OLIVINE Industries Ltd’s US$8,25 million loan secured from African Development Bank (AfDB) four months ago hangs in the balance as the regional bank is waiting for a plan on how the Reserve Bank of Zimbabwe intends to clear debts owed to foreign suppliers by local companies.
Olivine is a local unit of Wilmar International.
In July last year, after the introduction of the interbank rate and conversion of bank balances to Zimbabwean dollars, the central bank assumed the legacy foreign debts of some corporates.
The funds, which the RBZ assumed related to external obligations that could not be remitted between January 2016 and February 2019 due to foreign currency shortages. At that time, the debts amounted to about US$2 billion.
The debt was assumed on condition that the corporates would surrender their RTGS balances at 1:1. This occurred about five months after the interbank market, which started with an opening exchange rate of 1:2.5 on February 22, 2019, had been introduced.
As a result, the debts were assumed at a lower rate than what was prevailing at the time.
“The AfDB wants to have a clear position on how the Reserve Bank will deal with legacy debts before they release the money to us and this is the major challenge,” the chief executive of Surface Wilmar Investments, the majority shareholder in Olivine, Sylvester Mr Mangani said.
No comment could be immediately obtained from central bank governor Dr John Mangudya.
In February this year, Dr Mangudya said the Exchange Control had processed and validated blocked funds amounting to US$1.2 billion from 730 applications out of 1 080 requests.
Of the applications processed, 299 transactions with a value of US$861 million were rejected for various reasons, ranging from double-dipping to lack of supporting documentation.
The balance of 350 transactions, with a combined value of US$457 million were expected to be processed by the end of February.
Wilmar, listed on the Singapore Stock Exchange owns a 65 percent controlling equity in Olivine through its local subsidiary, Surface Wilmar Investments.
Wilmar also owns 95 percent stake of a cooking oil production plant in Chitungwiza. The balance is owned by Industrial Development Corporation of Zimbabwe.
The loan, approved in April this year, will enable the company to construct new processing plants for margarine and tomato sauce and install upgraded machinery with advanced technologies. Olivine plans to increase its domestic and regional production capacity and food supply.
The AfDB said Olivine presented a unique opportunity for the bank to participate in rebuilding agricultural value chains in Zimbabwe, thereby creating jobs, improving food security and nutrition while reducing the country’s dependence on food imports.
Once the company’s production reaches an adequate level, this project could potentially support 200 to 300 local farmers through Olivine’s corporate farming model to be developed in the near future.
However, in approving the loan, AfDB noted that the transaction provided a good opportunity for the bank to deepen effective private sector intervention in a transition state, while also promoting the “Feed Africa” agenda that forms part of the Bank’s High 5 strategic priorities.
In 2007, the Government took over H.J. Heinz Co’s 49 percent stake in Olivine through The Cotton Company of Zimbabwe in a US$6,8 million deal facilitated by the Industrial Development Corporation.
Then, relations between Olivine and Government had strained on allegations that the firm had stopped producing cooking oil after being barred by the US government from buying raw materials from black farmers who had taken over land previously owned by white farmers after land reform programme.
Prior to the deal, the Government owned 49 percent in Olivine, in a partnership forged in 1982 and in terms of which the US food company had a contract to manage the business.
In 2013, AICO, Cottco’s parent company, then listed on the Zimbabwe Stock Exchange embarked on an unbundling exercise, which involved the disposal of Seed Co, another listed entity were it held 49 percent and Olivine, to raise money needed to pay off huge debts.
Olivine was a loss making enterprise at a time it was taken over by Wilmar International. Since then — there has been a lot of redevelopment of business model, started with re-fabrication of its margarine plant and installation of a new toiletry and laundry bar lines.
This resulted in the re-introduction of famous brands such as Perfection and Jade.