Shareholder power play at Pula Steel
Brian Benza | Friday July 14, 2017 18:00
Ahead of today’s deadline for the three shareholders, Verma family, Citizen Entrepreneurial Development Agency (CEDA) and Wealth Generations, to raise the funds through equity and debt injections, Mmegi BusinessWeek has gathered that the Indian family investors will not inject more funds into the troubled steel business as they have declared the capital call process unprocedural .
This will pave way for CEDA to become the new majority shareholders in the business and inject the funds, which will be used to restart the mothballed business as well as pay a portion of the P100 million creditors’ bill.
Judicial manager, Vijay Kalyanaraman told Mmegi BusinessWeek that following the demise of BCL, which are the major shareholders, the other three owners have the preemptive right to buy BCL shares for a nominal fee but only on condition that they heed the capital call by July 14, 2017.
Pula Steel is currently owned by BCL (67%), Verma Family (23%) with the remainder (5.5%) held by CEDA as well as a company called Wealth Generations (4.5%).
However, BCL will not be eligible to participate in the capital injection as it is under liquidation and will have to cede its shares to the remaining shareholders on a pro-rata basis.
By virtue of the pre-emptive rights, the Verma family was set to become the major beneficiary of the BCL shares but this is unlikely to happen as they have expressed reluctance to participate in the capital call.
“It would be difficult to invest when we haven’t been furnished with the projections and business model that the judicial manager has come up with to rescue the business. The time frame given by the judicial manager to raise the funds is also just too short. Where in this country can anyone raise that kind of money in 14 days. We wonder if all this is being done to favour one party and for us to lose control of the company ?” queried former Pula Steel chief executive officer, Ranvir Kumar Verma.
Creditors of Pula Steel, which are owed P100 million, recently gave Kalyanaraman the greenlight to seek the P28 million injections from the shareholders.
Although BCL is currently the biggest shareholder, it is also the biggest creditor owed about P58 million from a guarantee the mining company had granted on a Pula Steel loan from a local bank.
CEDA is the second largest creditor with the agency owed P15 million in shareholder loans, Botswana Power Corporation (P10 million), scrap metals suppliers (P7 million), employees (P3 million) while an Indian company that provided expatriate workers to Pula Steel is owed P6 million. According to Kalyanaraman, CEDA and Wealth Generations, who had already committed to an earlier shares subscription that was later abandoned, have expressed commitment to the capital call.
“If any of the three shareholders do not come up with the funds, then their shareholding will be diluted by those that would have contributed. If it happens that all the shareholders do not contribute by July 14th, then next week I will recommend to the Master of High Court to place Pula Steel under provisional liquidation,” he said.
All employees were retrenched March this year when the company went under judicial management. Kalyanaraman says he has since managed to pay all the non–management workers the protected portion of their termination benefits which include three-month salary, leave days and severance.
Pula Steel was the first company in the country to process scrap metal into intermediate products called billets and was a milestone under BCL’s corporate strategy Polaris II that hoped to expand the Mine’s portfolio to develop an iron production circuit. The company was setup at an initial cost of P130 million before an additional P53 million was injected into the firm.