Vedanta declined to comment on the matter, but it has already made an application for direction on the provisional liquidator's powers, with a hearing due to take place on Thursday.įurther action in the Zambian High Court or even in the UK, against either Lungu or any potential purchaser of the assets, looks to be a given, especially considering Vedanta is claiming security rights over the assets in the form of a guarantee to Standard Bank to help secure a $820 million loan facility to KCM. However, even if sales are agreed, the story is unlikely to end there. And the purchaser of the assets don't care," he said.
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"The liquidation gets whatever the purchase price is and that sits the company accounts for distribution to the creditors. "The assets are gone once the liquidator sells it, it goes," said Swart.
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Swart said the arbitration would be unaffected by the liquidator's sale, but that it was "irrelevant to the titling of the asset". In addition to the Zambian lawsuit and as referenced by Leon, Vedanta has also taken the state miner ZCCM to arbitration, with a hearing set to take place in London in November. "It's not tainted legally with anything, whatever the history of the asset or the company does not affect the validity of the title that he passes by selling the asset to a third party, and that's the whole purpose of a sale by a liquidator," said Swart. "All the more so when the Zambian Court of Appeal ruled in November that KCM's liquidation should never have happened in the first place and that shareholder disputes should be resolved by arbitration under the shareholders' agreement, which is still ongoing in London," said Leon.Ĭhristopher Swart, a partner and litigation specialist at law firm Squire Patton Boggs, told Mining Journal the provisional liquidator was selling the asset under judicial sanction, "so by definition, he is selling a clean asset". However, he added that although KCM's assets could now be sold under the protection of a court order, given the fact KCM has been under provisional liquidation since May 2019, "it does seem rather anomalous that the provisional liquidator is allowed to do so in the absence of a final liquidation order". Peter Leon, Africa co-chair at law firm Herbert Smith Freehills and advisor to Vedanta on matters separate to this case, said the ruling was "obviously not good news for Vedanta". The legality of the liquidation is less clear cut, despite the recent court ruling. At that point the company's liabilities exceeded its assets by US$605.5 million, KCM said.
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Meanwhile, Vedanta's financial statements for the year ended 31 March 2019 showed KCM made a seventh consecutive annual loss of US$332.2 million after tax, a regression from a post-tax loss of US$131.6 million in 2018. However, KCM's financial position under Vedanta raises questions as to the investment portion of that statement.Īt the time of Lungu's appointment, KCM held just US$650,000 across all its bank accounts "a situation which had raised serious questions about KCM's viability and its ability to meet its immediate, short and long-term obligations as a going concern", said KCM.
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Vedanta, for its part, said on February 18 it remained committed to investing up to US$1.5 billion in KCM, and that splitting up KCM would constitute an "illegal" act. This also applies to the transportation costs agreed with third-parties, which would be higher than market rates," said KCM. "The bulk of major contracts with third-parties were negotiated at a higher price and under unfavourable terms for KCM. Among the more eye-catching statements was the allegation Vedanta operated a transfer pricing strategy "which weakened the KCM business while propping up other Vedanta India-based operations".