Cash crunch weighs down recapitalisation

LACK of liquidity on the market continues to haunt companies which seek to recapitalise leaving them with very few options to raise cash for increased production or refurbishment.

Most companies need to recapitalise after the economic downturn eroded their assets, especially capital equipment, something they have not been able to do using their own resources.
This has further been complicated by low production levels with capacity utilisation averaging 32,3%.
Recapitalisation has been made difficult by the liquidity position on the market where financial institutions have very little to offer. At the same time there have not been offshore credit lines which many in industry thought would be pouring in by now.
A number of companies are either on the market or planning to go on the market to raise cash for recapitalisation or expansion of business activities.
Such companies include African Sun, CFX Financial Services, the Grain Marketing Board and NicozDiamond. While this list includes large and listed companies, there is a whole host of other companies which have, since the beginning of the year, been looking for funds for recapitalisation.
These companies are faced with an intimidating task where they are supposed to raise cash from a virtually dry market.
An investment economist said the companies intending to raise cash through rights issue or private placement had their task made even more difficult by an information-shy market.
“There is not much information on what actually is happening on the local market and potential investors are weighing the risks which are associated with investing in such a market,” said the investment economist. “The environment is still very difficult to interpret as in some cases, it is not very real. On the other hand, optimism is still rising but at times, as was the case in the last three to four weeks (when there were problems in the Government of National Unity), it goes down.”
This has seen most international investors looking for alternative destinations and leaving local companies looking for cash from within the country.
“In a normal economy, it is not always the case that companies are internally looking as they may also go into partnership with international investors. But in the case of Zimbabwe, these are scared off by policy inconsistencies,” added the economist.
Another economist, Emmanuel Chinyaukira, said local companies were now prepared to take risks as the liquidity position was going to improve with the new budget next year.
“We are likely to have the disbursement of the US$510 million provided by the International Monetary Fund in the new budget. This is likely to improve the liquidity position,” said Chinyaukira. “It is highly likely that a significant amount would be made available for the resuscitation of industry to improve on production and this would in turn improve on the liquidity position.”
GMB, through its financial advisors, CBZ, yesterday went on the market through the issuance of grain bills with a 90-day maturity tenure.
These bills were issued so that the board, which has been hit by serious cash shortages, would be able to buy additional grain.
Grain bills are short-term government bonds with a fixed term before maturity.
Minimum investment into the grain bills is US$1 000. Subsequent investments should be in multiples US$1 000.
Such “huge” investment options leave the individual investors without many options especially at a time when the money market is virtually dead.
While there may be reasonable returns when an investor buys grain bills, there is no way many individual investors with little amounts would be able to participate.

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