Deals cut by Eurasian Natural Resources Corp, the FTSE 100 miner, have been lambasted for “opaque concession trading” costing the Democratic Republic of Congo $725m, in a hard-hitting report on Friday by Kofi Annan’s Africa Progress Panel.
The report to be published on Friday calculates that the Congo incurred losses of $1.36bn between 2010 and 2012 as a result of the alleged undervaluation of state assets in five mining deals, three of which involve ENRC. In a further development it emerged that the UK’s Serious Fraud Office is preparing to send investigators to the Congo as part of its criminal probe into ENRC.
ENRC acquired concessions in Congo via offshore vehicles controlled by Dan Gertler, an Israeli businessman close to President Joseph Kabila who has been central to secretive deals in the mineral rich country over the past decade.
Mr Gertler denies the assets were undervalued and has defended his purchase prices as having taken place at a time of instability in the Congo when no one else wanted to buy. ENRC said that all acquisitions made since its initial public offering in 2007 had followed “appropriate regulatory and board best practice”.
The publication of the report comes at an awkward time for ENRC. The Kazakhstan-based group is being investigated by the SFO over allegations of fraud, bribery and corruption, in Africa and Kazakhstan.
In a further setback, it emerged on Thursday that Deutsche Bank and Morgan Stanley which advised on the IPO have resigned as brokers to ENRC, whose share price has shed nearly half its value in the past 12 months. The two banks resigned the roles in late April. The banks declined to comment on the reasons for their resignations.
Credit Suisse and Lazard are now advising the independent committee of directors who will rule on the potential bid for ENRC by the company’s three founding central Asian oligarchs who are considering taking it private.
The report will be released on Friday at the World Economic Forum in Cape Town, attended by hundreds of prominent African and international business and political leaders. APP, which is chaired by Mr Annan, the former UN secretary-general, includes Michel Camdessus, the former IMF managing director, and Tidjane Thiam, chief executive of Prudential, the UK insurer, on its board.
On average, offshore companies paid just a sixth of the price of independent valuations in the case of the five deals scrutinised by the APP and then sold them on at rates of return averaging 512 per cent, the report says. This generated a return of $1.63bn on assets purchased for $275.5m, it calculates.
“With some of the world’s richest mineral resources the DRC appears to be losing out because state companies are systematically undervaluing assets. Concessions have been made on terms that appear to generate large profits for foreign investors, most of them registered in offshore centres, with commensurate losses for public finance,” the report says.
Mr Gertler got his first break in Congo in diamonds more than a decade ago. He went on to create a host of complex offshore vehicles, many of them registered in the British Virgin Islands, with which he acquired state copper and cobalt assets at prices that were steeply below third-party commercial valuations.
ENRC said: “All acquisitions made by the company since IPO have followed appropriate regulatory and board best practice and were cleared by a committee of non-executive directors, led by our former executive chairman Mehmet Dalman, alongside the professional advisers whose approvals for these transactions is mandatory.”
Original Source: Financial Times
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