Zimbabwean Government Shortlists Two of Six Investors Competing for Acquisition of Zisco

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Researched by Industrial Info Resources (Sugar Land, Texas)--The government of Zimbabwe has shortlisted two out of six possible investors who have been competing to acquire the largely troubled, government-owned Zimbabwe Iron and Steel Company (Zisco). The government has declined to name the two companies, as the companies concerned are facing further evaluation of their suitability, capacity and history by an inter-ministerial committee.

The six companies who were competing to take over the largest steelworks in Zimbabwe were ArcelorMittal (NYSE:MT) (Luxembourg); Murray and Roberts Holdings Limited (JSE:MUR) (Bedfordview, South Africa); Steelmakers Zimbabwe Private Limited; the South African recycling company Reclamation Group; Gateway of Zimbabwe, in a joint venture with the Indian company Gindall; and another unnamed Indian company.

The government of Zimbabwe believes an effective debt-management plan is the key issue governing the choice of investor. The winning company will need to come up with a plan to clear Zisco's debts, which total more than $300 million, including $110 million owed to the German state-owned Kreditanstalt fur Weideraufbau Bankengruppe (KfW) (Frankfurt, Germany). In addition, there is the $47 million owed to two other foreign banks and another $47 million owed to the Export-Import Bank of the U.S. and the Chinese Export and Credit Corporation (Sinosure) (Beijing, China).

It is not only the vast debts that need to be cleared by the winning company; Zisco is also seriously in need of capital funds to resume production. Zisco stopped operations a few years ago and has been surviving by selling scrap metal, which has accumulated for more than 40 years. The one remaining blast furnace, number 4, was shut down last year and reportedly requires about $12 million in repairs to be operationally viable again. The coke oven batteries, which should be able to run for 20 years without pause, are no longer functioning and require about $4 million for repairs.

When fully operational, Zisco had a production capacity of between 700,000 and 1 million tons of steel, and employed a total work force of more than 4,000. Currently, it has an employee base of just 1,000. Despite this reduction in staff, as of September, the workforce had not been paid their salaries for the month of July.

Zisco has a long history of problems and scandals and has been the subject of a series of allegations of high-level fraud and corruption. The government has attempted in the past to provide financial handouts to alleviate difficulties, but to no avail. In 2006, a deal reportedly worth more than $400 million was negotiated with the Indian company Global Steel Holdings Limited (GSHL), a unit of Ispat Industries Limited (BSE:500305) (Kolkata, West Bengal). However, a parliamentary investigation into the deal revealed that the contract had been awarded to GSHL without due diligence, and the deal was cancelled.

The majority shareholder in Zisco is the Zimbabwean government, which has a 90% stake in the company. Other shareholders include Lancashire Steel (Private) Limited (Kwekwe, Zimbabwe), and Stewart and Lloyds of India Limited (BSE:504960) (Kolkata, West Bengal).

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