The Zimbabwe Asset Management Company (ZAMCO) is considering disposing its distressed loans following numerous inquiries from potential investors interested in acquiring the assets, CEO Dr Cosmas Kanhai has said.
Dr Kanhai said ZAMCO has already received numerous inquiries from potential investors seeking to acquire the distressed loans from its portfolio.
“ZAMCO has only just commenced its resolution phase, but it has already received numerous inquiries from potential investors seeking to acquire the distressed loans from ZAMCO’s portfolio.
He noted that ZAMCO has responded accordingly by structuring itself for correspondence with interested investors who then could conduct due diligence in the existent portfolio.
“We are now considering creating a secondary debt market with interest already evident in frequent inquiries by several potential investors,” he said.
Speaking on the composition of the portfolio and its investor attraction, Dr Kanhai remarked: “The portfolio is attractive because of the size and market positioning of the firms in case.
“Certain information is confidential in as far as the name of companies attached to the distressed loans, but many are listed companies. A second category is that of companies with significant market share or brand equity with consumers in their respective markets.”
The ZAMCO portfolio comprises of large sized loans, including accounts and contracts previously on the books of big corporates listed on the ZSE and other market dominant entities typically of private equity interest. Some of the companies include RioZim, Cottco, Border Timbers, Cairns and Star Africa.
“One should note that many defaulters to these loans have large order volumes agreements or invested in extensive capital expenditure making their going concern attractive to investors. So far interested investors have been attracted to the assets on hand, as well as the market positioning of some of the entities with loans in our portfolio.
“Of course one cannot tell what investors ultimately decide to do with the distressed loans they may acquire, that would be subjective to their long term intentions.
“Of the investors who have approached us for now, there is a diverse representation ranging from foreign investors, local asset managers, and private equity firms. Even individuals have shown interest.”
Dr. Kanhai said that to get the best deals from an increasing pool of potential investors, and to create fair market discovery, ZAMCO is expediently working to host an investment conference outlining its entire portfolio to as wide an audience as possible.
Dates are yet to be set but Dr Kanhai expects to have the conference by the end of the first quarter in 2018.
ZAMCO has a ten year mandate, expecting to completely service all the loans in its portfolio by July 2025.
Investors will find some long term certainty of at least a seven year horizon to organize complete payback in whichever distressed loans they may invest in.
Part of ZAMCO’s resolution phase, however, is to also offer various models that appease initial loan defaulters to varying degrees. ZAMCO has created numerous models to this end.
These include restructuring of initial credit terms by either extending payment horizons or easing interest rates; debt asset swaps secured by instruments such as mortgage bonds; debt equity conversion where a third party investor takes on equity in the defaulter’s business; or foreclosure in the least salvageable instances.
The strategy underlying all these models is to find a balance which satisfies initial defaulters, whilst presenting an attractive portfolio to potential investors.
“There were certain factors that led to high non-performing loans across the banking sector. For example, there was a moral hazard in lending. The economy at the time faced some structural challenges as well, and interest rates on many loans were as high as 20 per cent which is not conducive to many business cash flows.
These were considered when we acquired loans from banks. But we still need to make sure that all distressed assets in our portfolio have an investor appeal and can ultimately be serviced.” said Dr Kanhai.
ZAMCO feels that it has created a balance for initial defaulters to emerge from their loans while retaining their initial interests, whether it be assets or operational accounts or contracts. In cases that initial defaulters cannot emerge from the eased terms with their initial interests, there is an opportunity to continue operations with the partnership of third party investors. But, in the instance that initial defaulters cannot find relief at all, an immediate exit route is possible.
ZAMCO had reduced non-performing loans to 7.9 percent on July 2017 from 20 percent in July 2014. Dr Kanhai says ZAMCO hopes to reduce NPLs to below 5 percent and at current pace assuming sustained economic growth, that target is possible in the near term.