Source: David Whitehead sale raises a stink – The Zimbabwe Independent June 7, 2019
CONFLICT of interest and possible abuse of office concerns emerged this week after David Whitehead Textiles Ltd (DWTL) judicial manager Knowledge Hofisi sold a 51% equity stake in the textile company without consulting shareholders and creditors of the company to a creditor at a grossly discounted price in RTGS dollars. This comes at a time real and productive assets are being sold in US dollars, businessdigest has established.
By Chris Muronzi
It emerged this week that Hofisi sold controlling shareholding in the company to an investment vehicle — Agri Value Chain Zimbabwe (AVCZ) — controlled by Praduman Kumar Ganeriwal, the owner of Parrogate, a company that controls one of Zimbabwe’s largest cooking oil producers, Pure Oil (Pvt) Ltd, which produces the ZimGold brand.
Ganeriwal, whose company is owed RTGS$3 million by David Whitehead and is officially listed as a creditor, acquired the 51% equity stake for only RTGS$5,4 million, a figure just above US$675 000 at yesterday’s reigning rate of US$1:RTGS$8.
The value of the equity in question has raised questions among shareholders and creditors of how Hofisi arrived at the valuation after he failed to produce financial statements of the company since his appointment in 2014.
Comprehensive financial statements give investors and analysts a general valuation idea of a company and provide data for arriving at quantitative valuations based on current cash flows.
A property in Glen Lorne and other prime residential areas easily fetches the same or more value. Apart from being a creditor to the company, Ganeriwal sits on an oversight committee formed to safeguard a US$2 million working capital facility provided by Zimbabwe Asset Management Corporation (Zamco).
In a statement this week, DWTL shareholders said: “We, the shareholders and creditors of David Whitehead Textiles Ltd would like to distance ourselves from the press statement issued on Friday 1 June 2019 by the judicial manager. We are not aware of the finalisation or completion of the purported 51% acquisition of DWTL by AVC represented by PK (Pradyumin Ganediwal), as reported in The Herald of 05 Tuesday 2019.”
“Shareholders and creditors have not been informed of any invitation for bids to potential investors, let alone any negotiations that took place between the company and AVC.”
According to the statement, shareholders and creditors have been pushing for and are still waiting for the judicial manager to reconvene an adjourned statutory meeting of members and creditors held on September 28, 2018.
The meeting was adjourned after Hofisi failed to provide shareholders and creditors with detailed financial statements. The judicial manager is statutorily required to provide the financial statements in terms of section 306 of the Companies Act.
“The judicial manager was supposed to have reconvened this meeting in March 2019, but did not. The Additional Master of the High Court instructed that meeting be reconvened on 15 April 2019.”
The shareholders questioned how Hofisi arrived at the valuation of RTGS$5,4 million for the company without a valuation report and financial statements. They also queried why Ganeriwal did not declare his interest at various meetings he attended with other creditors and shareholders.
Since taking over as judicial manager in 2014, Hofisi has not produced any financial statements as demanded by the DWTL articles of association.
“Of concern to us is how a paltry purchase consideration of RTGS$5,4 million for 51% of the company was arrived at without the detailed annual financial statements, and given that only one of our three factories is currently valued at US$5 million. It is clear to us that a transparent bidding process would raise more than RTGS5,4 million,” the statement said. “Even more concerning is that the AVC owner PK (Pradum Ganeriwal) is a creditor as well as an oversight committee member of DWTL and is well aware of the non-compliance by the judicial manager of DWTL in terms of Section 306 of the Companies Act and the Articles.”
This latest episode comes amid earlier concerns that Hofisi had failed to produce financial statements for the company since his appointment in 2014.
In a letter dated May 17, 2019 addressed to Additional Master-Insolvency and Guardian Fund Reuben Mukavhi, Zamco chief executive Cosmas Kanhai said Hofisi has not heeded his various requests.
“We are concerned at the absence of demonstrable value addition following our injection of US$2 million working capital to resuscitate the company which the government classifies as a company of national interest,” he said.
“We have on several occasions requested information relating to the financial position and operations of the company, which was a precondition to the disbursement of the facility, which information the judicial manager has refused or neglected to provide not just to ourselves but to all creditors in general.”
Zimbabwe’s textile sector used to be one of the country’s major employers, providing jobs to about 51 000 people at its peak. By 2005 employment levels had reduced to 28 822 with 22 178 job losses recorded.
Considering the clothing sub-sector alone, employment numbers sharply reduced from 13 500 in 2009 to 12 506 in 2010, then to 8 627 in 2011 and to a mere 4 748 in 2012.
Job losses in the clothing industry between 2009 and 2012 totalled 8 752, which is 65% after dollarisation.