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Currency devaluation hits PepsiCo Zim

13 Dec, 2019 - 00:12 0 Views
Currency devaluation hits PepsiCo Zim Pepsi

eBusiness Weekly

Golden Sibanda

Varun Beverages Zimbabwe billionaire shareholder Ravi Jaipuria says his India listed Varun Beverages Limited took a huge hit on its balance sheet as it had to write off a significant chunk from its books due to extensive devaluation of the Zimbabwe dollar following reintroduction of the domestic currency early this year.

Zimbabwe switched back to local currency in February this year, from the US dollar anchored multicurrency regime it adopted in February 2009 after the local unit had been ravaged by hyperinflation.

The reintroduction of the Zimbabwe dollar is also at a time inflows of the hard currency are far outweighed by demand in a sluggish economy that heavily depends on imports.

Since the reintroduction of local currency 10 months ago, the Zimbabwe dollar’s exchange rate against the US dollar has plummeted from $2,5 to US$1 to the current $16,44 to US$1 on the official interbank market.

The malignant economic environment took a toll on Varun Beverages (VBZ), which manufacturers a range of carbonated soft drinks in the country as well as other markets across the world under renowned beverages maker, PepsiCo International’s franchises.

In fact, franchisor PepsiCo International chief financial officer Hugh Johnston reportedly visited Zimbabwe for meetings with the Reserve Bank of Zimbabwe over concerns of foreign exchange losses from the devaluation.

However, he went for two weeks spending days holed up at the central bank in a bid to meet bank officials to discuss the currency issues, according to Indian ambassador to Zimbabwe Rungsung Masakui.

Jaipuria said in an interview on Friday last week that as a public company, which has market value of US$2,8 billion, the currency devaluation resulted in his company writing off a significant portion of its balance sheet.

“As the devaluation happens, we have to take the write off in our main company and that is a big challenge for us because if in one country the devaluation is so large, it takes a hit on our parent company,” he said.

Without revealing the extent of impairment on the Indian listed US$1,7-billion-dollar revenue company, Jaipuria said the devaluation worried its shareholders and affected the firm’s stock price on the Indian equities market.

“So that is a big challenge and that is where we have concern. This is where the Reserve Bank of Zimbabwe and the (local) banks help to solve part of problem. We are working with them, hopefully we will be able to get through this problem,” he said.

Business Weekly understands Beverages Limited (VBL) told investors in India that it has a US$42 million exposure in Zimbabwe.

In a briefing early November VBL director Raj Pal Gandhi said the company has “a dollar exposure of US$42 million in Zimbabwe, out of which US$30 million,” has been taken over by the RBZ as part of legacy debts it pledged to assume from the market.

“Yes, we have about 2,5 years maturity for this (liability taken on by RBZ). So we will start observing it after a year or so, once we find the reverse strength,” a VBL official told the briefing.

Earlier, Jaipuria said his company, which he says now controls an estimated 65-75 percent of Zimbabwe’s soft drinks market, had done well in difficult circumstances.

However, he said the domestic market had its own unique problems compared to the rest of Africa. In Africa, apart from Zimbabwe, VBL is also present in Uganda, Nigeria, Mozambique, Zambia, Kenya and Morocco where it manufactures a range of drinks it bottles under Pepsi franchise; the brands include Pepsi Cola, Mirinda, Mountain Dew and Sting energy drink.

An expansive multinational with thriving businesses in beverages, fast-food restaurants, retail, ice-cream, dairy products, healthcare and education Varun Beverages parent company, RJ Corp, is also present in Dubai, Nepal, Sri Lanka, Bangladesh, Singapore, Thailand.

Jaipuria, one of the latest entries on India’s top 100 billionaire rich list with net worth of about

US$2 billion, said the central bank had been able to find a solution to their concerns around the currency issues.

“Part of the solutions they have found; partly we have taken write offs in our balance sheet and hopefully going forward we will not have the problems going forward,” Jaipuria, who also has the KFC franchise, said.

Jaipuria also owns fast-food outfit Devyani International, a franchisee for brands such as KFC, Pizza Hut, Costa Coffee and TWG Tea. His flagship VBL is PepsiCo’s second-biggest bottler and was listed in October 2016.

Jaipuria said last week that the Zimbabwe operations now had capacity to produce 35 million bottles per month following the installation of three production lines, which were commissioned by President Mnangagwa. Following the recent expansion, the company which requires US$3 million monthly for key raw material imports, said it will be exploring export opportunities in Mozambique, Zambia, Malawi and Botswana. The US$50 million investment is reportedly now providing business opportunity and employment to over 22 000 families, including 1 500 women who have been enlisted to sell its products through mobile vending units.

Jaipuria said Zimbabweans had embraced their products, which they initially introduced as imports from Zambia before they set up plant in the country, and the beverages maker was willing to expand output based on demand.

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