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Legacy debts haunt firms

THE viability of several companies is under serious threat as a result of legacy debts denominated in foreign currency following far-reaching currency reforms by government in June.

Melody Chikono

Some half-year financial results for 2019 show that delays by the Reserve Bank of Zimbabwe (RBZ) and banks in settling foreign obligations are weighing down the operations of companies that have lodged their applications for relief with the central bank.

As reported by the Zimbabwe Independent on March 29, local companies with significant foreign debts are sinking deeper into dire straits due to currency volatility and exchange rate flactuations, with their balance sheets being increasingly eroded and foreign currency liabilities ballooning. This has left some companies technically insolvent and on the brink of bankruptcy.

Following the declaration of the Zimbabwe dollar as the sole legal tender through Statutory Instrument 142 in June, which effectively outlawed the use of the United States dollar and other external currencies, some companies have suffered exchange losses mainly arising from their foreign obligations.

The RBZ has committed to assuming the foreign legacy debts at a rate of ZW$1:US$1 to rescue companies. There are, however, fears that the central bank will struggle to honour the commitment given that the country has been reeling from foreign currency challenges, over a period of time, liquidity crunch and cash crisis.
Results show that companies are now desperate to offload their debts to the RBZ with some still waiting for their applications to be approved.

The RBZ is only accepeting forex obligations accumulated between 2016 and 2019.
Some have indicated that they have engaged their creditors to restructure the debts in line with directives and guidelines.

This comes at a time the country is beset with liquidity challenges which government is battling to address following its ZW$400 million mop-up on the market.

During a recent post-budget breakfast meeting hosted by Alpha Media Holdings, permanent secretary in the Ministry of Finance George Guvamatanga indicated that this was the major headache government had, coupled with severe forex shortages.

He also said last month that firms were struggling to transfer legacy debts as they had utilised the amounts and taken positions elsewhere as a result of the delay in remittances of foreign payments.

First Mutual Holdings Limited (FMHL) chief executive Douglas Hoto on Wednesday told an analyst briefing in Harare that delays in settling foreign obligations have had a negative impact on the operations of the company.
Exchange rate losses of ZW$10,976 million by the group during the half-year slowed down the company’s bottom line.
Hoto said FMHL had submitted a US$3 million application to the RBZ as foreign currency legacy debt which it owes its creditors.

The group’s exposure in US dollar terms excluding FMRE Botswana and Afreximbank shares stands at US$1,3 million.
ZSE-listed bank NMB said it had also entered into negotiations with its creditors over the legacy debts.
NMB owes its creditors in excess of US$18 million.
“We have transferred to the RBZ the ZWL equivalent for these debts. We have engaged the affected providers and they are agreeable to the legacy debt arrangements with the RBZ,” NMB CE Benefit Washaya said on Wednesday.
British American Tobacco Zimbabwe (BAT) is in the process of registering its US$22 million legacy debts debt with the central bank.
BAT has been for years been saddled with the dilemma of how to remit its dividends to its foreign shareholders.
Of the US$22 million, about US$16 million is in outstanding dividends.

“From a long-term perspective, we are talking to our bankers and still looking at other possible options to ensure a steady flow of FX (forex) to support the company’s current and future FX requirements,” noted BAT financial director Leslie Malunga.

Despite foreign debts being a burden to Border Timbers, which is under judicial management, the company has chosen to clear its obligations through its export income.

“This has been caused by limited access to foreign currency. We have been battling on that front but as we raise the money we will be paying the debt. It was a long-term debt anyway but we need a few years to be able to clear it since we are relying on our exports income,” Peter Bailey, Border Timbers judicial manager, said.

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