Hwange sinking in $310m debt

HARARE - Troubled Hwange Colliery Company Limited (Hwange) is seeking a scheme of arrangement to reschedule its $310 million debt, as its going concern status remains under threat.

This also comes as the western Zimbabwe coal miner is mulling a $25 million rights and $100 million bond issue in Britain to stave off further erosion of its balance sheet.

"...has failed to service its debts mainly due to a combination of factors which include a slump in global prices, low production levels, obsolete equipment, high cost structure, undercapitalisation and shortage of critical working capital," Hwange managing director Thomas Makore said in court papers seen by businessdaily.

“...after consultation with the Ministry of Mines... the Reserve Bank of Zimbabwe and some of the major creditors concluded that the best way forward is to allow the company some breathing space so that it can continue operating... and a scheme of debt servicing that is inclusive of all creditors is put in place," he said.

The Zimbabwe and Johannesburg Stock Exchange-listed miner urged creditors, who are scheduled to meet in Harare early July, to agree to the scheme or risk losing most of their debts.

“…it has be realised that should the secured creditors call up the debt owed to them this will result in huge losses for both the applicant and the creditors as the forced sale value of the assets securing the debts will most likely not realise enough value to offset all the liabilities of the applicant," Hwange said.

“In that event the creditors’ will have to write-off a huge portion of the debt,” it said.

Among its biggest creditors are Mota-Engil of Portugal, a contractor miner hired about two years ago and owed nearly $30 million, workers and government departments with a $82 million bill.

Hwange, which recorded a $115 million loss in the full year to December 2015, owes various local and international creditors that include banks, service providers, retailers, local authorities and electrical firms among others.

According to the court papers, the dually-listed miner also says it intends paying creditors who are owed amounts less than $100 000 with debentures that would be redeemed upon maturity from the income generated from operations.

“The other creditors... are to be issued with a debt instrument in the form of treasury... the RBZ,” the coal miner said.

Even, though, Hwange claims its operations had been hampered by obsolete equipment, it recently acquired two batches of machineray from Belarus and India valued at $31 million.

According to the revival strategy and document, the company is also expecting a $7,5 million working capital injection from Agribank.

“The applicant will undertake drastic cost reduction measures, chief among them being a 50 percent salary cut for management and a significant reduction in overheads to restore viability. The applicant will create a sinking fund... of the treasury instruments issued by the RBZ. The projected income demonstrates that the business will become self-sustaining,” it said.

While Makore and company are expected to continue arguing for the adoption of the scheme – vis-a-vis liquidation – Hwange's shareholders are expected to vote for the arrangement.

This also comes amid revelations that government's debt-to-equity conversion - at the rights issue - is expected to significantly dilute minorities.

And as the company’s business fundamentals continue to tumble, the company has recently tried to reengage one of its major shareholders Nicholas van Hoogstraten for a $50 million rescue package.

Comments (1)

This Scheme of Arrangemnt is a FRAUD and a time buying scheme to avoid honoring debts by Colliery management so as to enable them to continue plundering Colliery assets under the protection of court order. After all when did Colliery debt ballooned to USD310 million that is an exageration i suppose to compel creditors to submit to the "Scheme of Arrangement", because surely are salaries owed to current employees treated as a debt which needs immediate attention; and the debt to government which is a Colliery shareholder is also treated as a debt which needs immediate attention, this shows lack of serious ness and gross dishonest behind this Scheme of Arrangement Colliery is pursuing. My question is why cant Colliery negotiate with its creditors without the protection of the court, and most likely the answer is Colliery management believe Colliery is untouchable and therefore go about bullying creditors so do no want to honestly negotiate with them, and as such it wont suprise to find amongst the creditors someone who is owed usd150 from 2012. Basic business theory teach that Debts are part of corporate business so i wonder why Colliery management are pannicking over the fact that Colliery has debts considering its size, its a matter of managing the debts if you cant manage them then you have failed to manage!

GOlies - 1 July 2016

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