Zimbabwe remains high risk investment destination

By Brian Latham and Janice Kew

Sept. 18 (Bloomberg) -- Zimbabwe’s government has ordered that Kingdom Meikles Africa Ltd., which owns the country’s biggest supermarket chain and best-known hotel, be placed under state administration, a lawyer for the company said.

Kingdom Meikles and its associates -- the Tanganda Tea Co., Thomas Meikle Centre Ltd. and Murlis Investments Ltd. -- have been “specified” under Zimbabwe’s anti-corruption laws, Sternford Moyo, a lawyer for Meikles, said in an interview from the capital, Harare, today. The specification, which allows the state to assume administration, is illegal, Moyo said.

“The specification of these entities is null and void,” Moyo said. “The joint ministers of home affairs aren’t legally entitled to specify anyone or any company.”

On Sept. 16 President Robert Mugabe told foreign investors at a mining conference in Harare that the country respected property rights and the rule of law. Mugabe began a program of seizing white-owned commercial farms for redistribution to black subsistence farmers and has repeatedly threatened to nationalize mines. Zimbabwe is seeking foreign investment to help it recover from a decade long-recession that ended this year.

The companies are accused of “externalizing foreign funds,” Zimbabwe’s state-controlled Herald newspaper reported Sept. 15.

SledgeHammer

“This is a disaster for a country that is trying to attract foreign investment,” Gilbert Muponda, an independent investment analyst, said by e-mail today. “After this asset seizure it is now clear that Zimbabwe remains a high risk investment destination and investors could easily lose serious amounts of money.”

Kembo Mohadi and Giles Mutsekwa, the co-ministers of home affairs, didn’t answer calls to their mobile phones today.

“It feels a little like a sledgehammer approach has been used in cracking a nut,” Roelof Horne, who helps manage about $700 million in African funds run by Cape Town-based Investec Asset Management, said in an interview. “To retain investor confidence I imagine it would have been better to force the company to correct its actions.”

In February Mugabe and Morgan Tsvangirai, the former opposition leader, set up a coalition government after intervention by the Southern African Development Community of neighboring states to end a 10-year political crisis.

Mohadi is a member of Mugabe’s Zimbabwe African National Union-Patriotic Front while Mutsekwa belongs to Tsvangirai’s Movement for Democratic Change.

‘Anxiousness for Investors”

Under Zimbabwean law, “specified” companies must be administered by a government appointed official.

“What could be a technical infringement seems to have raised the full force of the law to the harshest extent,” Horne said. “That creates some anxiousness for investors, in that it could happen to any company they own.”

The MDC condemned the specification as a “mafia style grab of assets which erodes all hope” of attracting investment, the party said in an e-mailed statement.

Calls to Kingdom Meikles weren’t immediately answered today. Calls to John Moxon, Meikles’ biggest shareholder, similarly weren’t answered. On Sept. 15 the Meikles asked for trade in its shares on the Zimbabwe Stock Exchange to be suspended without giving a reason.

Kingdom Meikles, which owns the TM supermarket chain in Zimbabwe and the Meikles hotel in Harare, has a market value of $90 million. It also controls Zimbabwe’s biggest locally owned bank and owns department stores and cotton companies. Tanganda is the country’s biggest tea producer.

The company was formed in January last year by combining Kingdom Financial Holdings Ltd. and Meikles Africa Ltd. The company said on June 26 that it would de-merge after disagreements between John Moxon, who had been the biggest shareholder in Meikles Africa, and Kingdom Meikles’ former Chief Executive Officer, Nigel Chanakira. It didn’t give further details.

An extraordinary general meeting is scheduled for Sept. 24.

Johannesburg-based Moneyweb, an Internet news site, reported the action earlier.

To contact the reporters on this story: Brian Latham in Durban at blatham@bloomberg.net. Janice Kew in Johannesburg at jkew1@bloomberg.net.