Most debts owed by local public and private entities may have been written off and companies could take advantage of negotiating with creditors to pay lesser amounts to clean their books.
With bigger portions of these debts being arrears, Business Weekly, has gathered that some companies have successfully negotiated with international banks to only pay the principal amounts.
Many local companies, mostly state owned enterprises, are saddled with huge foreign debts that have stifled efforts to attract new investors.
From an accounting perspective, banks can only consider loan advances as an asset for a certain period. In case of defaults, they can be written off.
Insurers can insure the debts for a certain period.
In the case of Zimbabwean firms, some of the debts are more than 10 years overdue and may have been written off.
There are several strategies a debtor or borrower can use to manage debt, especially overdue debt. This may include, inter alia, debt compromise, debt restructuring or debt scheduling.
A lot of companies and state owned enterprises in Zimbabwe have long outstanding debts, which are due to foreign creditors.
Some of the creditors may have written the debts off as unrecoverable or fully provided for them as doubtful.
In order to resolve the debt situation, there could be merit in negotiating a debt compromise to reduce the debt.
This may involve the lender or creditor reducing or waiving of the accumulated interest. In this case the lender or creditor will salvage something and the debtor will also enjoy some relief.
“As much as the debt may continue appearing in books of local companies, most of these debts could have already been written off,” said a finance expert with a local bank.
“So that provides a room for the debts to be negotiated to lower levels.
“Even when foreign companies negotiate for stakes in local companies, they should take this into account.”
Treasury sources told Business Weekly that some state owned enterprises owing international creditors have negotiated to pay lesser.
For instance, NetOne, the country’s second largest mobile phone company negotiated with KfW of Germany to have its debts lowered from about US$30 million to US$7 million.
ZimCoke, a Mauritius-based company, which wanted to buy some assets owned by Zimbabwe Iron and Steel Company, was also pursuing the same arrangement with the same bank.
The ZimCoke deal has since collapsed after the Government raised reservations over the manner the deal was structured.