Business - Investigations - Local - October 17, 2020

SECZ investigates Dawn, African Sun deal

Capital markets regulator — Securities and Exchange Commission of Zimbabwe (SECZ) — is investigating the transaction between Dawn Properties Limited and African Sun Limited (ASL) following concerns the deal will prejudice minority shareholders.

The deal entails the acquisition of the entire issued share capital of Dawn by hospitality group ASL but at a price that is lower than the prevailing market rate, raising concerns of potential prejudice on shareholders. SECZ is now stepping in to protect investors in line with section 4 of the Securities and Exchange  Act.

“It is within that context that the Commission has noted with concern the transaction in terms of which the entire issued share capital of Dawn Properties Limited is sought to be acquired by African Sun Limited at a price significantly lower than the prevailing market price, thereby causing material prejudice to existing shareholders,” said SECZ chief executive officer Tafadzwa Chinamo.

“The commission is currently engaging the Zimbabwe Stock Exchange and the companies’ advisors with a view to ensure that the investors of Dawn are not unfairly treated during this transaction. We urge the shareholders to exercise extreme caution while approaching this transaction,” he said.

The deal has been questioned by analysts at ZFN arguing interests of minorities have not been fully considered.

In a column, ZFN has shown the deal short-changes minority shareholders, a case also similar to that of  Zimre Holdings Limited (ZHL) and ZPI consolidation.

In a circular to shareholders ASL proposed it will issue one ASL ordinary share for every 3,988075946 Dawn ordinary shares, which translates to a ratio of 1:4. ASL shareholders are also advised that through the acquisition, the company’s net asset value (NAV) per share will increase to 127,87 cents from 9,9 cents.

“It is thus evident that Dawn is many times bigger and more valuable than ASL which raises an interesting question about who should be buying who between the two businesses assuming an arm’s length transaction.

“Any analyst worth her salt would conclude that while the rationale for the offer makes sense, the terms require further scrutiny and robust justifications by the promoters of the transaction,” said ZFN.

As of December 31, 2019, NAV of Dawn was $1 435 582 243 while that of African Sun was $660 671 510, which according to ZFN suggest a ratio of at least two African Sun shares for every one Dawn share.

“Dawn minorities as the sellers in my view should insist on this swap ratio instead of what is being proposed,” said ZFN.

In the early 2000s African Sun rebranded from Zimbabwe Sun Hotels Limited (Zimsun) and after assuming a new identify one of its first projects was the unbundling of hotel properties into a standalone and separately listed entity — Dawn Properties Limited.

Now the companies are reversing the unbundling. ZFN indicated while the ASL/ Dawn transaction was made by an unrelated party — ASL, which has no shareholding in Dawn, both companies are controlled by same people.

As such, it would be imperative for those “with significant holdings in both entities to recuse themselves from voting and leave minorities to independently decide what’s good for them.”

A similar case is that of the ZHL/ ZPI which unbundled in post 2000 but now reversing it and the two consolidating with  interests of minority shareholders not fully considered.

Minorities of ZPI have been asked to approve the transaction on valuations based at December 31, 2019 albeit depreciation of the exchange rate. ZHL offered one share for every 2,78 shares held by ZPI minorities.


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