CAPS takeover dispute remains after court decision
Government has initiated consultations to address the dispute over the ownership of CAPS Holdings, the country’s leading drug manufacturer, according to sources familiar with the matter.
This follows last month’s Supreme Court decision that overturned a High Court order upholding an arbitral award granting ownership to the Government.
The arbitral award by retired Justice Ahmed Ebrahim, also gave the Government the authority to appoint board members.
“The issue of CAPS is quite complex and involves various Government entities,” said one source who spoke on condition of anonymity. “We are in the process of consultations and the outcome will guide us on the direction to take.”
The legal row
The drama leading to the court processes began in 2020 when the Government appointed board members to CAPS Holdings.
This sparked immediate outrage from the CAPS Pharmaceutical Trust (CPT), the entity claiming a controlling 52 percent stake in CAPS Private Ltd, a drug manufacturing subsidiary of CAPS Holdings.
The CPT, owned by pharmacists, grounded their claim in the Health Professions Act, which they interpreted as mandating a majority ownership by qualified health professionals in the pharmaceutical field.
However, even if their interpretations were accurate, obtaining a controlling stake through donation required ratification from CAPS Holdings shareholders at an annual or extraordinary general meeting.
In such a scenario, CAPS Holdings shareholders would have needed to donate their 12 percent to give CPT a 52 percent stake in CAPS Private Ltd. To legally secure a controlling stake, the transfer of ownership would have required approval by CAPS Holdings shareholders at a general meeting.
The Government countered the CPT’s ownership claim with a seemingly stronger argument — a sale of share agreement allegedly struck with businessman Fred Mutanda in 2015.
Fred Mutanda, through his family trust, owned 88 percent of CAPS Holdings, which, in turn, owned stakes in various subsidiaries, including St Anne’s Hospital, Geddes, CAPS Private Ltd and QV Pharmacy.
The agreement, the Government argued, granted them a 68 percent majority stake in CAPS. However, the validity and the specifics of this agreement remain a point of contention.
The disputed agreement
This publication understands that the initial agreement, brokered by the Reserve Bank of Zimbabwe (RBZ), envisioned the Government acquiring 68 percent of CAPS Manufacturing and CAPS Healthcare through a demerger process.
Mutanda has consistently denied selling his shares to the Government, claiming the latter failed to pay the agreed amount.
On the other hand, the RBZ, acting on the Government’s behalf, claims the Government fulfilled its obligations by issuing Treasury Bills (TBs) to Mutanda.
Documents obtained by this publication reveal that on November 27, 2015, the then-Finance Minister Patrick Chinamasa directed the RBZ to issue TBs to Mutanda as payment for the shares.
The central bank issued three batches of US$6.7 million TBs of varying maturities (12 months, 24 months and 36 months) on December 1, 2015 for the payment of CAPS shares at a 5 percent interest rate.
At the time, US dollars and Zimbabwe’s surrogate bond note were at par.
On December 23, 2016, the central bank issued two more TBs of five years’ tenure worth US$8 million each at a 5 percent interest rate, and both matured in December 2021.
A final batch of TBs worth US$7.5 million was issued in January 2017 at 5 percent interest rate and matured in January 2023.
However, a crucial detail is that the last batches matured after the Government abandoned the fixed exchange rate peg between the bond note and the US dollar in February 2019.
This resulted in a significant devaluation of the Zimbabwe dollar compared to the US dollar. The central bank argues that Mutanda’s dissatisfaction with the Zimbabwe dollar payment is at the core of the disagreement.
Government’s next steps
According to the Ministry of Industry and Commerce’s Permanent Secretary, Dr Thomas Wushe, the Government’s course of action will depend on the written judgment from the court.
Dr Wushe reiterated the Government’s desire to restore viability at CAPS Holdings.-ebusinessweekly
