HIPPO Valley Estates says it is now on a recovery path and seeking to retire local debts before the end of the next financial year, depending on inflationary levels, businessdigest has learnt
The company has also revealed it benefited from the promulgation of Statutory Instrument 133, which declared the Zimbabwean dollar as the sole legal tender, as its debt, which was around US$60 million, can now be settled in local currency.
Hippo valley board chairperson Dan Marokane on Wednesday told businessdigest on the sidelines of the company’s annual general meeting that the firm was now working towards elimination of exposure to US dollar-denominated debts, as they impacted negatively on operations.
“Two drivers are that we don’t hold on to dollar denominated debts now in this environment. Pay down as quickly as possible. The second issue is how do we move towards a dividend policy that ensures that we do not expose the company again. The dollar debts are hitting us in the face of the hyperinflationary space the projections are that if we maintain our production ratios, we should be able to repay, that’s our primary focus now .”
Marokane says the company is now keen on avoiding balance of payments issues by producing its own ethanol, as its operations in Zimbabwe have been affected by hyperinflation.
The company now says it will embark on a debt and equity strategic review in the face of the hyperinflationary environment, as it also looks at paying a divided in the near future.
However, Hippo Valley financial planning manager Owen Manasah said depending on the hyperinflationary environment they might be able to retire the debts in line with their schedule.
“In terms of the debts, I would say the hyperinflationary environment has worked in our favour, as the debt has come down to manageable levels. Depending on the inflationary environment, we definitely will be able to pay. If it stays in hyperinflation, we have the ability to pay. The hyperinflationary environment has actually worked in our favour, considering the SI 133 and so on.” he said.
“Before that, our debts were between US$50 million and US$60 million but, no it is now in RTGS. We no longer have the foreign exposure on the borrowing side. Our business is fluctuating, for example our working capital requirements went up from as low as US$10 million to US$100 million, but it’s now ZW$100 million. So if you divide that by 17, we are now back to US$5 million from US$60 million,” he said.
Manasah said the company had been able to clear its foreign obligations from its borrowings, but earning foreign currency is now the main worry.“Forex is now our main worry if we want to expand. We are not yet there, as we still have capacity at the fields. We are at 70% capacity, so we need to grow the capacity first. We need to have a strategic review between debt and equity, particularly in this hyperinflationary environment,” he said.
In a trading update, Marokane said the operating and trading environment remains challenging on the back of high inflation and limited availability of foreign currency in formal banking channels.
“Consequently, the company continues to face logistical challenges in the supply of imported critical inputs, spares and services. Consumer spending is equally constrained by low disposable incomes, as salary and wage adjustments across many sectors continue to lag behind the increase in prices of goods and services,” he said. — Staff Writer.