The Cotton Company of Zimbabwe (Cottco), the country’s largest financier of cotton has paid $24 million to retire part of its $54 million owed to Zimbabwe Asset Management Company (ZAMCO), shedding prospects for a debt to equity swap.
Cottco is one of the companies whose debt was taken over by ZAMCO, a special purpose vehicle created by the Reserve Bank of Zimbabwe (RBZ) to rescue debt-ridden local firms and to hive off non-performing loans that were threatening the stability of banks.
Initially, Cottco and ZAMCO were working on a scheme to convert the former’s debt of $54 million to equity, which could have seen the asset manager assuming 95 percent shareholding.
However, following successive years of improved performance, buoyed by Government sponsored programme supporting small-scale farmers and improved foreign currency inflows, Cottco seems to be in a position to repay all its debts and possibly start working on having its suspension on the Zimbabwe Stock Exchange lifted.
“I can confirm that Cottco has made a huge payment towards retiring its debt to ZAMCO and indications are that more money is coming,” said an official with ZAMCO, who declined to be identified because he is not authorised to talk to the media.
“This should effectively set aside the proposed debt for equity swap plan, which could have resulted in ZAMCO taking over almost the entire shareholding of the company.”
Cotton giant out of danger
While no comment could be obtained from Cottco managing director Pious Manamike by the time of going to print, he told our sister paper, The Herald Business last week that the company had started paying off its legacy debts, without shedding more light.
“The turnaround is now bearing fruits,”
“We are now entering into the second phase of our turnaround, which largely involves retiring of our legacy debts.”
ZAMCO chief executive Cosmas Kanhai, declined to comment on the matter but said some companies were already paying off their debts.
“Some companies are taking advantage of improved cash flows while others, particularly exporters, are taking advantage of exchange rates. It is a matter of where you are placed after de-dollarisation.”
Cottco is managing the Presidential Free Input Scheme, a programme meant to support farmers.
Since its inception in 2015, the programme has lifted cotton production to 143 000 tonnes last year, from 28 000 tonnes in 2015, the lowest output in nearly two decades.
Production, however, fell to about 69 000 tonnes this year due to a drought that has also affected output of other crops such as maize.
Export earnings from ginned cotton, also known as lint rose to US$85 million last year from US$4,5 million in 2015.
The scheme is benefiting at least 400 000 households, mainly vulnerable families while employment levels have risen to 4 500 from less than 1 000 before the programme.
In addition, the scheme is benefiting many players in the cotton value chain including the textile and cooking oil industries. According to the company, more than 2,5 million livelihoods have supported directly or indirectly through the scheme.
Analysts say on the back of such developments, Cottco’s performance, the former blue-chip could “easily” pay off its debts and start working on having its suspension on the ZSE lifted.
The company’s shares were suspended from trading the exchange in 2014.
Leveraging on export earnings
“Cottco is exporting and earning hard currency yet its debt remains in local currency. So the company is leveraging on its export earnings to pay off its obligations which are in local currency given the continued depreciation of the Zimbabwe dollar,” a research analyst with a local financial institution said in an interview.
Some analysts say the ZAMCO facility has, to an extent, been effective as some firms have managed to come out of the woods.
These include Cairns Foods, which has since raised production, Cottco, and starafricacorporation, now partly owned by ZAMCO.
ZAMCO assumed debts owed to seven banks by starafricacorporation as part of its scheme.
While shareholders approved takeover of the principal debt amounting to $32,6 million, ZAMCO finalised debts relating to five banks amounting to nearly $31,9 million.
David Whitehead recently paid $2,1 million loan it borrowed from ZAMCO.
While there had been a lot of criticisms around the ZAMCO facility, analysts believe the facility had performed reasonably well.
ZAMCO acquired bad loans amounting to $1,1 billion since it was created in July 2014.