Local firms face takeover threats

..Suppliers propose debt-equity swaps as legacy debts choke companies

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TINASHE MAKICHI

LOCAL firms face the danger of hostile takeover by foreign suppliers as there is no clear plan to settle legacy debts ring-fenced by the central bank, Business Times can report.

This comes after industry had approached the Reserve Bank of Zimbabwe (RBZ), citing the lack of a clear plan to settle the debts amid revelations that foreign raw material suppliers are issuing fresh threats to close the tap on local industry. In addition, some foreign suppliers are proposing debt to equity arrangement as they frantically look at recovering the legacy debts, because of a glaring lack of a legally binding agreement between RBZ, foreign suppliers and local companies on the settlement of debts.

An industrialist who requested anonymity told Business Times that there was no clear plan from the government on how the legacy debts would be settled.

The cooking oil industry has been the hardest hit as companies like Surface Wilmar (who owns Olivine and the Chitungwiza-based Surface) has literally closed shop.

“Most companies have become technically insolvent due to the lack of legacy debt support and there is absolutely no plan on the part of the government to do so. It looks like there are differing positions between the Ministry of Finance and Economic Development and the RBZ on how these debts will be settled,” a source said.

“It is unfortunate that you are going to see hostile takeovers of companies happening soon as some foreign suppliers have started proposing debt to equity arrangements,” the source added.

In his February 2019 Monetary Policy Statement, RBZ governor John Mangudya announced that all foreign liabilities or legacy debts due to suppliers and service providers shall be treated separately after registering such transactions with Exchange Control for the purposes of providing the bank with sufficient information that will allow it to determine the roadmap for orderly expunging the legacy debt.

This ring-fencing move by the RBZ and delays in the laying out of a settlement roadmap has posed a massive challenge to productivity as most raw material suppliers are now holding on to their products. It is understood that some foreign suppliers, especially in the cooking oil industry, have made it clear that they would not continue supplying raw materials if a clear plan on settlement of legacy debts was not set out.

Henry Ruzvidzo, the president of the Confederation of Zimbabwe Industries (CZI), said there were engagements currently underway with the RBZ to get an understanding of how the legacy debts would be settled going forward. “We have approached the RBZ over the legacy debts issue as it has become a threat to the industry,” Ruzvidzo said.

“All we are requesting is to have a clear plan as to how the debts will be settled. “It is the responsibility of the RBZ to set out a clear plan on the settlement of the debts and I can only speak as the industry. Judging from the current situation, foreign currency shortage is an issue and the RBZ can only pay as and when the foreign currency is available.”

Sifelani Jabangwe, the CZI immediate past president, weighed in saying the sector was expecting the RBZ to address the clearance of legacy debts in the Monetary Policy Statement.

“I wouldn’t say there are threats from foreign suppliers as such but there are concerns being raised on the lack of a clear settlement plan to the legacy debts and this has threatened the consistent supply of raw materials as industry is continuously reminded of the existing debts,” Jabangwe said.

Recently, BAT acting managing director Steven Nyabadza said the tobacco company was in engagement with the RBZ to settle about US$20m worth of legacy debts. The RBZ Governor, John Mangudya, did not respond to questions sent to him by the time of going to print.

In a concept paper seen by the Business Times, industry is of the opinion that the government should only consider legacy debts registered under the External Loans Coordination Committee (ELCC), and not trade debts. The argument is premised on the fact that trade debts are not registered loans acquired by companies at their own risk and profit.

According to the Exchange Control Circular No.1 of 2013, all external private or public loans from US$1m and above now required prior External Loans Co-ordinating Committee approval. The central bank amalgamated that statute to ensure that external debt contraction is consistent with the macroeconomic and financial position of the economy. The External Loans Coordinating Committee (ELCC) is also mandated to approve and register public sector loans.

“The government should refuse to entertain any loan which is not registered under ELCC, as otherwise this will cause a significant loss to the fiscus, which will never allow the country to recover,” says the concept paper.

Meanwhile, indications are that the government has cleared almost all the legacy debts due to fuel companies while the clearance of debts to the industry is yet to be settled. Industry is also worried about their failure to access foreign currency on the interbank foreign exchange platform, citing the current rate on the platform as making it difficult for anyone to sell. The RTGS dollar continues to weaken against the US dollar on the interbank market as demand for foreign currency continues to grow