Shareholder Letter

RNS Number : 0870R

LonZim PLC

23 April 2009

 



Lonzim Plc  

('Lonzim' or 'the Company')

Shareholder letter

The Company is sending a letter to shareholders in response to the recent requisition for an EGM. The full letter will be available shortly on the Company's website at www.Lonzim.co.uk 

The full text of the letter is included below.

ENQUIRIES

LonZim Plc	[phone]
David Lenigas, Executive Chairman	[phone]
Geoffrey White, Chief Executive Officer	[phone]
Emma Priestley, Executive Director	[phone]
WH Ireland Ltd: NOMAD and Broker
James Joyce	[phone]
Sarang Shah
Philip Haydn-Slater (Broker)
Pelham Public Relations
Charles Vivian	[phone] [phone]
James MacFarlane	[phone] [phone]

Dear LonZim Shareholder,

I am writing to you about an important issue that requires all shareholders to decide on the future of the Company and I would urge you to read this letter in full and give due consideration to the fundamental matters that face your Company. 

In the past few months Pershing Nominees Ltd has acquired 20.75% of the Company's issued share capital on behalf of AMB Capital ( Ireland ) Limited ('AMB') and Damille Partners IV ('Damille') has acquired 6.46% of the Company's issued share capital and is supporting AMB.

As announced by the Company on the 22nd April,  AMB, through Pershing Nominees has called for an Extraordinary General Meeting (EGM) of LonZim's shareholders (the date for which will probably be in June) at which resolutions will be proposed to remove all four of the executive directors of LonZim, appoint four new directors who are associated with AMB and Damille, and to change the current investment policy of the Company from investment to one that seeks to dispose of all the Company's investments by the end of next year ('AMB proposals').

If the AMB proposals are passed, shareholders will be passing effective control of LonZim to AMB and the business will be wound down and AMB will return what funds they can to shareholders.

The Company scheduled AGM, as previously notified to shareholders, is being held on Thursday 30th April at The Oak Room, Le Meridien Hotel, 21 Piccadilly, London, W1J 0BH. Given AMB's shareholding and stated objectives, your Board (including the independent non-executive directors) unanimously recommends that shareholders vote FOR the resolutions proposed for the AGM. Proxy forms were distributed to shareholders with the Annual Report and are available on the Company website at www.lonzim.co.uk

The independent non-executive directors unanimously recommend that shareholders vote AGAINST the resolutions being proposed at the AMB convened EGM in June. A notice convening the EGM will be sent to shareholders separately in due course after the AGM.

In regard to the AMB proposals the key facts and opinions of the current board for shareholders to consider are explained below :

• Since listing, LonZim has successfully deployed 76% of funds raised in building a strong portfolio of real assets for LonZim. LonZim is the only 'pure-play' investment vehicle for the Zimbabwe recovery listed on the London Stock Exchange.

• Cash reserves in the company are £6.2million equivalent to 17p per share. Market price as at 21st April is 37p.

• LonZim was established to develop a collection of businesses with the capacity for growth when the Zimbabwean economy recovers. The LonZim portfolio of businesses is well positioned to provide significant shareholder value over time.

• Lonrho is one of the strongest commercial brand names in Africa. A highly experienced Lonrho Plc management team run the LonZim business under a five year management contract.  

• Zimbabwe is showing tangible signs of economic recovery and is beginning to attract international support. 

• To close LonZim abandons Zimbabwe and its people at the worst possible time.

• The difference between LonZim's mandate to support and grow businesses in Zimbabwe and AMB's proposed mandate to exit and sell businesses generates very different political and commercial risks for shareholders in the volatile Zimbabwe environment. Zimbabwean laws and regulations and the requirement for Reserve Bank approvals for the repatriation of disposal proceeds and any potential withholding taxes bring shareholder risks.    

• The AMB proposed policy of divestment is badly timed and will not provide best value to shareholders. The market is illiquid and buyers are limited in the current Zimbabwean landscape. It is unlikely that selling assets in this environment will realize the full value of assets acquired to date. 

Further details on the issues facing shareholders by the Board of Directors of LonZim follows in the remainder of this letter. The Directors welcome direct discussion with shareholders regarding the issues and can be contacted on +44 ( 0 ) 207 016 5106 during office hours.

ALL SHAREHOLDERS ARE NOT IN THE SAME POSITION

AMB bought its equity in LonZim at an extremely low average price of 16p per share. This is significantly below the current market price and the vast majority of other LonZim shareholders purchase price. If AMB is permitted to seek to sell the assets and return capital to shareholders, AMB will make a profit on its investment if it can deliver an exit price over 16p per share. The majority of other shareholders will not. 

• If shareholders support AMB and permit them to take over running the Company, AMB's motivation and profit incentive is very different from that of other shareholders. 

LONZIM REMAINS ON TARGET

It is the Board's opinion that LonZim remains a sound investment company, is making good use of shareholders funds, and is implementing the investment policy that was set in the December 2007 admission document upon listing on AIM.

The shareholders mandate was to invest in commercial opportunities in Zimbabwe and the Beira corridor of Mozambique in an open and transparent manner, and to build a portfolio of undervalued assets that will be able to recover strongly as and when the Zimbabwe economy improves. The Board believes that it has implemented this mandate in a professional manner. LonZim has acquired a range of businesses in strategic sectors that have the potential to grow substantially in a recovery.

LonZim has become a significant conglomerate in Zimbabwe, has built a portfolio of sound companies that are well positioned to benefit from the improving political and economic environment in Zimbabwe, is maintaining their market position, is retaining and attracting a large number of key staff and is capable of providing the working capital and investment to grow each of the companies as the economy revives.

The funds raised by LonZim Plc have been invested in key strategic sectors as follows :

• Commercial Property                    10 %

• Hotels                                                   49 %

• IT/Telecoms/Printing sectors     31 %

• Aviation                                               6 %

• Agriculture services                        4 %

The company has a significant pipeline of potential investment opportunities that are currently undergoing due diligence. These include potential further investments in commercial property; hotel opportunities; distribution facilities; agricultural infrastructure and cold store developments.

The latest announcement by the Company, last week of the exciting acquisition ( following negotiations and due diligence that lasted almost a year ) of the iconic Leopard Rock hotel in Zimbabwe with its world class championship golf course and large game park is a significant additional step in LonZim's delivery of its mandate. One of the best hotels in Africa, attracting the likes of Princess Diana as a guest it is a perfect example of a recovery opportunity that will bring significant value to shareholders over time.

• In a recovering Zimbabwe economic market, the opportunities for growth in shareholder value are significant.

• It is the Board of Directors opinion that the invested funds to date have built a strong portfolio of businesses that are well positioned to benefit from the recovery of the Zimbabwean economy. 

• To sell these businesses by the end of 2010, before the benefits of economic recovery have had a chance to add value will undermine the upside for which the LonZim portfolio was created. 

POSITIVE SIGNS STARTING IN ZIMBABWE

Although the current environment in Zimbabwe remains of concern it is clear that some progress is being made. The recent provision of funding for economic development by the Australian government and recent discussions within SADC (Southern African Development Community) for financial support indicate that the global community is cogniscent of the need for financial support to assist in rebuilding the Zimbabwean economy. The essential foreign donor support required has not yet started in any meaningful way, but if the flow of economic normalization continues and the coalition is seen to operate, it is believed that this momentum will increase.  

• The Government of national unity was formed on 5th February 2009, and the coalition, although fractious, is a positive step forward and has created a platform capable of change and development.

• The economy has now formally become US dollar based. This has brought significant stability to the business environment and sets the stage for normal business practices to be reintroduced and for commerce to be able to move forward on an understandable basis. A lack of Foreign Exchange remains a major economic issue. 

• The Zimbabwe stock exchange resumed trading on the 25th February 2009.

• US Dollarisation has curbed the recent rampant hyperinflation and January inflation was reported as 2.3% with deflation of 3.4% in February. This introduces new significant economic challenges for the economy during a period of realignment and adjustment to the new environment. 

RELATIONSHIP WITH LONRHO PLC AND FIVE YEAR MANAGEMENT CONTRACT 

Under a five year management contract (which has just under four years left to run) Lonrho Plc manages the operations of LonZim, and the Lonrho business development team reviews all proposed investments. 

Only those investments with the best potential and growth opportunities are taken to the Lonrho Executive Committee for consideration and, if approved, a thorough legal and accounting and commercial due diligence process is undertaken, mainly by Ernst & Young in Zimbabwe. Once Lonrho has completed the process, the proposed transactions are recommended (or not) to the LonZim Board.

• As explained in the AIM admission document, the Board considers that the relationship between Lonrho Plc and LonZim is critical to the investment policy and the success of the Company.

•  Lonrho holds a 20% equity stake in LonZim that is 'locked in' for five years and undertakes not to compete with LonZim in Zimbabwe. In the event of Lonrho losing Board control the lock in clause falls away and Lonrho becomes free to compete in Zimbabwe.

• Lonrho as significant shareholder in LonZim has informed the Company that it does not support the AMB proposal and will continue to resist any attempt to disinvest from Zimbabwe and dissipate shareholder value. 

CONCLUSION

The independent non-executive directors unanimously recommends that shareholders support the Company and VOTE AGAINST ALL OF THE AMB PROPOSALS that will be proposed by AMB in the June EGM.

A notice convening the EGM in June will be sent to shareholders in due course.

Yours sincerely,

LonZim Plc.

 

END

 

 

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