HARARE - Cottco Holdings Limited (Cottco) says government has started the resuscitation of the embattled cotton manufacturer through a special purpose vehicle set to assume the group’s $56 million debt.
In a statement accompanying its unaudited financials for the half year ended September 30, 2015, Cottco said government was taking over all of the company’s bank loans through the Zimbabwe Asset Management Company (Zamco) in a proposed debt equity swap deal.
“The company wishes to inform stakeholders that the Government of Zimbabwe has started the process of rescuing Cottco from its crippling debt by taking over all of the company’s bank loans through Zamco in a proposed debt/equity swap deal,” the group said.
Market reports indicate that the said transaction will see conversion of the debt amounting to $56 million into equity, through the National Social Security Authority.
Government presently holds about 22 percent in Cottco.
Cottco — the sole operating subsidiary of the Group — had total borrowings amounting to $39,2 million as at March 31, 2015 but in the period under review, the group’s borrowings at $54 million is seven percent lower than prior comparable period.
Included in the total borrowings is a long-term loan amounting to $3 million.
Capital expenditure continued to be frozen except for essential items as the business is forced to manage its exposure to lenders.
There were, therefore, no major items which required capital expenditure during this period.
The cotton industry’s national crop declined further in the just-ended season from 135 000 tonnes in 2013/14 season to 100 000 tonnes in the 2014/15 season.
“This decline is due to poor funding by the cotton industry players who have become cautious and risk averse following a spate of very low debt recoveries that is fuelled by side marketing.
“Poor yields that are caused by the diversion of fertilisers to other poorly-funded crops continue to threaten the viability of the cotton sector,” the group said,
Cottco recorded an intake of 30 430 tonnes translating to a market share of 35 percent compared to the previous year’s intake of 43 500 tonnes and market share of 32 percent.
Meanwhile, Cottco revenue for the half year tumbled to $2,3 million from $17,8 million recorded prior period, attributed to the delay in the start of the buying season that also affected the start of the ginning and sales off-take in the industry.
“However, the full year sales figures are expected to be lower than last year due to the decline in volumes by 33 percent and lower lint prices witnessed in the period under review.
“Despite the company’s cotton intake declining by 33 percent, there is a reduction in losses by 19 percent from continuing operations due to tight cost control over the same period,” the cotton company said.
Production and administration overheads were 17 percent lower than the same period last year while finance costs are 26 percent lower than the same period last year.
Government’s free inputs scheme has seen 4 156 tonnes of planting seed being disbursed to farmers which translates to 245 000 hectares, in addition to 835 tonnes distributed directly by Cottco, giving a total of 4 991 tonnes of seed distributed so far under the combined Government/Cottco programme which is equivalent to 300 792 hectares.
This comes as the group’s auditors, KPMG, cast doubt into Cottco’s ability to continue as a going concern, noting that Cottco has continued to incur significant losses over the last three years and reported a loss after tax of $30 million for the year ended 31 March 2015.