QUESTION: How many shares does UDSM have in Mlimani Holdings Limited (MHL)?
Answer: The University of Dar es Salaam does not hold any shares in MHL. Being an institution that is controlled by trust laws, it cannot invest in a private company unless certain stringent conditions are met.
In any case, it was not found efficient to conduct the public-private-partnership (PPP) venture through the joint venture mode. Risks would be very high and the university would be exposed to sharing losses.
Q: Is it true that revenue sharing is 80 against 20 per cent for Turnstar and UDSM respectively?
A: UDSM and Turnstar cannot have any sharing arrangement because they are not parties to any agreement. The relationship of UDSM in respect of Mlimani City is restricted to MHL. The latter has obligations to account for turnover to UDSM and make monthly remittances to UDSM at agreed rates.
Q: Turnstar bought a controlling stake at GH Group which has a controlling stake at MHL that jointly owns Mlimani City with UDSM, now I am wondering why is a USD 80m facility which is a going concern be sold for USD 77m even if it's only the rights and not land sold?
A: It is a misconception to say that UDSM jointly owns Mlimani City with MHL. UDSM is the owner of Mlimani City and has granted long term management rights over the property to MHL in return for turnover percentage monthly.
Q: Great, now address the low price which Turnstar paid to GH Group for Mlimani City?
A: When you refer to the acquisition value of the GH Group equities by Turnstar, you need to establish the earning per share of the GH shares at the time of the transaction. This is the basis of the transaction value.
However, many people are comfortable to make reference to the property value of the Mlimani City property because it has direct impact in enhancing the earning per share of GH Group shares. That is the simplistic explanation of what Turnstar has acquired, but it is not professionally correct. In that sense therefore, you are surprised that a USD 80m facility which is going concern be sold for USD 77m, is misconceived.
Q: What does the agreement which the university entered with GH Group specifically say?
A: First it is not true that UDSM had entered into any contract with GH Group. At all times the only party with whom UDSM has contracted with is Mlimani Holdings Limited (MHL). This is a Tanzanian company whose records are available at BRELA and we advise that you obtain the up-to-date status of its affairs from BRELA. But, briefly, the majority shareholder of MHL is GH Group.
Q: Why is Turnstar through MHL seeking an extension to tax relief after expiry of the 2004/9 exemption period?
A: There have not been any tax exemption granted by the government to Turnstar and Turnstar have no status in Tanzania to ask for any such exemption. The only company that has preferential treatment is MHL.
This was accorded some incentives under the Tanzania Investment Centre (TIC) regime and subsequently the government executed a Performance Agreement with MHL to grant it some more specific tax incentives, particularly relating to loan repayments and interest on loans. This information is verifiable by TIC. It is therefore wrong to assert that Turnstar are requesting further income tax and import duty exemptions. Turnstar are in fact implementing nothing in Tanzania and have never been taxpayers in Tanzania.
Q: GH Group owner Gulaam Abdoola failed to meet his contractual obligations by not constructing a hotel, office block and botanic garden during the 2004/9 period, when most tax exemptions applied but now he is seeking further exemption through Turnstar Holdings where he is also a shareholder, any explanation?
A: It is not true that Mr Abdoola failed to meet his contractual obligations. It is not clear which obligations of Mr Abdoola you are referring to. However, I surmise that you are mixing the centrality of Mr Abdoola as the individual who has had the drive behind the project and the CEO of MHL and MHL itself. Be informed that MHL was to implement the project in three phases. The first phase comprising the construction of the shopping mall. This is done and you are its physical witness.
The second phase was the construction of the residential houses and the office blocks. You will agree that these obligations were duly discharged to satisfaction. Kindly be informed that during this stage the President of the United Republic had specifically asked that a high capacity conference facility be considered and MHL obliged by constructing the Mlimani City Conference Hall that was not previously planned at this stage.
They, therefore, over performed their initial contractual undertakings. The third and final phase was the construction of a value mart, a hotel and a botanical garden. This stage was interfered with at the onset of the world economic crunch. Banks were no longer ready to continue financing the project due to the difficulties that beset the financial sector.
Q: So MHL is seeking more time to implement the project because of the economic crunch?
A: MHL entered into dialogue with both UDSM and the government on extending the due dates of performance. These were extended by agreement in order to enable MHL re-arrange its project financing and at the same time get the government to perform its undertakings under the Performance Agreement. Not that the government had not performed its undertakings as such, but there arose lack of clarity on the focus of issues.
Q: Which are such issues?
A: For example, Government Notices were published pursuant to the Performance Agreement but which were found to have technical defects. The context of the GNs had to be clarified and the modalities of discharging the government obligations re-examined. This has taken time because of the procedural steps that must be observed and adhered to. Perhaps it is this aspect that is misleading you to think that Turnstar demand further tax incentives.
Q: What specifically does GH Group or Turnstar through MHL looking for here apart from tax exemptions?
A: In 2011 MHL requested the approval of UDSM to restructure the financing for the project. It was agreed that it would be the best alternative for MHL to raise financing through public offerings. Doing that in Tanzania would not be feasible.
MHL still does not have the attraction for a successful listing in Tanzania. After some studies, it was agreed that using a sister company in the group companies managed by Abdoola, that is Turnstar, it would be possible to achieve that strategy. Turnstar has been on the Botswana bourse for a long time and has public goodwill.
It is thus the most viable vehicle for raising funding. UDSM nevertheless maintained that its contractual arrangement with MHL should never be interfered with. Hence, in order not to derogate from the UDSM condition, Turnstar acquired the controlling interest in GH Group and therefore indirectly over MHL, so that it is legitimate for Turnstar to use the same to enhance its public standing.
Q: So Mlimani City has not been sold, what did Turnstar buy from GH Group?
A: In the light of the above, you will notice that it is not true to say that Mlimani City has been sold. The property at the Mlimani City project remains with UDSM and cannot be alienated to any person. This is verifiable at the Ministry of Lands.
The agreement between UDSM and MHL does not entail any sell of UDSM land. How the Mlimani City Project was packaged as a public private partnership is currently a subject of learning by many public institutions both in Tanzania and abroad, particularly the aspect whereby the institution does not lose ownership of its land and is guaranteed financial returns from day one of commencement of commercial operations and throughout the entire lifetime of the agreement.
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