Shine on You Crazy Diamond

The diamond mines have been closely guarded by the Angolan elite and a Chinese company is set to make its first investment in Angola’s precious stones.

The ownership and control of the multi-billion-dollar China Sonangol joint venture continue to baffle business people in Luanda.

Ask officials from Beijing about China Sonangol and the response is an embarrassed disavowal and an insistence that it is purely a commercial entity.

However, a few months of research into China Sonangol’s corporate structure have revealed clear links to the Chinese state and its agencies (AAC Vol 2 No 12).

Having recruited African businessmen such as Guinea’s former Mines Minister Mahmoud Thiam, who knows Wall Street as well as Africa’s big mining houses, China Sonangol is expanding operations, winning political influence in Africa and pushing out more timid commercial competitors.

Indeed, China Sonangol’s ruthless business style in Africa is reminscent of some of South Africa’s mining conglomerates, so perhaps it was logical that it would form an alliance with one of the toughest operators in Africa’s diamond business, Israeli billionaire Lev Leviev.

Long regarded with great suspicion by established industry leader De Beers, Leviev outpointed many of his more experienced competitors in Namibia, Angola and Congo-Kinshasa. From zero, he became a billionaire over the past 15 years, buoyed by his astute navigation of Africa’s diamond sector.

Obsessively secretive, litigious and backed by strong local political relationships, Leviev’s business style has much in common with the China Sonangol formula. That presumably is why Leviev is China Sonangol’s partner of choice as it moves into Angola’s diamond industry.

Yet the timing is unfortunate: Leviev’s business empire is in deep financial trouble and, for a change, he personally is on the receiving end of several writs.

Leviev has struggled with his companies’ massive debts following a downturn in the international property markets.

That was the driver for his alliance with China Sonangol, a venture between one of Africa’s least transparent oil companies and a privately listed company based in Hong Kong and Singapore with ties to Chinese state intelligence.

We hear the Hong Kong-based China Sonangol is buying an 18% share in Angola’s largest diamond consortium, Catoca, from Leviev.

If the deal goes ahead, it will be the first Chinese investment in Angola’s diamond sector. Just months ago, China Sonangol (a joint venture between Angola’s state oil company Sonangol and private Chinese investors in the China International Fund) announced that it operates diamond concessions in Zimbabwe’s Marange Fields (AAC Vol 4 No 6).

Kimberley run-around

Catoca’s 64-hectare mine is the fourth-largest kimberlite mine in the world.

The company, which was set up in 1993 and has several other alluvial concessions in Angola, accounts for around 70% of Angolan diamond production. In 2010, Catoca sold more than 6.7 million carats of diamonds, recording net profits of just over US$111 million.

According to Angola’s state diamond company Endiama (Empresa Nacional de Diamantes de Angola), the current shareholders in the Catoca consortium are Endiama (32.8%), Russia’s Alrosa (32.8%), Brazil’s Odebrecht Mining Services (16.4%) and Daumonty Financing Company B.V./Grupo Lev Leviev (18%). Endiama has not even acknowledged the pending sale: a spokesman told Africa-Asia Confidential, ‘I do not have information about this at this time.’

Some analysts suggest that the long-term plan may be to establish a Chinese diamond-selling house.

This would get around Kimberley Process restrictions on diamond sales, similar to an arrangement Leviev set up in Angola, supposedly to stop the trade of blood diamonds through multiple illicit sources.

Angola Selling Corporation (Ascorp) started in 2000 as a joint venture between the Angolan government, Leviev and Antwerp-based Omega Diamonds, and it continues to handle sales of all diamonds from Angola.

Leviev’s fortunes in Angola have been tied to his relationship with Russian businessmen and President José Eduardo dos Santos’s daughter Isabel.

No one at Leviev Group’s headquarters wanted to talk about the deal, nor did China Sonangol or Catoca.

In an interview with the Rough & Polished website, however, Valery Morozov, Chief Executive Officer of Ruiz Diamonds, a Leviev Group division, would not comment on the sale but claimed: ‘I know that there is some sort of cooperation with Chinese partners.’

He did not think Leviev would be pulling out of his other Angolan ventures. Other sources say Leviev has large debts and is selling off assets to raise cash.

Last month, the Russian-Israeli businessman Arkady Gaydamak – recently cleared by a French appeal court of illicitly supplying arms to Angola – claimed that he had also been part of the Ascorp consortium. He is now reported to be suing Leviev for unpaid dividends going back several years.

Gaydamak’s court filings says that he received monthly payments of about $3 mn. from Leviev for his stake in Catoca from 2000 to 2003.

He now claims back payments and dividends dating from 2004.

Gaydamak says that he secretly holds a 24.5% stake and allowed Leviev to be the frontman for the project and represent Gaydamak as a trustee.

Leviev’s New York crash

The activities of Leviev’s companies in the United States property market suggest that relations between Leviev and China Sonangol go beyond simple calculations of profit and loss. Leviev’s dispute with a former employee, now before the New York Supreme Court, reveals details of the operations of the secretive company.

After a series of real estate buys before the global economic slowdown, Leviev’s Africa Israel Investments was left with more than $2 bn.

in debt. It defaulted in 2010 but then restructured the debt. In April, Israeli ratings company Midroog set Africa Israel’s bonds at two steps above the ‘junk’ bond rating, suggesting that the company is still far from recovery. Leviev’s companies are still counting their losses.

Africa Israel Investments USA bought the former New York Times building for $525 mn. in 2007. The previous occupants had purchased it from the Times for just $175 mn. in 2004.

Keen to turn its property into cash to pay debts elsewhere, the company announced in May that it was selling the top eleven floors of the building to the Blackstone Group, a private equity group which has its own portfolio of investments in Africa, for $160 mn.

It was another shrewd buy for Blackstone, which part-owns US-based Kosmos Energy, one of the three biggest oil producing companies in Ghana.

Africa Israel executives said that Blackstone’s $160 mn. was the best offer in a long time and that the deal was about getting cash quickly.

Then on 5 May, the former Chief Executive Officer of Africa Israel Investments USA, Richard Marin, filed a suit in the New York Supreme Court.

He alleged that the company made decisions prejudicial to its shareholders to further its relationship with China Sonangol.

Marin accuses Leviev of conflicts of interest and taking decisions for his personal interest, rather than Africa Israel’s.

Marin, who was appointed CEO in February 2009 and sacked in 2010, says that his dismissal was in retaliation for fraud and misconduct that he discovered and reported to his superiors.

The company’s lawyers say that he was fired due to differences in business strategy and conflict with ‘management in Israel’.

After buying more than $700 mn. in prime New York real estate just before the crash, Africa Israel USA offloaded one of its properties onto China Sonangol.

China Sonangol bought the former JP Morgan Chase Building at 23 Wall Street in 2008.

Although reports suggest that China Sonangol had agreed to take stakes in other properties held by Leviev’s company, Marin had said in 2009 that the 23 Wall Street deal was the only one to be signed.

China Sonangol took ownership of the building but hired Africa Israel to run it. China Sonangol executives were upset with Africa Israel’s management and the fact that it was slow to find tenants.

Marin says that China Sonangol accrued debts of more than $700,000, but his superiors did not allow him to push for repayment because of the company’s ties to Leviev’s other businesses. Rather than pursue the debt, Leviev shifted the contract to other companies linked to him.

Complicating matters further, Leviev and Africa Israel are also shareholders in China Sonangol Resource Enterprise (now called International Resources Enterprise Limited).

The company claims to provide ‘certain marketing analysis, news clipping, preparation of sales report [sic], invoicing and preparation of management accounts services on oil trading to China Sonangol’.

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