RBZ, CAPS face off over debt conversion

03 May, 2019 - 00:05 0 Views
RBZ, CAPS face off over debt conversion Finance and Economic Development Minister Professor Mthuli Ncube

eBusiness Weekly

Martin Kadzere
Conversion of CAPS Holdings debts into equity by the Zimbabwe Asset Management Company (ZAMCO) hangs in the balance after a major shareholder in the pharmaceutical firm claimed that liabilities the asset manager took over should have been settled by the central bank and not used for debt to equity swap.

The central bank set up ZAMCO in 2015 as a special purpose vehicle established to hive off non-performing loans (NPLs) from banks that were groaning under the burden of toxic debt obligations.

According to the Reserve Bank of Zimbabwe (RBZ), the bad loan ratio increased from 1,8 percent at the end of 2009 to reach an alarming post-dollarisation peak of 20,45 percent in September 2014, figures bankers claimed were lethal to the viability of the sector.

By December 31, 2018, ZAMCO had taken over $1,2 billion in bad loans, as the central bank sought to free up banks’ balance sheets. Finance and economic Development Minister Mthuli Ncube has since ordered ZAMCO not to take up any further bad loans.

Barring exceptional developments that may compel the central bank to change its mind, ZAMCO will fold operations after 10 years, but must have fully resolved the $1,2 billion worth of loans it acquired.

Some companies that have used ZAMCO to restructure their loans include The Cotton

ompany of Zimbabwe, RioZim, and starafricacorporation. Attempts to add CAPS Holdings to the list have however been questioned.

Mutanda fight debt conversion

According to information gathered by Business Weekly this week, one of the major shareholders of CAPS Holdings, Fred Mutanda, is challenging the debt takeover by ZAMCO arguing that the central bank had obligation to settle the debt since it owed the pharmaceutical firm.

The debt arose after the central bank ordered CAPS to produce stocks of all medicines required in the country in 2008. Following protracted negotiations, the Reserve Bank agreed to settle CAPS’ loans. CAPS used to manufacture about 75 percent of the country’s essential drugs.

In a letter to the RBZ governor Dr John Mangudya, a copy of which is in possession of Business Weekly, Mutanda indicated that the central bank had the obligation to pay the loans since it owed CAPS about US$7 million.

“I refer to my letter to the ZAMCO chief executive officer regarding claims that ZAMCO acquired the CAPS Holdings debt from CBZ Bank and now intends to do a debt equity conversion at CAPS Manufacturing.

“Yet paragraph 2 of our November 11, 2015 agreement requires that ‘an amount of US$4,087,170 (or US$7,002,231 inclusive of the 5 percent interest per annum), owed to CAPS Holdings by the Reserve Bank would be used to expunge CAPS Holdings debt exposures with local banks.”

“Notwithstanding the above, CAPS Holdings is a different entity to CAPS Manufacturing. Therefore, the debt equity conversion cannot be legally done by ZAMCO. Although the Government acquired 68 percent on my family’s shareholding, my family remain shareholders of CAPS Manufacturing, CAPS Healthcare and CAPS Private Limited as we fail to properly conclude certain CAPS issues.”

In an interview, Mutanda said the debt should be settled by the Reserve Bank.

“The debt, which they purport to have taken over was not supposed to be there,” he said.

Contacted for comment, ZAMCO chief executive Dr Cosmas Kanhai referred this publication to Dr Mangudya who could not be reached by the time of going to print yesterday.

Government seeks

to revive CAPS

The Government, which owns 68 percent shareholding in the CAPS Holdings, which in turn holds 60 percent shareholding in the group’s subsidiary, CAPS Manufacturing, has since indicated plans to revive operations and has engaged investors from India and the United Arab Emirates (UAE) to help resuscitate the pharmaceutical giant.

In an interview recently, Industry and Commerce Minister Mangaliso Ndlovu said the Government would soon make an announcement with regards to the revival of the company’s operations.

CAPS Holding delisted from the Zimbabwe Stock Exchange in 2011. The then shareholders, at the extraordinary general meeting on 30 June 2011, approved the resolution to increase the company’s share capital by issuing new ordinary shares to raise US$15 million for repaying loans and recapitalise the new separate entities.

 

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