The Zimbabwe Asset Management Company (Zamco) is set to convert its $48 million Cottco debt into equity chief executive Cosmas Kanhai has said. The Cotton Company of Zimbabwe’s debts were part of the loans acquired by Zamco following its creation by the Reserve Bank of Zimbabwe for the purpose of hiving off non-performing loans (NPLs) that were threatening the stability of the fragile financial institutions.
Kanhai told the Business Weekly that processes and negotiations for the debt-equity swap had already been concluded and what was left was the pricing.
“Everything else has been concluded and what we are now waiting for is the pricing, which the financial advisors PricewaterhouseCoopers (PWC) are working on,” said Kanhayi.
Kanhai, however, said Zamco would only take equity in companies where there will be an exit route: “In the case of Cottco, Government will be our exit route.” He said the debt-equity swap is one of the methods that will be used to restructure the struggling companies.
“In some cases we will give the companies more time to repay the debts, but that will be within our own period of existence. Remember Zamco is not meant to exist into perpetuity and by 2025 we should have concluded our work,” he said.
“What we have done for most loans is that we have reduced the cost of debt to between six and 10 percent and this is from an average banking loans of between 12 and 35 percent,” said Kanhai.
Commenting on the challenges companies are facing in their effort to restructure the loans, Kanhai said the macro-economic environment as well as forex challenges have been a major drag.
“There are companies with potential to turn around their fortunes but have not been able to do so because of the challenges they are facing in terms of the subdued economy and access to foreign currency.”
The decision by ZAMCO to take up equity in Cottco comes at a time the company is poised for a turnaround in fortunes following efforts and investments made by Government to revive the Cotton sector.
The country’s cotton production had by the end of September increased by 150 percent, largely driven by Government’s free input support programme.
According to statistics from the Agriculture and Marketing Authority, cotton output increased to 70 000 tonnes, up from 28 000 tonnes produced for the same period last season.
The country’s production of cotton slumped to about 28 000 tonnes last season, the lowest since 1992. The Presidential Input Scheme, however, saw an upward of 155 000 farmers returning to production.
Government, through Cottco, injected in excess of $42 million into the cotton sector and has scaled up the financial support to $60 million this year. The Presidential Free Inputs Scheme also helped Cottco to reclaim its position as the market leader after buying more than 54 000 tonnes of the total crop delivered.