Publication le 15 juin 2018 sur Les Echos Le Cercle
We talk about it a lot in Lubumbashi. Nécotrans was an empire born in the Democratic Republic of Congo. What’s left of it?
In 2015, advised by a bank, a Lubumbashi personality, Moïse Katumbi, wanted to sell his Congolese company (SC). It employs 2000 people and owns a fleet of machinery and trucks. It is involved in the discovery and removal of ore from copper and cobalt mines in the provinces of Lualaba and Haut-Katanga. Its 2014 revenue was $171 million and its selling price, $140 million, was only 3.7 times its EBITDA. The seller housed 100% of the shares of this company in a Mauritian holding company (HM) and then the bank found a buyer, the company Nécotrans. A pro forma agreement was finalized in August 2015, the sale of HM was signed in November of the same year.
But, right after the transaction, first surprise. At the seller’s request, the buyer sold 15% of HM to a long-time partner. The agreement did not provide for the payment of the corresponding $21 million. The shares have since been held in a Singaporean company and, without knowing to whom, and at what price, it seems that they must be sold again before November 2018.
Now, 85% of HM, $119 million, was transferred to Nécotrans. But, strangely enough, it still had to be deducted 33%. If he so wishes, the seller has the power at any time, between November 2015 and November 2018, to keep this 33% for an investor of his choice to buy them. If it does not propose any before November 2018, it may retain this share. In other words, the transaction would no longer concern 85% of HM’s capital, but 52%, or $72.8 million. Of course, if the seller relinquishes control of the 33%, they remain in the transaction at $119 million.
In November 2015, second surprise. The seller received a settlement of $20 million instead of $72.8 million or $119 million. Indeed, the buyer was granted a payment facility spread over three years, from November 2015 to November 2018, with an interest charge of 3% in the first year, 7% in the second year and 12% in the third year. Interest therefore accrues on $52.8 million if 52% is sold, or $99 million in the case of the 85% option.
Question. Why grant this facility to a distressed buyer who subsequently went bankrupt?
Third surprise, the transaction did not include the usual liability guarantee clause. Why did the buyer grant this facility to the seller? Did HM or the SC have significant hidden liabilities?
Fourth surprise, the sale excluded the usual non-compete clause. Why? Why? Did the seller own rival companies or did he have to retain competitive freedom?
These peculiarities began the day after the transaction on the appointment by the buyer of a new Chairman of the Board of Directors of HM and SC, Pascal Beveraggi, who is also an African industrial partner of Nécotrans, and a new Managing Director, Grégory Quérel.
As soon as he took office, unless otherwise informed, the President stated that he had noted two things. Without finding the corresponding supporting documentation, HC’s cash position was reduced by $10 million the week before the transaction; and in the week following the sale, suppliers requested payment of nearly $30 million in former liabilities. After the President consulted about the $10 million, it seems that $3 million reappeared via the seller and $3 million via the buyer, $4 million never returned. Obviously, in the face of liabilities, there was insufficient cash flow.
The second surprise of the new Chairman, unless otherwise stated, he noted that between the pro forma agreement of August 2015 and the signing of November 2015 in October, SC cancelled in advance a mining contract representing 30% of turnover. This loss of earnings was never made up for, but the $140 million sale price remained unchanged. Then, for various reasons that an investigative journalist will one day solve, other historical customers disappeared. There, it seems, there is a lot to be said. As a result, compared to the $171 million in 2014, and although SC subsequently gained $20 million in new customers, revenues declined by 12% in 2015, 41% in 2016 and 50% in 2017. However, debt fell by 50% and in 2016 and 2017 and the result remained close to balance. A management feat.
Questions. Would the absence of a liability guarantee and non-competition clause be linked to the return of cash, sudden claims by creditors, loss of turnover? Subsequently, why such a succession of trade barriers that prevented the seller from paying? Would commensals have mixed the culture of the self with that of the “Mokonsi”? Was the 3-year payment facility a counterpart to all this? But, in this case, why would the buyer have accepted the financial asymmetry of a heavy interest burden on its future operation? Last hypothesis, would all these risks combined have justified such an arrangement?
In 2017, when Nécotrans went bankrupt, 85% minus the $20 million of HM was unpaid, i.e. 71%, or 38% in the case of 71%-33%. Bankruptcy led to bankruptcy on June 21, 2017, and legal redress on June 29. It was at that time, on July 17, 2017, that the President proposed the takeover of HM’s shares to save SC. The seller, who, it should be recalled, was still only paying $20 million, did not make an offer before the Paris Commercial Court, on the contrary. A dramatic turn of events occurred on August 11, 2017, i.e. 24 business hours before the August 17 hearing, when it was released from the escrow or there was a specific provision in the November 2015 contract. As long as the seller was not paid, HM was non-transferable without his agreement. Informed of this clause on August 16, the day before the hearing, the Paris Commercial Court overruled it. In its judgment of 25 August, it considered that the transfer of ownership from HM to a new beneficiary was linked to the rescue of SC’s activity.
At that minute, the President became the owner of HM and by extension of SC. But it also acquired the obligation to pay the seller, before November 2018, $52.8 million, or $99 million depending on the option, plus interest. That is, the holder of HM changed his identity, but the obligations towards the seller remained intact. The debt was still due. In this case, why did the seller oppose the court’s decision? Dissatisfied, he appealed. On 15 May 2018, the Paris Court of Appeal ruled in his favour: the transfer of ownership of HM was not necessary to save SC and no one owed him anything anymore.
Questions. Why is non-transferability considered superior to safeguarding 2000 jobs? Is it strange that the buyer can straighten out SC without being the owner? Is this a dangerous case law in the era of the extraterritoriality of American law and the omnipresence of the Common Law? Would it be regrettable if it were to ban French law from the “applicable law” section of international contracts? In any case, since the last judgment, the case has been in cassation. HM became the property of the liquidator again, probably until November 2018.
But the legal novel does not stop there. As of April 1, 2019, another provision of the 2015 contract gives a pre-emptive right to the owner of the Singapore company, which owns 15% of HM, over the buyer’s shares, and vice versa. On the one hand, HM’s shares are non-transferable, on the other hand, they are already pre-empted.
At this stage, many other questions arise for the future.
Following the bankruptcy of Nécotrans, can only the seller decide on the identity of the owner of HM? From March 2019, will the owner of the Singaporean company take over? What about the interval December 2018 – March 2019?
If SC were to return to the seller in November 2018, should the liquidator demand repayment of the $20 million initially paid, as well as the President claim repayment of the SC debt he has carried since some banks disengaged?
Since the new Congolese law reserves work for local subcontracting companies, which must have a Congolese majority shareholding, but since the Congolese Civil Code prohibits its nationals from having dual nationality, which candidate would be best able to continue SC’s activity knowing that its current shareholder is a Mauritian holding company?
What would happen if the $52.8 million, or $99 million, was paid to the seller before November 2018?
Compared to the initial $140 million, and after all these adventures, particularly commercial, how much is HM worth? Why, despite all this SC challenge, has it not disappeared? How long will it face, without a reference shareholder, and be attacked by all these proceedings?
Weird, weird, weird, why did you say weird? Because the space continues to darken as we enlighten it, except on one last question and one affirmation.
Question. in 2015 did the seller really want to sell, and the buyer to buy? To repeat slowly and think about it at length, before answering => Intelligenti pauca.
Affirmation: for nearly three years on the ground, the President has appeared to be the only one who wants the company and its 2000 jobs to survive.