Differences threaten Cairns, Vasari deal

Published: 02 June 2014

Cairns Holdings prospective investor Vasari Global has requested to renegotiate a number of issues with major creditors amid fears the deal could collapse over undisclosed differences.

In an update to creditors and members dated May 13 2014, judicial manager Mr Reggie Saruchera of Grant Thornton Camelsa said negotiations with the creditors were already underway.

"Once these negotiations are successful, we will circulate the revised time line for implementing the transaction," Mr Saruchera said.

Subsequently, the judicial manager would immediately seek leave of the High Court to convene a Scheme of Arrangement meeting, in terms of Section 191 of the Companies Act (Chapter 24:03).

"If the negotiations are not successful, we will pursue the alternative options agreed to in the creditors meeting," Mr Saruchera said.

The options available, the judicial manager said, included among others, debt-to-equity swap and the rescheduling of major loans. The group owes creditors $20 million and $11 million to lenders.

However, the deal could have hit a snag when all relevant regulatory approvals had been received to settle obligations to members, creditors and to recapitalise the fast foods manufacturer.

The prospective South African investor, Vasari, was short-listed as the preferred candidate to acquire the Reserve Bank Zimbabwe's 67 percent shareholding in the food processing company.

Other prospective investors that were angling to buy the stake included local firms Dairibord Holdings Limited and Judah Holdings Limited and another South African firm, Eastern Trading Company.

Vasari Global was firmly on course to assume a controlling interest in Cairns, but sources said Grant Thornton had kept the other bidders waiting on the wings in case the unexpected happens.

Mr Saruchera said despite the challenges in the economy and lack of capital to support production and recapitalise, Cairns has turned around its fortunes and managed a profit for the period to March 2014.

"Despite the difficult trading environment, we are pleased to report that your company is operating profitably and has recorded turnover and profit of $22,1 million and $2,2 million respectively, for the judicial management period to March 31, 2014," he said.

Cairns applied for voluntary judicial management in 2012 after coming under severe challenges due to lack of capital, which resulted in drastic drop in capacity utilisation to levels around 10 percent.

While $20 million has been bandied around as the amount the investor would have to inject into Cairns, sources say the figure could top $30 million as the group needs new equipment.

The company enjoys near monopoly in the corn-based snacks market, but is currently facing intense competition in other areas such as canning, which is where new equipment is needed the most.

Some of the old equipment and a new set of machinery have been procured with funding obtained under the Distressed Industries and Marginalised Areas Fund to raise capacity utilisation.

Capacity utilisation, which had plummeted at the foods manufacturer, is now ranging between 20 and 30 percent. Cairns received $1 million from the DIMAF revolving facility.

Cairns might have run into financial difficulties, but this should only be viewed in terms of limitations the company faced in accessing reasonably priced adequate medium- to long-term capital.
- The Herald