When we published “New Board Members at CEC? Interesting..“, we decoded the signal from the management team that they had brought on board an investments expert and a private equity specialists. When boards make decisions such as this one, it means that they are looking at improving the investment profile of the company. Many companies in the past that have made decisions to bring on board PE specialists have often seen themselves shedding fat (excess to requirements assets or non-core assets). This has happened before on LuSE when Zambeef entered into partnership with CEC and they brought on board 2 board members with analogous backgrounds that saw Zambeef off load Zampalm (the prodigal child that was excess to requirements).
CEC on 16 October 2018 through SENS Announcement made by Company Secretary Julia Chaila informed shareholders that they had completed the sale of its 50% shareholding in CEC Liquid Telecom to liquid and all the conditions precedent (CPs”)”to which the Transaction was subject to had been fulfilled. This is a masterstroke for Clive Owen (CEO) who sadly in July this year found himself with no deal with CDC following their pursuit of his company following failure to meet 2 CPs.
The earlier announcement of the Divestment in CEC Liquid Telecom Limited came on 23rd May 2018. Following the debacle of the CDC deal, there was movement in directorship that saw long servicing Hanson Sidowe retiring as Chairman of the Board of Directors of CEC Plc. Following his exit, two new recruits to the board were made that signalled reform in their investment strategy.
A review of the new recruits sees the coming on board of an investments expert and a private equity specialist. The board announced the appointment of non-executive director Thomas Featherby who is currently Chief Investment Officer of Rondine Capital LLP. Rondine is an investment firm which focuses on listed companies in Sub-Saharan Africa and is a long term shareholder of CEC. He is a Cambridge graduate and his career has seen him execute transactions and portfolios in excess of USD5 billion. He is an alumni of Helios Investment Partners, Vermilion Partners Ltd (Beijing) and Lazard & Co (London).
The second recruit is Derek Chime who is Private Equity Africa Director at Standard Chartered Bank. Derek brings emerging market experience as he has been an investment professional with over 8 years’ experience. He was directly responsible for managing around USD450 million of invested capital under a USD900 million Africa fund. His sphere of influences is felt across 5 portfolio boards on which he sits on and has sector knowledge of power, manufacturing, financial services and telecoms. He is an alumni of University of Lagos and has work experience with Vetiva Capital Management.
It is clear from the timing of the appointment, Acting Chairman Reynolds Bowa was keen to ensure that the two new recruits breathed life into the finality of the deal. This obviously required that his board ensured that all the CPs were completed.
The completed CPs included:
- The approval of the sale of the Sale Shares and matters ancillary thereto by the COMESA Competition Commission;
- The approval of the sale of the Sale Shares and matters ancillary thereto (including the proposed changes to the board of directors of CEC Liquid Telecom by the Zambia Information and Communications Technology Authority;
- CEC Liquid Telecom having obtained the consent of Stanbic Bank Zambia Limited to the sale of the Sale Shares and matters ancillary thereto (including the termination of the Joint Venture Agreement);
- Discharge of the CEC Guarantee in a form satisfactory to CEC;
- Liquid having obtained the consent of its lenders to the acquisition of the Sale Shares and matters ancillary thereto; and
- CEC having obtained the consent of its lenders to the sale of the Sale Shares and matters ancillary thereto.
The statement from the company further states that “following fulfilment of all the conditions precedent, the Transaction has reached completion, triggering the payment of 10% of the agreed purchase price (initial instalment payable at completion). The deferred consideration, backed by a bank guarantee, is payable no later than 28th February 2019”.
The statement does not give us the full amount of the deal. This will certainly be announcement later on. However, it does give investors an idea of what the funds will be used for. According to the statement, “the realised proceeds from the Transaction will be used to fund the growth and expansion of CEC’s core business in line with its strategy of divesting out of non-core operations and focusing on the core business of generation, transmission, distribution and supply of electricity.”
Following our review of some of the investments the company has made, we would not be surprised if they announce further plans for renewable projects. In 2017, the Managing Director Owen Silavwe announced the Letter of Intent with GIZ and CBU for a $US 1.5 million 1 megawatt solar plant in Kitwe dubbed “Riverside Project”. Echoes of the 1 MW facility have been spreading of the commission of this plant and it feeding into the CEC grid.
Of note in the same year (2017), CEC sent a signal to the market of trying to raise $US50 million to develop solar plants in Ndola and Kitwe. We can only speculate for now. But there are clear indications that CEC is preparing to become born again in the energy industry in Zambia. Reflecting on the CPs that never went through on the CDC deal and now its sale of excess to requirements fat in CEC Liquid, the market must wonder what will the company do with this huge cash pile that will be payable no later than 28th February 2019?