ECONOMIST Noel Nkhoma has challenged the Industrial Development Corporation (IDC) to avail the valuation report that will inform the public why Marcopolo Tiles was valued at US$2,000 per share.
Last week, News Diggers published an investigation in which it was revealed that the IDC, National Pension Scheme Authority (NAPSA) and the Workers Compensation Fund Control Board (WCFCB) paid two Chinese Investors by the name of Zhang Lingling and Huang Yaochi amounts totaling US$44.8 million as consideration for the purchase of a minority stake in their tile-making company.
The named Chinese are the two shareholder of a company called Marcopolo Tiles which was officially opened by IDC Board chairman President Edgar Lungu in December 2017.
IDC contradicted itself in a press statement issued Thursday, stating that the Corporation partnered with the two other government parastatals “to acquire shareholding of 49 per cent in Marcopolo Tiles Company Ltd at a cost of US$44.8million, when in fact, according to a News Diggers investigation, the IDC and the two Chinese signed the sale and purchase agreement on June 3, 2020 two days before money was paid to the named Chinese investors.
“In August 2020, the IDC, NAPSA and Workers Compensation Fund Control Board (WCFCB) partnered to acquire shareholding of 49 per cent in Marcopolo Tiles Company Ltd at a cost of US$44.8million following a comprehensive due diligence and independent valuation. IDC’s shareholding in Marcopolo Tiles Company Ltd is 22.61 per cent, while NAPSA and WCFCB acquired 16.39 per cent and 10 per cent respectively,” read the IDC press statement in part.
“The MTCL Prospectus (which is the document that contains the details that aid investment decisions) included a valuation that was undertaken by independent professionals. The Prospectus included standard valuation methods used to value a going concern entity including Discounted Future Cashflows and Earnings Multiple bases of valuation as per best practice. The assumptions that supported the foregoing were subjected to further scrutiny by the IDC, NAPSA and WCFCB teams that also included an additional Net Asset basis of valuation to ascertain the minimum company valuation of floor value (as referred to in convention). Having challenged the assumptions and discounted some of the proposed growth rates to factor in uncertainty, a final price was arrived at, representing a 28.24% discount from the initial offer price. This price was against a Net Asset valuation price of US$2,071 per share, representing a floor discount of 56%.”
But reacting to the development in an interview, Nkhoma noted that a private company should have a minimum of a five year profit making track record before an investment of US$44.8 million can be made.
“Let them give us the valuation, it cannot be a secret anymore because public money has gone there, let them avail the valuation, who did the valuation, what are the credentials of the valuation team, let us look at the valuation report, that’s what will inform us, and not only that, the company was established in 2016 and this is 2021, now, ordinarily, any investment of that magnitude, there should be a minimum five year track record which means that you should be profitable for five years, why have they invested in a company which probably has not written three or four balance sheets? The minimum should be five year track record and let them avail us the operating balance sheets for the last three or four years,” he said.
“We want to see what was the valuation and who did the valuation. Secondly also we want to see if they don’t have controlling interest as they have invested US$44.8 million, if they do not have management control, if they don’t have a controlling interest. If they don’t have management control, what is motivating them because IDC was created to be able to manage state owned enterprises but they are departing from their mandate, they are now going for private owned companies which basically is a departure from their mandate. Their mandate was state owned enterprises and those that have got public interest. Now, if you want to invest, your priority should be yes manufacturing and the like but how many employees does Marcopolo tiles have because they are saying its employment generation. Which single Chinese company is paying its workers competitively, tell me one.”
He wondered why the IDC stated that the investment was motivated by a prospectus when a prospectus can only be motivated if it’s a public listed company.
He further wondered why the IDC settled for 49 percent shareholding, which leave the Corporation without controlling interest.
“Now, first of all, at the tune of US$44.8 million, IDC would have used that money to set up their own tile making plant, and even remain with sufficient change for working capital. Now, you cannot deploy US$44.8 million and do not return what we call controlling interest. What was the evaluation of that company for them to be 49 percent shareholders after injecting US$44.8 million. That is not small change,” Nkhoma added.
“And if the intention was to expand operations, what they have done is that only US$15 million has gone to expansion, the rest, which is US$30 million has gone into the private individuals pockets, the two Chinese have benefitted. So basically, what they have done is that they have cashed them and they are still having management control, that’s what it is.”
And Nkhoma added that there is no way they can have a non-disclosure agreement when public funds were invested into the company making it a quasi-public owned enterprise.
“So now, if IDC has invested public money, all these entities which have invested are public enterprises, they are owned by the Zambian people so there can be no non-disclosure agreement because public money has gone into Marcopolo tiling company. So Marcopolo now it transitions from being a private entity to a public owned or what you call a quasi-public owned enterprise. So they cannot tell you that some of the information is not for public consumption, we are an interested party because it’s the tax payers money that has been invested,” said Nkhoma.