received.
4. ZCCM-IH Plc Stock Exchange Listings Status
Some minority shareholders have requested that ZCCM-IH reviews its stock exchange listings especially
its listing on the Euronext Marche Libre (Free Markets). The reason being advanced is that the Marche
Libre is unsuitable for a company the size of ZCCM-IH Plc and that it is an unregulated market.
This matter is under internal review and once all the initiatives that have been instituted are concluded
appropriate communication or feedback will be provided.
5. Kansanshi and Mopani Dividends and Undistributed Profits
These matters continue to be vigorously pursued by ZCCM-IH at the levels of Management, Board and
This has not only been a concern of the Company but of all Zambians as well as international watch
groups. Efforts continue to be made to engage all investee companies and the Board and management are
confident that progress on these efforts will bear fruit for the benefit of all stakeholders.
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In the first instance, ZCCM-IH has appointed competent professional representatives to the boards of the
various investee companies with a clear mandate to thoroughly and constantly engage and scrutinize the
governance of all investee companies. Through these and other ZCCM-IH efforts, Mopani Copper Mines
Plc declared the first dividend (US$2.1million) in December 2012.
Ce que l'on conçoit bien, s'énonce clairement, Et les mots pour le dire arrivent aisément. BOILEAU