Aico Africa faces foreclosure

Aico Africa faces foreclosure
Published: 28 November 2013
Aico Africa is facing foreclosure and possible sequestration of its 50% SeedCo stake for loan guarantees it pledged on behalf of its subsidiary companies.

The group guaranteed loans advanced to the Cotton Company of Zimbabwe, its 100% subsidiary, and Olivine Industries, a company in which it has 51% shareholding.

The threatened action by lenders has been triggered by Cottco’s projected $23 million loss for the year ending March 31, 2014, which may result in the cotton company failing to settle its debts.

Cottco is borrowed to the extent of about $80 million.

AICO reported a dismal set of results underlined by a 6% decline in revenue to $50.9m. The decline in revenue was on the back of a 23% decline in group volumes to  36,094 tonnes. Cotton crop intake fell to 34,500 tonnes driven by a very low national crop of close to 101,470 tonnes. The market share for the group fell to 24% from 42% last year. An operating loss of $17.1m is 6% lower than the prior year while loss after tax at $27.1m was 1% better than the prior year.

Total assets grew marginally to $291.6m due to $5m increase in other current assets. The equity position deteriorated to $51.6m from $73.3m due to a $22.1m loss. Current liabilities grew 22% to $181.0m way ahead of a 4% growth in current assets in the process the current ratio declined by 15% to 1:1.05 from 1:1.23.

Post the interim results the AICO reported an impairment of $24.6m for Cottco and $5.7m for Olivine to reflect the diminution in the carrying value of these investments. Cottco has been negatively affected by lower seed cotton intake volumes, whereas lack of adequate working capital continues to hamper performance and recovery of Olivine. This impairment indicates that Cottco have a negative equity post the revaluation and Olivine was marginally up.

The cash flow position of the group continued to worsen after reporting an out flow of $22.6m on the operations and an out flow of $1.7m from investing activities.

Capital expenditure amounting to $4.2m was invested in SeedCo. The group reported net cash out flow position of $19.8m compared to a negative $27.6m in the prior period.

The unbundling of AICO has dragged for more than three years and indication on the ground are that the transaction can fail to go through owing guarantees that AICO gave to subsidiary liabilities. In its 2013 annual report AICO indicated that it issued limited guarantees to certain banks in return for the advancement of loans to certain group companies as follows:

1. Seed Co limited- $10m (2012:$9m)
2. The Cotton Company of Zimbabwe limited- $111.2m (2012: $172.4m)
3. Olivine Holdings Pvt Ltd – $8.7m (2012: $14.1m)

Without any more information we cannot determine to what extent AICO guaranteed these debts and therefore we cannot quantitatively determine the obligation due to AICO on theses guarantees. However, in the same annual report AICO indicate that a $56m debt due from Cottco to a syndicate of banks is secured as follows:

1. A special notarial covering bond over the Cottco's cotton stocks and receivables worth $20m.
2. A notarial general covering bond over the company's cotton stocks and receivables for $126.5m
3. A notarial deed of cession of book debts for $3.5m
4. A cession of the company's insurance policies covering cotton inventories.
5. A pledge of the company's cotton stocks, both present and future, for $10m.
6. Sales contracts with a value of $12m.

Thus before AICO is sued to honour its pledged guarantees the banks need to liquidate Cottco first and prove beyond any reasonable doubt that the company would have failed to settle its liabilities. Without Cottco being foreclosed yet it will be difficult to impinge AICO on debt the subsidiary has not failed to settle yet.
- businessdaily

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