SA deal buoys Tractive Power’s prospects

A well-placed source close to the deal told businessdigest that deep-pocketed investors of South African origin were keen to snap up the 57% stake that the Reserve Bank of Zimbabwe holds through the Finance Trust of Zimbabwe.

However, this would be in contrast to the indigenisation law which states that 51% of companies’ shares must be held by indigenous Zimbabweans. On the other hand, government has been known to exempt foreign companies such as Essar.

The transaction comes at a time when TPH has reported a 45% slump in its earnings for the half-year ended  February 29, as tight liquidity, high interest rates and low disposable incomes weighed down group operations.

Despite a 16% increase in overall group turnover to US$22 million from US$19 million in the previous comparable period, net profit after tax for the first half dropped to US$908 134 from US$1 665 586 at February 2011.

“The deal is worth just over US$11 million and a due diligence exercise will commence anytime this week, unfortunately for confidentiality reasons, I cannot tell you who the investors are,” the source said, adding that deal comes with prospects for further capital injection and a potential for management and staff to acquire 10% of the company.

Group CEO Charles Nyambuya declined to shed light on the transaction saying he could not comment on shareholder issues.  Asked what management was doing to turnaround the company’s fortunes, Nyambuya said that the company was actively developing new areas of business growth, such as rural district councils which are benefiting from the Zinara road fund and have to re-tool in order to construct and repair roads.

“New investment in mining is suffering primarily due to perceptions around the indigenisation drive. Whilst there is nothing wrong with the programme it is the presentation and packaging that is partly changing company strategies in mining.

“We have a situation now were some miners prefer to lease earthmoving equipment as opposed to buying and this has affected our volumes at Barzem”, he said.

Management attributed declining service volumes to tight liquidity on the market with some customers, especially farmers, struggling to pay for the servicing of equipment.

The company also said that it had good relations with its financial partners and was pursuing leasing deals with a major finance house for its key customers.

TPH is also working on deals with mining syndicates to and new sugar cane farmers who require tractors and dump trucks. 

According to group company secretary, Farai Marwira, the company recently launched the Forland motor vehicle brand at Puzey and Payne whilst a new tractor franchise was added to Farmec.

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