A lengthy report in The Post includes criticism from shareholders in ZCI about the sale of the company’s 28.4 per cent stake in KCM to Vedanta Resources under a 'call option' negotiated by KCM when it made its initial investment.
The paper quotes South Africa-based investment advisors Southern Charter Wealth Management (Pty) Ltd, who have advised a large client base to invest in ZCI in the past, and whose customers are disappointed at what they perceive as the low price of the sale. The firm said the US $213 million paid by Vedanta for the stake amounted to, “robbing Zambia of control of its most prized copper deposits for at least thirty years to come.”
The deal was concluded after the government removed the competition commission – from handling the sale. The government claimed it had the power to end the Competition Commission's enquiry, invoking section 3(f) of the Competition and Fair Trading Act under the Zambia Competition Commission to allow the latter become a majority shareholder in one of Zambia’s huge mining operations. Section 3 (f) of the Competition and Fair Trading Act CAP 417, states that "nothing in this Act shall apply to...activities expressly approved or required under a treaty or agreement to which the Republic of Zambia is a party."
Southern Charter Wealth Management director Bruce Barclay claimed the Government did not follow appropriate procedure and that the deal was illegal as the parties involved did not gain the approval of the Zambia Competition Commission prior to entering negotiations. “It is with great distress and disappointment that we learn that the government of Zambia deemed it necessary to invoke "section 3(f) of the Zambian Competition and Fair Trading Act" and remove the jurisdiction of the Zambian Competition Commission over the transaction between Vedanta Plc and ZCI Ltd,” Barclay said. “Control of KCM has fallen into the hands of foreign investors and thereby ensures the current loss of millions if not billions of US dollars in value to Zambia, her citizens and ZCI Ltd shareholders. Despite our opinion, clearly it was in the government’s opinion that the greater good of Zambia would be served by ensuring the deal went through and therefore invoked section 3 (f) of the Zambian Competition and Fair Trading Act.”
“We are therefore mandated to act on behalf of an accumulated shareholding in that company of approximately 800,000 shares,” Barclay said. “We, as investment advisors to a number of ZCI Ltd shareholders, including ZCI's single biggest individual shareholder, will be convening a meeting to hear from them what next course of action, if any, they wish us to take in respect of this transaction. The deal may be concluded but the board’s responsibility to its shareholders and for this transaction in our opinion is not legal and it will be our advice based on our opinion that the board of ZCI ltd has failed its shareholders.”
Barclay questioned the invocation of section 3 (f) of the act, long after commencement of the transaction. “How come this section 3(f) of this act only comes to light at the dying hours of the transaction that has taken in the region of two years to conclude and only when the ZCC withdraws its approval of the transaction placing the transaction in jeopardy?” Barclay asked. “How is it that Vedanta, KCM, ZCI and GRZ were not aware of this act from the outset? If they were, then why even approach the ZCC for approval? In fact what was the ZCC getting involved for in the first instance causing further delays to citizens and shareholders and frustrating an already extremely frustrated transaction? Is it not worth questioning why KCM (essentially Vedanta) is the only mine to come out in support of the new controversial mining tax just prior to the invocation of this Act?”
And the shareholders, in their letters to the ZCI board and made available to the Business Post, have continued to oppose the purchase of ZCI’s 28.4 per cent shares in KCM by Vedanta Resources Plc even after the conclusion of the deal. They said the transaction regarding the sale of ZCI shares in KCM was absolutely against the law, considering that the ZCC was not consulted in the initial stages of the “call-option deed” between Vedanta and ZCI in 2004... In our opinion, the lawyers slipped up in November 2004 when this scheme was contemplated, by not getting the approval of the ZCC prior to signing the option contract because theoretically it is unable to be completed without ZCC’s approval,” stated the shareholders. “It is in our opinion that the board of ZCI were well informed of the status of the transaction at all times, including knowing that the transaction was illegal in terms of the Zambian Competition Commission rules and regulations who did have jurisdiction over this deal yet the board chose to remain silent and inactive in this regard and thereby, in our opinion, are responsible for perverting the ends of justice. It is time for us as shareholders either individually or collectively to call upon the directors to answer for their lack of action under the circumstances.”
But ZCI chairman Tom Kamwendo said the company had already given its shareholders enough data on the sale of its shares in KCM to Vedanta Resources Plc. Kamwendo further said ZCI shareholders would gain from the just concluded transaction on the sale of its KCM shares to Vedanta resources, at a purchase price of US $213 million. “We have written to some individual shareholders and some information has been posted on the website,” Kamwendo said. “I am very hopeful that the ZCI shareholders will gain something out of the transaction.”
And Lusaka Lawyer Eric Silwamba, who represented Vedanta Resources Plc in the deal, said the mining company had finally concluded the takeover, making it the largest shareholder of KCM with a total of 79.4 per cent shares while ZCCM-IH and government control the remaining stake
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