Regulator challenges Meikles investments

via Regulator challenges Meikles investments – NewZimbabwe 28 February 2015

THE Securities and Exchange Commission of Zimbabwe (SECZ) has asked Meikles Limited to come clean on its foreign investments, corporate governance issues and failure to disclose the actual amount it is owed by the central bank.

The move comes after the Zimbabwe Stock Exchange (ZSE) suspended Meikles Limited from trading on the bourse over allegations of overstating the debt it is owed by the Reserve Bank of Zimbabwe (RBZ) with the intention of manipulating its price. The ZSE lifted the suspension three days later after Meikles objected to the move on procedural grounds.

Information in the RBZ Bill before Parliament shows that the central bank’s principal debt to Meikles was $25 million in 1998 but shot up to $47 million at the end of 2013 after inclusion of interest, charged at a rate of eight percent per annum.

However, Meikles chairman, John Moxon insists the group is owed $90 million, including interest.

Last Friday, the commission said while it was engaging ZSE to establish the manner in which the Meikles suspension was handled, it was concerned about the group’s financial reporting irregularities.

“SECZ is concerned by the information asymmetry regarding Meikles Limited, information the commission deems material in that its disclosure would probably have an impact on the Meikles Limited share price is being withheld from the market,” the regulator said in a statement on Friday.

Mentor Africa investment

SECZ queried Meikles investment in Mentor Africa Limited, lack of accuracy on the Meikles debt and failure to disclose recent movements of executive directors and the proposed $5,1 million dividend for the full year to March last year.

“The concerns have come to a head because historical promises and commitment included in statements in annual reports have not been honoured and shareholder value continues to diminish,” said SECZ in a statement on Friday.

The financials of 2008 showed an impairment for “funds earmarked for future investments” amounting to $17,8 million held by Cool Bay Investments, a company associated with the Meikles family but the auditors’ report indicated that there was “uncertainty of the carrying value of any investment made from those funds.”

“It has been 10 years since the funds originally with Cool Bay and now with Gondor were described as available for investment but nothing has materialised. What is the factual status of the $17,8 million and why isn’t it available for the company to utilise in the interest of all shareholders,” queried SECZ.

“How can the funds be described as shareholder funds when they are only available to the family shareholder group?”

Meikles also assumed a 35 percent shareholding in Mentor Africa Limited, a diversified company after selling Cape Grace Hotel to it for $27,6 million.

SECZ wanted to know which “independent valuer” carried out the valuation of Mentor after Meikles claimed that its shareholding in company had an “equity value” of $79 million and had increased by 20 percent in Rand terms but static in US$ terms.

“Why does Meikles not have board representation in Mentor. Without board representation, how does Meikles protect its interests in Mentor. What is the actual performance of the Mentor Group, given the positives that were outlined at the time of the investment?” asked SECZ.

SECZ further probed why there wasn’t any dividend from Mentor  and why Cape Grace, a good asset at the time of disposal was sold for only $1,173 million more than its equity value.

Overstating RBZ debt

Meikles was also accused of overstating its debt owed to RBZ after claiming  that from the $90 million owed, it had received Treasury Bills worth $49,6 million leaving a balance of $40,9 million.

The company’s half-year results to 30 September 2014 showed the balance with RBZ as $43,738 million and TBs of $38,431 million totalling $82,169 million, a decrease in value by $8,63 million.

“The company overstated the amount it is owed by the RBZ in that it did not advise investors of the new amount that was agreed with the RBZ and its impact on the Meikles financial statements,” said SECZ.

“The SECZ received written submission from the RBZ of the asset’s carrying amount, which information is material and price sensitive. The information would have resulted in significant reduction of the Meikles’ 2014 profit.”

The leadership of the group was also questioned after key executives — Mark Wood and finance director Onias Makamba – were fired and suspended, respectively.

“The current situation indicates a dysfunctional board and a lack of independence in leadership as Mr. John Moxon, the major shareholder representative and executive chairman, appears to have taken unilateral control of the group,” SECZ said.

“It is clear that the rights of the other shareholders are being prejudiced and risk that shareholder value will continue to be lost.”

The commission also questioned why Meikles declared a $5,1 million dividend in the full-year to March last year when it reported a loss of $3,7 million for the period when the investment income of $40,9 million relating to RBZ funds is excluded.

“Good accounting practice highlights that dividends should only be paid out of current profits and if cash flow permits. None of these situations exist and it’s clear that the motivation is to compensate the major shareholder to the extent of $2,4 million,” noted the commission.