FRAUDULENT KCM SALE EXPOSED
... was sold at $25 million instead of $2.9 billion
SHARES
...KCM breached their duty of care when they made an offer of 560,325,511 shares that shifted control of KCM to Vedanta Resources at a bargain price of US$ 0.0446169 per share where Vedanta only paid US$25-million of US$2.909-billion that KCM should have received for its shares.
THE sale of KCM to Vendata at US$25-million was a complete fraud because the mine should have been sold at $2.909 billion.
And now one of the minority shareholders in Zambia Consolidated Copper Mines Investments Holdings (ZCCM-HI) has asked the Lusaka High Court to grant him an order for leave to challenge the sale.
The shareholder Dennis Mumba has launched a derivative action stating that Vedanta Resources Plc should have paid US$2.909 billion instead of US$25 million which led to financial problems in KCM.
The Mine was sold under President Levy Mwanwasa.
Mr Mumba has cited ZCCM-IH as the respondent while Zambia Copper Investments Limited (ZCI), Vedanta Resources Plc, KCM directors in November 2004, KCM provisional liquidator Milingo Lungu and KCM (in liquidation) as defendants.
Mr Mumba stated that on January 24, 2002, there was an unexpected announcement from Anglo American Plc that it had decided to withdraw from ZCCM-IH and KCM.
He stated that Anglo American Plc announced an agreement on the future of KCM after it reached an agreement with the Zambian government and ZCCM-IH.
This is according to an affidavit in support of originating notice of motion for an order for leave to commence a derivative action filed in the Lusaka High Court on August 20, 2020.
Mr Mumba said ZCCM-IH was a shareholder in KCM and as such he is authorised to bring the derivative action on behalf of the respondent against ZCL and others.
Mr Mumba stated that directors of KCM breached their duty of care when they made an offer of 560,325,511 shares that shifted control of KCM to Vedanta Resources at a bargain price of US$ 0.0446169 per share where Vedanta only paid US$25million of US$2.909billion that KCM should have received for its shares.
He stated that KCM loss of US$2.884 billion marked the genesis of the mine’s financial problems.
“The net effect is that the US$25million that Vedanta subscribed for KCM shares was effectively 0.8594percent (U$25million/US$2.909billion) of the actual value of KCM shares. The jeopardy to ZCI and ZCCM-IH investments was caused by the fact that 560,325,511 KCM shares were issued to Vedanta Resources at a price of US$0.0446169 per share, a price below fair instead of a fair price of US$5.193141 per share where Vedanta Resources should have paid US$2.909billion, “Mr Mumba stated.
He stated that KCM should have received US$2.909billion for the 560,325,511 of its shares but was only paid US$25million in the Vendata Resources KCM’s deal.
He stated that he believed that it was extremely unusual for companies to issue such a very high percentage (104percent of outstanding shares) as right issue.
The applicant states that the issuance of such an extremely high percentage(104percent) ie 560,325,511 of rights’ issue shares of the outstanding 538,351,962 KCM shares at such an extremely low price was not only intended to cause maximum damage to KCM as a corporation and its shareholders ZCCM-IH and ZCI, but was also a calculated move to usurp KCM favourable rising wild copper prices.
He stated that it was done in favour of Vedanta who took over the company control and its cash flow.
Mr Mumba stated that KCM average debt to total capital (debt plus common stock) ratio was only 24 percent, meaning that that company was 76 percent financed through equity capital, essentially, KCM was subsequently debt free.
He stated that KCM’s financial position indicates that the company could have easily raised US$25million through debt.
He stated that therefore, given KCM balance sheet, the company’s first option to raise U$25 million should certainly have been through debt finance which would not have affected the share distribution and voting rights of the shareholders.
He stated that ZCI knew or ought to have known that ZCCM-IH purported waiver of its 235,336,715 KCM rights issue in favour of Vedanta Resources and the US$16.8 million purported Government debt cancelation of Vedanta debt to ZCCM-IH were illegal acts done in total violation of Zambian laws.
He said ZCCM-IH did not act to stop Vedanta and Government from committing these illegal acts but it proceeded to be a party to an illegal Vedanta buyout of KCM agreement.
Mumba stated that as a result, it was clear that there was fraud in KCM that was executed by ZCI as KCM majority shareholder working with KCM and its directors who engineered Vedanta buyout of KCM in such a way that Vedanta and KCM deal would profit ZCI while hurting the financial interests of ZCCM-IH.
Mr Mumba stated that the shareholders who held five percent or more of the issued share capital of ZCI before the Vedanta transaction were, Copperbelt Development Foundation, Trustees of the KCM employee share ownership trust and Sicovam (SA).
He stated that it was ZCI (under these listed shareholders) that appointed the new KCM board after March 31, 2003.
Mr Mumba stated that from then on ZCI wanted to sell its stake in KCM.
He stated that KCM offered 560,325,511 new shares to its then shareholders by way of a rights offer.
“Its then shareholders, including ZCI and ZCCM-IH, had to renounce their rights in favour of Vedanta Resources. Vedanta Resources subscribed for 560,325,511 new KCM shares for an amount of US$25million such that Vedanta obtained a 51 percent interest in KCM,” Mumba stated.
He stated that accordingly, ZCI reduced its shareholding and voting interest in KCM from 58 percent to 28.4lervent percent and ZCCM-IH reduced its shareholding and voting interesting in KCM from 42 to 20.6 percent.
Mr Mumba stated that following the said subscription, there were 1,098,677,473 ordinary KCM shares, 6,000, 000 deffered KCM shares and the special share in issue.
He stated that Vedanta became the registered owners of 560,325,511 ordinary KCM shares comprising 51 percent of the issued share capital of KCM.
Mr Mumba stated that ZCI became the holder of ordinary KCM shares representing 28.4 percent of KCM while ZCCM-IH become the holder of ordinary KCM shares representing 20.6pevrenr of the mining company.
He stated that to enable Vedanta Resources to subscribe for new KCM shares, ZCI and ZCCM-IH waived their pre-emptive subscription rights.