CSC grapples with $30m debt

Published: 03 April 2014

STATE-owned beef processor, Cold Storage Company Limited (CSC), battling to recover from a devastating crisis sparked by prolonged under-capitalisation, is planning to hive off a $30 million debt from its books to government. The debt was transferred to its books by government in 1996 even though the borrowing had been done by another State-owned entity. The then National Oil Company of Zimbabwe (NOCZIM) had been lent $39 million by two Nordic financial institutions in the 1990s.

The Financial Gazette's Companies and Markets (C&M) understands that NOCZIM, which was unbundled by government into Petroltrade and the National Oil Infrastructure Company, accessed the loan from Ekspofinans of Norway and Nordbankemn of Sweden around 1990. It was not clear what the loan was used for by the petroleum company, which collapsed due to mismanagement and corruption. Details of the transactions obtained by C&M indicate that NOCZIM failed to service the loan after running into serious foreign currency shortages.

Government then transferred the debt to CSC, which was then a profitable meat producer with lucrative export contracts to the European Union (EU) markets. The debt transfer, which was structured by First Merchant Bank, now BancABC, in 1996, was only signed by CSC. It was not clear why NOCZIM did not sign when the debt transfer was made. But loan repayments by CSC were stopped after a foot and mouth outbreak crippled Zimbabwe's beef industry in 2001, forcing the EU to discontinue beef imports from the country.

CSC's capacity to raise foreign currency was affected by the end of exports to the EU, and interest on the loan has been accumulating on the meat processor's balance sheet again. This figure increased by $8,5 million by 2011. The Nordic financiers had pursued the debt until 2001, but had gone quiet after that. CSC says it is hoping that they have written off the debt, which was $29,5 million in 2011.

"The CSC serviced this loan from 1996, making half yearly capital repayment instalments as well as interest repayments until mid 2001," a supplementary report accompanying CSC's financial report for the year to December 31, 2011 indicated. The report was only released last week. The Ministry of Agriculture and the Ministry of Energy are reportedly seized with the matter.

"The CSC stopped servicing the loan in 2001 because exports to EU had ceased following the outbreak of the foot and mouth disease during August 2001. At the time CSC had reduced the balance of the loan to $21 million. The Norwegian Embassy engaged the CSC in the years 2001 and 2002 in pursuing the loan repayments on behalf of the financiers.

Since 2003, CSC has received no communication regarding repayments. It is the directors' suspicion that this loan is likely to have been written off in the books of the financiers. The CSC had a foreign loan on its balance sheet standing at $21 million as at December 31, 2011," the report said. CSC's operating loss before interest and tax was $3,4 million in 2011, from $8,7 million in 2010, with its going concern status threatened by a $11 million negative working capital position. Now, CSC says it will push the debt over to government, which had guaranteed the NOCZIM debt. It says in future, it will treat the debt as a contingent liability in its books.

"The board of directors has resolved that the offshore loan . . . amounting to $21 million and its interest of $8,5 million be written off to capital reserve in the 2011 accounts, and shall in the future be shown as a contingent liability," the report said.

"Should a demand for its settlement arise at any time in the future, the government guarantee that is in place shall accordingly be invoked. An application has been sent to government to take up the loan. The board believes through its interaction with the government that the government is more likely, than not, to take over the loan or invoke the necessary guarantee should the loan be recalled," the report said.
- fingaz

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