Meikles: Not guilty this time, but overly guilty

The past fortnight in Zimbabwe has been full of hype. On the political front, the President of Zimbabwe, largely described by many in Zanu PF as the fountain of wisdom turned 91 years. The corporate front witnessed two key events, AfrAsia Zimbabwe formerly Kingdom bank threw in the towel by voluntarily surrendering its banking licence to the Central Bank. The bank had been facing chronic liquidity challenges for a long time now.  It was revealed that the bank’s parent company was no longer prepared to pump in more money into the ailing bank. The Meikles saga also took twists and turns with the company being suspended from trading on the Zimbabwe Stock Exchange (ZSE) onFebruary 16, 2015. A week down the line, the ZSE lifted the suspension on the counter.Reasons for the suspension of Meikles emanated from the ongoing debate taking place in the in parliament over the Reserve Bank of Zimbabwe (RBZ) Debt Assumption bill. The bill is to the effect that RBZ owed Meikles US$40.64 million as at 30 September 2013 whereas the company financials as at 31 March 2014 were carrying an amount of US$90.9 million which had spiraled 124% from US$40.5 million in 2013.As if lifting of the suspension was not enough, Meikles issued a statement on February 25, 2015venting their anger on the way company affairs had been handled. The ‘chairman’s views’ were to the affect that the debt had grown to US$90 million based on the agreed interest rate of 8%. Still, working with the alleged initial deposit of US$25.9 million and the agreed interest rate of 8% does not arrive anywhere close to US$90 million. Meikles is a publicly listed company and hence it must clearly explain to shareholders and regulators how they arrived at this figure. The 2014 annual report does not even attempt to explain how the figure jumped from US$40.5 million in 2013 to US$90.9 million as at 31 March 2014.When the ZSE lifted the suspension of Meikles on February 23, management of the bourse were quick to admit that they were wrong when they acted sorely on information obtained from the RBZ without giving Meikles a chance to respond. The reality is that ZSE management were possibly just scared of the fact that Meikles did not budge and had gone on to approach the courts for justice. This left the ZSE with an egg on their face. It actually exposed firstly on how incompetent and inexperienced the management team at the ZSE is.  Surely it is common sense that a regulator has to be objective, impartial and not to only act on hearsay. Before making such a decision it takes no brainer to know that both sides of the story should be heard first. Additionally, it shows that no due care was taken or that perhaps they are no laid down procedures that should be followed in dealing with such cases. We wait to see how this case will be resolved. The fact that proper procedure wasnot followed does not exonerate a wrong deed. There might be a concrete case whereby money was siphoned from the company whilst covering the hole through increasing balances owed by RBZ.Writing back the RBZ debt also brings the integrity of auditors on to the spotlight. We are of the view that auditors should have queried this amount and express their reservations in passing the audit opinion. First of all, writing back this amount goes against the prudence concept of revenue recognition especially when the RBZ is heavily indebted thereby reducing chances of the company recovering the funds.  In its 2013 financials, the company disclosed that it had secured Treasury bills amounting to US$49.6million and they expected the Central Bank to avail more paper to cover the difference. The terms and conditions of the paper were not disclosed. This paper is worthless in light of the fact that government is liquidity starved and that it might fail to honor the bills on maturity. We have a case in point of gold bonds that were once given to gold producers when the economy dollarized. Furthermore we believe that few banks will be prepared to even discount the paper.While we agree that Meikles should not have been suspended in this instance, we should also agree that when it comes to corporate governance deficiencies, Meikles might possibly be among the worst culprits.There are several incidences that come to mind where Meikles should have been suspended.The sale of the Cape Grace hotel in South Africa to Mentor Africa, a company in which the company’s chairman, John Moxon, is a shareholder is a case in point.  Ideally when one is conflicted like in this scenario, the person must recuse himself from the negotiations or voting processes. However, in this case, media reports allege that John Moxon signed the sale agreement. It is further alleged that the sale was done secretly without the blessing of other directors and company shareholders. It would seem that the motive was to strip the company of its valued asset and cream profits from the 2010 World Cup owing to increased demand for accommodation. Also worth noting is the fact that proceeds from the sale of the hotel were never transferred to the company. Meikles only got a stake in Mentor Africa.More so, the company continues to struggle and the main reason highlighted is shortage of capital as this has resulted in high finance costs. The 2014 annual report shows that an amount of US$11.7 million earmarked for investment is held by Gondor Capital Limited, a vehicle linked to the company’s chairman. Is this in the best interest of the company? Is this good corporate governance? Why not channel the funds to local operations that need the capital? Furthermore, these funds held by Gondor Capital Limited are not accruing any interest thereby short changing other shareholders. Effectively this is an interest free loan from Meikles Limited to Gondor Capital Limited.The stock exchange is for public listed companies and not for family run enterprises. Meikles is run like a sole proprietorship as most decisions that are done are meant to benefit only a few people – the Moxon Family. Executives including Mark Wood and Beset Chimhini have exited the company while Onias Makamba is said to be on leave. Two questions come to mind. Firstly, who appointed Colonel Dyke and whether or not the restructuring that is taking place was sanctioned by the board and other shareholders.It is also high time the company’s shareholders take matters into their own hands. Institutional shareholders like Old Mutual should speak out for the benefit of other minority shareholders. If the Meikles family is struggling to adhere to best corporate governance standards then they have an option of buying out minority shareholders and delist the hotel group. 

Copyright © 2015 Financial Express, Mailing address finx@fxzim.co.zw

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