Sun sets on Brainworks deal: Munyeza stays put, chairman could be jettisoned

31 Aug, 2014 - 09:08 0 Views
Sun sets on Brainworks deal: Munyeza stays put, chairman could be jettisoned Troutbeck

The Sunday Mail

Troutbeck

Troutbeck

Darlington Musarurwa and Kudakwashe Mutandi

BRAINWORKS Capital Management’s ambitious project to rebundle hotelier African Sun Limited and property concern Dawn Properties seems to have come unstuck, amid revelations that the relationship between the two entities had irretrievably broken down.

The private equity firm, through its subsidiary Lengrah Investments which trades as BCM Hotels and Real Estate and is fronted by businessman Mr Stewart Cranswick, holds a 45 percent stake and 28 percent equity in African Sun and Dawn Properties, respectively, acquired through a series of transactions over the last nine months.

African Sun group chief executive officer Dr Shingi Munyeza had earlier ceded shares in the business in exchange for cash and a 17 percent stake in Brainworks.

Sources said sharp differences emerged between representatives from Dawn Properties and those from the hotelling giant at an African Sun board meeting on Thursday in Harare.

This resulted in the resignation of Brainwork’s proxies — Mr Timothy Nuy, representing ADC, and Mr Walter Kambwanji, representing Brainworks Capital — from the African Sun board.

Differences mainly centred on the proposed sale of the Elephant Hills Resort in Victoria Falls and Brainworks’ reported failure to uphold a pledge to inject US$6 million into African Sun.

It is understood that tension between the two companies came to a head at a board meeting on June 23, 2014 where Dr Munyeza proposed that Brainworks buys him out or reverses the deal as the board had told him that he would be replaced by a South African.

The meeting ended in a deadlock.

It is also believed that at a subsequent meeting on June 25, Dr Munyeza questioned the proposal to sell Elephant Hills, arguing that it was a national asset that must be controlled by locals.

He also questioned Brainworks’ delay in injecting US$6 million into African Sun.

Sources further told The Sunday Mail Business that in light of the developments, Dr Munyeza will be given back his 32 percent share of African Sun.

Doubts remain over the future of African Sun board chair Mr Bekithemba Lloyd Nkomo as the deal came under his watch. There is suspicion he could have been swayed by influential Brainworks officials.

Mr Nkomo was appointed chair on May 18, 2012.

“The relationship between Brainworks and African Sun is no longer tenable. The relationship has broken down. Proxies from Brainworks — Mr Walter Kambanji and Tim Nuy stepped — down at a board meeting held Thursday. The current chairman, Mr Themba Nkomo, was largely compromised by the deal. He is likely to be pushed out in the next three weeks.

“This deal was not good for African Sun and a lot of irregularities are beginning to be unearthed. An announcement will be made soon once all modalities are worked out,” said a source.

In an interview, Mr Nkomo said “I think you need to talk to guys from Brainworks”, and refused to comment further.

Attempts to get comments from both Dr Munyeza and Mr George Manyere — Brainworks managing director and chief investment officer — were fruitless as their phones went unanswered.

In March 2014, this paper reported that there were fears Dr Munyeza could be eased out of African Sun by a clique of powerful businessmen who had gained a stranglehold on the hotel chain.

There was also enduring market speculation that Lengrah Investments was a Trojan Horse being used as a conduit by Mr Cranswick to regain control of African Sun.

The speculation was cemented by suggestions that African Sun and Dawn were expected to be rebundled into a single entity with Mr Cranswick playing a key role.

It was through Lengrah Investments that two funds — Wallal and Mudhut — came into the group. This prompted the appointments of Mr Cranswick, representing the two funds; Mr Timothy Nuy, representing ADC, a significant shareholder in Brainworks; and Mr Walter Kambwanji, representing Brainworks Capital, to the African Sun board.

“Stewart Cranswick was the operator of Landela Lodges which were closed due to viability constraints. He also acquired UTC, which was later disposed. Could this investment by Cranswick be another way of looking for assets to strip so he can sell them on at a future date when the market corrects? What is of interest is, on March 26, Dawn issued a cautionary for a disposal of assets.

“It was suspected that this was a way of trying to pick up cheap assets in a depressed market for later disposal when the market turns for the better. Is this not the time to hold on to such assets until the current liquidity crunch improves?” asked a source.

Suggestions that Mr Cranswick made a US$1,2 million bid to buy out African Sun’s management at an extraordinary general meeting in March could not be independently verified.

Indications were that Dr Munyeza was preparing a soft landing after his then likely exit from the group by acquiring the franchise for South African food outlet Mugg & Bean for the local market for US$400 000.

On the other hand, African Sun says it has been selling its shares to reduce debt overhang that accumulated since dollarisation.

It is believed that proceeds of the disposal would reduce the gearing (the company’s net debt) from the current 48 percent to 34 percent. Further interest savings of US$975 000 were also expected.

The target communicated by shareholders in a December 2013 briefing was to bring gearing to below 30 percent.

However, African Sun announced recently in results for the half-year ended March 31, 2014 that it has paid US$5,14 million towards its borrowings using mainly proceeds for the disposal of its 12 percent stake in Dawn Properties.

Gearing also dropped to 52 percent from the 53 percent reported a quarter earlier.

African Sun says it will raise an additional US$12 million through selling the remaining 16,54 percent stake in Dawn, and a possible rights offer.

Revenues in the six months under review declined 4 percent to US$25,3 million from US$26,4 million in the same period a year ago.

A 25 percent growth in tourist arrivals from Asia and a 5 percent improvement from Europe was, however, tempered by a 5 percent and 19 percent decline from America and Africa respectively.

Visitors from South Africa plummeted by more than 36 percent in the period.

Occupancy fell to 41 percent from 47 percent a year ago, weighing revenue per average room to US$40 from US$44 last year.

Overall, the group reported a loss of US$766 172 from a profit of US$914 432 a year earlier.

There are fears that separation of the two entities might renew the feud over rentals.

Dawn Properties owns most of the properties managed by the hotel group, including Elephant Hills, Hwange Safari Lodge, Holiday Inn Mutare, Caribbea Bay Sun (Kariba), Crowne Plaza Monomotapa Hotel (Harare), Express Holiday Inn (Beitbridge), Great Zimbabwe Hotel (Masvingo) and Troutbeck Hotel (Nyanga).

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