Hwange Colliery Company may accept US$50 million bailout package

Hwange Colliery Company Limited directors may accept shareholder Mr Nick van Hoogstraten's US$50 million bailout package provided the latter climbs down on his loan condition for management control, the NewsDay reported.

It has emerged that while the coal mining company was keen on the rescue package it was opposed to Mr van Hoogstraten's demand for total management control for a period of five years.

Instead, HCC directors have proposed the setting up of an executive committee comprising directors from HCCL and British business tycoon's investment firm, Wilbough's Consolidated.

Sources said the directors proposed amendment of the offer conditions to the effect that instead of handing technical and management control to Mr Van Hoogstraten, the committee would oversee draw downs on the loan and application of the funds over the five year period

The offer was in response to a request for a US$20 million bailout by the cash-strapped company. But Mr van Hoogstraten demanded exclusive control of the coal mining giant for five years in exchange for the US$50 million cash injection that would be availed through share transfers.

HCCL has been on the market in and outside the country, sourcing funds for recapitalisation. The firm engaged the Industrial Development Bank of Zimbabwe to advise on the loan offer.

IDBZ would be the guarantor of the loan and is expected to make recommendation on the loan offer by the end of this month.

Under the proposed transaction, the businessman wanted effective management of HCCL through a designated SPV falling under Wilbough's, a London- based company owned by his family.

Mr van Hoogstraten owns about 30 percent of the colliery company through family vehicles. The businessman suggested that the capital injection would be formalised and secured by the issue of convertible loan stock with a 10 percent interest rate, a conversion rate of one new US25c ordinary share for each US0,50c of loan stock and convertible at the end of the fourth year.

The Government's 37,08 percent shareholding would be maintained while debts owed to statutory bodies will be converted into five-year preference shares at a par value of US$1 and a 5 percent interest rate.

Banks owed by the company would receive an immediate 50 percent cash payout with the balance converted to loan preference shares.

Hwange said the board of directors convened a special board meeting to deliberate on the cash bail out offer, but had not made a decision.

Hwange's current liabilities stood at US$126 769 046, against current assets of US$101 432 932 during the half-year to June 30, 2013, translating into a US$25,3 million technical insolvency deficit. The coal miner owes workers US$14 million, while its combined debt has ballooned to US$160 million.

Sources indicated that no provision was however made in the earlier proposed loan request to clear the liabilities to workers, which meant the loan could only suffice as a stop gap measure.

During the prior comparative period in 2012, the negative working capital was US$22,2 million. The deficit slightly reduced to US$20 million during the full-year to December 31, 2012.

Finance costs charged on a US$140 million legacy debt increased to US$1,1 million in the first half to June, from US$900 000 million over the comparative period in 2012, due to massive penalties applied on overdue commitments. Hwange reported a US$3,2 million profit after tax in the first six months this year, from US$0,5 million at the same time in 2012.
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