The winners of the Pula Steel sale tender DH Machine Manufacturing will have to go back to the drawing board, now at the full mercy of creditors, after it emerged that it made a shortfall when paying the required payment of 10 percent deposit offer amount plus VAT and commission for the plant.
However, a hurried letter from Pula Steel liquidator John Hinchliffe to creditors this week seen by BusinessPost shows the liquidator admitting of an error which resulted from an “honest communication. One of the requirement of the tender was that the offeror (buyer) submit proof of payment of a 10 percent deposit on the offer amount plus VAT and commission into the bank of Pula Steel. According to tender documents, the proof of payment was required to be submitted simultaneously with the offer.
According to a letter from Hinchliffe who agreed with the auctioneer from South African WH Auctioneers to sell Pula Steel to DH for P26 million recently as the Vermas with their company Wealth Key Trading offered a lesser bid of P17 million. Wealth Key did not submit proof of payment of the 10 percent deposit as it was required while DH did submit proof of payment. Hinchliffe also admitted in his letter that he was asked at the 4 August 2019 creditors meeting whether DH paid the full amount of the deposit and responded the company made the payment.
However it emerged that what Hinchliffe said was not true as the money was short of over P400 000 causing the sale to fail and go back to the drawing board with immediate effect. “…it came to my attention that the deposit that was paid amounted to 10 percent of the capital sum. It did not include the additional 10 percent payable on the Vat and commission. The deposit received amounted to P2 140 121. There was the shortfall of P469 479 which was the 10 percent payable on the Vat and commission and a small exchange rate variation.
Hinchliffe told creditors in a letter leaked to BusinessPost that the error in payment occurred according to an “honest miscommunication.” The Pula Steel creditors explained that this error happen between him, WH Auctioneers which was facilitating the sale of the plant and DH which is the winner of the bid. Hinchliffe also DH made an 11 hour payment for the shortfall. The liquidator produced the bank statement reflecting the initial amount received from DH as well as the notification of payment of the shortfall both attached to the letter as proof.
According to observation, it further emerged that Pula Steel liquidator Hinchliffe and WH Auctioneers sat on a payment error for a period more than a month as payment for the shortfall was paid after five weeks. According to the bank statements seen by this publication, DH paid P2 140 120.71 to WH Auctioneers on 4 July 2019. This is the amount which had a shortfall. Last week Friday DH further made a payment of P469 479.26 to the Pula Steel account at First Rand bank account, according to bank statements seen by this publication.
In an interview with BusinessPost, Hinchliffe contradicted what this publication saw on the bank statements and said original payments were done on 24 July, not on 4 July until additional payment was done last week Friday, and the error was discovered after comments received from the unsuccessful offeror, Wealth Key. He said after DH rival launched a complaint they double checked the calculations and the wording of the offer requirements document and detected the error.
When asked if it would be fair for him to be asked of negligence for committing such an error, the Pula Steel liquidator reiterated what he wrote on his letter to creditors saying the error occurred due to an “honest mistake.” According to Hinchliffe, nothing will change on the sale of Pula Steel as creditors still stand by their vote for DH and reject the Vermas who still desperately covet the plant. “I must also point out that the majority of the creditors have opted to stand by their votes as passed at the meeting despite the error,” Hinchliffe told BusinessPost.
No cost or any delay will be felt in the process as all the creditors who voted in favor of DH to take over Pula Steel have confirmed that the recent error will not affect their voting, according to Hinchliffe. However the Pula Steel liquidator said there could be a possibility of significant cost and delays as a result of an urgent application from the Verma seeking to set aside the resolutions passed by the majority of the creditors and to stop the sale of assets.
Representing Wealth Key, Deepak Verma confirmed that he has lodged an urgent application with the high court to set aside the sale as it has flaws. He corrected that this was a private treaty not a tender and all conditions of the treaty were not met. Verma told this publication that he gave the liquidator a cash bank guarantee for full amount but was still rejected and DH got the nod. He accuses the Pula Steel liquidator of favoring DH and trying to bend the rules for the company by hook or crook.
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”