Who is fooling Tanzanians on the IPTL acquisition deal?

Dar es Salaam. Two camps emerged when The Citizen broke the story about the Independent Power Tanzania Limited(IPTL)takeover and the subsequent withdrawal of $122million from the Escrow account at the Bank of Tanzania.

The first supports the acquisition and maintains that the deal was in the best interests of the nation. As far as this group is concerned, it was a clean deal with everything done above board. The other side believes the deal is dubious and likely to cost the country an arm and a leg.

Pan African Power Solutions Tanzania Limited(PAP), the company that claims to have acquired IPTL between 2010 and 2011, defends the deal and insists that the acquisition was fair and legal.

PAP argues thatit was a business transaction that initially involved buying 70 per cent shares in IPTL after buying the Malaysian-based Mechmar Corporation Berhad in 2010.

Asked by The Citizen in March, this year,how PAP could have acquired IPTL in 2010, when it had not even been registered, Chief Legal Counsel Joseph Makandege said: “Mr Harbinder Singh Sethi first came as a custodian in 2010 to rescue the IPTL after its shareholders, Mechmar of Malaysia and VIP Engineering and Marketing, got involved in a series of legal disputes.

“In the wake of the disputes, the Malaysian shareholders feared coming to Tanzania to manage their businesses. They had to find someone who would act as caretaker of their 70 per cent shares in IPTL—and that person was MrSethi. They gave him all the necessary documents, which he presented to the relevant Tanzanian authorities.”

MrSethi developed an interest in acquiring IPTL in 2011 but he couldnot do so because of the delay in incorporating PAP.

The Malaysian shareholders were in hurry to let go of their shares, though, and they chose to sell them to an offshore company, Piperlink, which was incorporated in the British Virgin Islands, before the end of 2010.

What transpired after PAP’s claims?

WhenThe Citizen published two stories titled “PAP: IPTL takeover was a clean deal” and “Fresh episode unveiled in IPTL saga”, lawyers representing the Mechmar liquidators quickly came back with the argument that neither PAP nor its executive chairman and shareholderSethiwere custodians of IPTL in Tanzania.

 In their response, the Malaysian lawyers argued that MrSethi and his counsel were alerted to the fact that joint liquidators of Mechmar had been appointed and the corresponding vesting of Mechmar’s global interests in 2012. They asked that he and his lawyer stop presenting themselves as the firm’s representatives in Tanzania.

 According to liquidators’ lawyers, the Malaysian High Court, through the order dated April 16, 2012, confirmed that only the joint liquidators could represent Mechmar in its local and IPTL affairs.

 They further say that in 2008, Standard Chartered Bank Hong Kong Limited (SCB) appointed Martha KaveniRenjuas receiver over the entire ordinary issued share capital of IPTL, which includes shares held by Mechmarand those of VIP Engineering and Marketing Limited. Following her appointment, Mechmar or its directors no longer had any rights to deal in theshares in IPTL.

 In 2010, Ms Renju applied to the High Court in the British Virgin Islandsseeking orders restraining the completion of the purported sale of Mechmar’s shares in IPTL to an offshore company called Piper Link. The application succeeded.A summary judgement against Piper Link was issued on April 11, 2011.

The British Virgin Islands High Court recognised the share receiver as the proper legal custodian of the shares, a position she continues to hold.

According to court documents seen by The Citizen, the share certificates in question were delivered by Piper to the High Court in the British Virgin Islands in accordance with an earlier freezing order and order for custody dated November 8, 2010.  In parallel proceedings in Malaysia, the High Court granted an interim injunction on October 4, 2010, preventing any dealings by Mechmar in its shares in IPTL.

This was followed by a restraining order granted by consent on August 12, 2011, preventing Mechmar from dealing in its shares in IPTL until the redemption of Standard Chartered’soutstanding debt estimated to be $146million.

Both the BVI and Malaysian jurisdictions fully recognised SCB’s security over Mechmar’s shares in IPTL and the legal rights of the share receiver.

 The Malaysian lawyers insisted in their response: “The Malaysian restraining order continues in full and effect. In the circumstances, it is inconceivable that either Sethi or PAP acquired any legal interest in Mechmar’s shares in IPTL. In any event, the shares remain subject to SCB’s share security interests until its debt has been redeemed.”

 In their written response, the lawyers say, “At the time of Mr Sethi’s purported acquisition of Mechmar’s shareholding interests in IPTL in 2010, there was a winding up petition against IPTL, which VIP had earlier initiated at the High Court.

The liquidator has been advised that where such a petition existed, there were very clear rules that apply to any transfer in the subject company’s shareholding.”

Questions that emerge

 After a month of reviewing the versions of stories from both sides, including the evidence gathered on the whole IPTL takeover deal, the following questions emerge:

•             How did PAP acquire Mechmar in 2010 when we were told that its directors were no longer in control of the company during that period?Did the Mechmardirectors in Malaysia outsmart the authorities there, including the High Court, and managed to sell their 70 per cent share to Mr Sethi?

•             How did Piper Link, an offshore company, manage to sell its share to PAP while the evidence shows that the company directors were restrained from completing the transaction in April 2011?

•             Which shares certificates were given to PAP by Piper Link(if the transaction ever took place)since we were again told that the share certificates in question were delivered by the seller to the British Virgin Island court, where they remain?

•             Who did buy Mechmar shares because PAP, according to documents available, was registered in October 2011 when the transaction seemed to have taken place a year earlier, according to the latter’s version of the story?

•             Did Mr Sethi purchase the shares as an individual and later form a company called PAP?

•             Is it possible(assuming that Mr Sethi was given share certificates as claimed) that there were two sets of share certificates?

•             How possible was it for PAP to buy 70 per cent share in IPTL in 2010 when the company was supposedly under liquidation?

•             Which documents did PAP’s owner present to the government officials, especially the Ministry of energy and minerals, which then confirmed that the acquisition of 70 per cent stake was legal?

To put things into perspective, any company that wanted control over IPTL would either have to buy out the majority shareholder (the Malaysian company Mechmar) or buy the entire company. At the time, when it is alleged that Mechmar appointed Mr Sethi as its custodian or representative in 2010 but the other version of the story, as stated by liquidators, show that Mechmar directors had no control over IPTL.

Mechmar’s directors simply did not  have control over IPTL because their company was in receivership after it failed to pay its debt to Standard Chartered Bank—Hong Kong(SCB-HK), which then appointed Ms Renjuthe  receiver in 2008. Where Mechmar’s directors got the legality or power, two years later, to appoint Mr Sethi its custodian in Tanzania is a question that begs an urgent answer.

The alleged transaction between Mechmar’s directors and the British Virgin Island company Piper Link was stopped by the High Court and the buyer was forced to surrender share certificates to the court of law. But we are told by the PAP chief counsel that the very same company that was forced to surrender Mechmar share certificates before a court of law is the one that, in 2011, sold its shares to Mr Sethi—giving him the power to control IPTL.