eBusiness Weekly
Golden Sibanda
The Zimbabwe Asset Management Company (Zamco), a special purpose vehicle created by the Reserve Bank of Zimbabwe (RBZ) to rid the banking sector of non-performing loans (NPLs), has so far acquired $1,1 billion worth of bad loans, chief executive Cosmas Kanhai said.While Zamco had since officially closed the acquisition of ordinary NPLs, in terms of its original mandate, Kanhai said the central bank’s special purpose vehicle (SPV) would continue acquiring bad loans of national interest or with a bearing on the stability of the banking sector.
In an interview, Kanhai said Zamco was now in the second phase of its mandate, which entailed resolution of NPLs it had assumed, amid revelations half of the $1,1 billion bad loans have been evaluated to determine the best resolution strategy for each one.
“We have closed (acquisitions); buy the time closed we had acquired about $1,1 billion NPLs,” he said.
“But while we have closed official acquisitions, we can still acquire those (NPLs) deemed to be of national interest or for banking sector stability; those are the ones we may still acquire,” he said.
“We have since started the process of resolution of the NPLs, which we must complete by 2025,” the Zamco chief executive said.
Kanhai said Zamco was not going to exist in perpetuity, hence all bad loans should be resolved by 2025, by which time the SPV is expected to have completed its mandate and should close shop.
RBZ Governor John Mangudya is on record saying that Zamco will not exist for ever, but a limited period to resolve the potentially disastrous effect of NPLs, as this could give wrong signals that all bad loans may always be taken over by the SPV.
The RBZ’s banking sector bad loans cleansing vehicle was formed in 2015 with a specific mandate to acquire non-performing loans to enable them to extend fresh credit and thereafter wind down operations. This will be done over 10 years.
At the time Zamco was formed, banks were saddled with over $750 million worth of NPLs while most had started taking a cautious approach to extension of fresh credit to productive sectors of the economy, which the RBZ feared would have serious negative impact on economic growth.
He said that Zamco was currently evaluating all NPLs it has to date acquired, with 50 percent of the bad loans having already been assessed, in order to determine the resolution strategies suitable for each one of the NPLs.
“After determining what appropriate resolution is for each of the loans (NPLs), we will then move on to implementation of the (debt resolution) strategies,” he said.
Kanhai said where there were prospects for successful resolution of NPLs, Zamco may decide either to reschedule the loans or rehabilitate them. Where prospects for successful rehabilitation appear slim, Zamco would consider the option for debt-equity swap.
Zamco’s mandate
Zamco was formed with a mandate to resuscitate distressed companies that could otherwise be considered viable to ensure that the companies do not close needlessly, and that the country saves employment.
There are two major strategies being pursued to resuscitate distressed companies namely loan/debt restructuring and corporate/operational restructuring.
In terms of the loan/debt restructure Zamco will enter into negotiations with the borrower(s) to redefine the terms of the original contract, a process that may entail some concessions on the part of both Zamco and, the borrower.
The loan restructuring could include downward adjustment of interest rates on loans and/or increasing the loan repayment period.
In carrying out debt restructurings, Zamco may also convert the debtor’s debt into equity in the debtor’s business, thus giving Zamco the rights to influence the restructuring processes of the company.
Some of the advantages that would be obtained by borrowers from debt restructuring include reduction of finance costs, which releases cash flows to finance operations.
Corporate restructuring will involve changing some of the structures of a corporate debtor (such as its assets, capital, management composition, costs, organization, and business strategy to re-orient the business to achieve success.
Competitive Bidding/Tender
Zamco may also decide to sell NPLs through a competitive bidding, which may begin with Zamco sending a request for bids (RFBs) by posting the request on its website and/or advertising through public media.
In addition, the RFB document, which outlines the details of the sale and bid timelines, will be sent to asset management companies (AMCs), investment advisors and private investors, among others.
Alternatively, Zamco can also dispose NPLs though auctions sales that are conducted in a public and transparent fashion. The auction should meet the following criteria: wide advertisement, freely accessible, publicly visible, and be competitive.
