'Zim firms distressed, uncreditworthy'

HARARE - Most Zimbabwean firms are highly geared and lack creditworthiness, leading to their failure to access credit lines, the African Development Bank (AfDB) says.

The regional lender said while there are bank facilities created to bail out the distressed companies, most of them “generally fail the due diligence test”.

It said the funds are channelled out through banks, including the Central African Building Society (CABS), which have to conduct their own creditworthiness tests before lending out the money.

“Although the facilities are intended for distressed firms, such firms also have to demonstrate that they are creditworthy and their proposals are bankable,” AfDB said, adding that firms with weak balance sheets, unviable proposals and low prospects for recovery do not pass the test.

The group said the scenario led to low uptake of funds under the Distressed Industries and Marginalized Area Fund (DIMAF).

It added: “Some of the firms are using obsolete production machinery, which adds to costs of production, thus making the end products uncompetitive. This undermines the prospects of such companies to secure credit, especially working capital.”

This comes as numerous local firms have embarked on debt relief schemes with some going under provisional judicial management as strategies to recover from heavy borrowings pressure.

A company is considered highly geared when is has a proportionately large amount of debt that may be considered to be more risky.

Recently, listed mining concern RioZim Limited pointed out that despite rescheduling its estimated $90 million debt, it continued to be burdened by interest costs which stood at $6,3 million in the half year to June 2013.
On the other hand, the miner says it requires more than $20 million in working capital to boost operations.

Food processor Olivine Industries is also in the process of restructuring its $12 million short-term debt as part of efforts to reduce borrowing costs and improve the bottom line.

Listed snacks manufacturer Cairns Holdings Limited was pushed into judicial management saddled by an $11 million debt.

Most companies such as Steelnet, Caps Holdings and David Whitehead have since folded as a result of high indebtedness among other challenges.

AfDB said what made the going tough for the firms, even under DIMAF, was that a successful fresh loan application would see banks trying to recover their debt by tapping into the funds.

“Thus, there is always a risk that the loan would end up being used to repay old debt rather than finding its way into the production process.”

“This is particularly true for companies that had to undergo judicial management due to pressure from creditors,” it said.

This comes as CABS has approved and disbursed money totalling over $40 million.

Dimaf is set to continue running since it is a revolving five year fund.

 

Comments (6)

This situation doe's nt need a rocket scientist to see the end result of this ,we are DOOMED this time around .Funds will continue to be given to these very companies but they will service their debts with this money ,so it is a MARY GO ROUND thing.The ONLY solution to this thing is for GOVT to look carefully at this stupid INDEGINISATION policy which is a catalyst to this situation faced by these companies .Investors are the only solution to this problem but if we preach ANTI investor language then this diesease of distressed companies won't be cured

CASHTALK - 29 August 2013

This situation doe's nt need a rocket scientist to see the end result of this ,we are DOOMED this time around .Funds will continue to be given to these very companies but they will service their debts with this money ,so it is a MARY GO ROUND thing.The ONLY solution to this thing is for GOVT to look carefully at this stupid INDEGINISATION policy which is a catalyst to this situation faced by these companies .Investors are the only solution to this problem but if we preach ANTI investor language then this diesease of distressed companies won't be cured

CASHTALK - 29 August 2013

Indeginisation not anti investor its there all over the world, the only thing is foreign companies didnt think this would one day come to Africa. In rich african countries foreign company do very little for the community or the country itself other than holding the country by the neck and threatening to put the economy down if there demands are not met just as what they did here in zim. The US economy has managed to grow and keep growing because it controls its economy, no foreign company goes and does want they want over there, as for africa this is the reason why our economies fail time and time again because we have no grip or control over our economy instead we think and believe that we can manage it ourselves, it does mean we will get it right first time around but with time it will possible. The Problem i see in Africa we are so used to handouts by that i mean e.g growing up going to school, working , having children and die, we do not have an open mind because we are told by foreign nationals or regimes that its not necessary telling us they all do everything for us all we have to do work in there companies but not knowing this will keep us in there grip this is called 21st century slavery. In the US Foreign Personal Holding Companies (FPHC) rules apply to a U.S. resident who is a shareholder in a foreign corporation if the foreign corporation meets the stock ownership and gross income tests. More than 50 percent of the total combined voting power or value of all classes of stock of the foreign corporation must be owned directly or indirectly by five or fewer individuals who are U.S. residents or citizens.

mytruezim - 30 August 2013

This is what Ian Smith said that England and USA should go and fuck off both because Zimbabwe is an indepented country and need no teacher. But then you people you were so much after this Zanu-PF that you did not realize that with the fall of the Ian Smith Regime your strenght against the USA-Imperalism has also gone as I accuse zanu-PF to be an trojan horse for the US Interests in Zimbabwe as the ANC is in SA. What you need in Zimbabwe now is not rascism between white and black under the genuine of nationalism but rully sovereignty by teamwork (harambee) with all manpower possible against the USA and the EU. This does not mean to keep foreign investors away by indigenization laws but to build a strong hub between SA and the DRC for transit and attract regional investors as well as all others no matter where the come from. It makes no sense being the pinball of others interest. Any foreigner who want to invest or even speculate is welcome becaue he creates turnowver and as such commssion for you. And also if you open up for it you would be likely overflooted by money in the first because your countries assets are stupidly going for a song because 10 mln Dollars for a Re-Insurer is a real silly price . For this money you may get a nice House in London nothing more. In 1997 the same Re-Insurer had a Mkt. Cap of US $ 175 mln. It should be worth 500 mln by now given the IS$ inflation since then. But for as long as you don'tb understand that you blocking yourself by closing up it is useless to hope for the better.

Emperor - 31 August 2013

Economy. What economy? My foot. Year after year new economic policy and we think ideas bring food. No wonder why Harare is infested with corrupt and unscruplus foreign purpoting to be doing business yet they do not remit to national coffers. They thrive on corrupt officials who do not care where taxes to fund the economy will come from as long as they stash their pockets just like rotten ministers in government. what indeginisation when the same people benefit time and again.

Musa - 4 September 2013

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