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RBZ blocks Seed Co acquisition

BY TATIRA ZWINOIRA

SEED Co International Limited’s planned acquisition of Seed Co Limited) was blocked by the Reserve Bank of Zimbabwe (RBZ) as Seed Co International was created outside the country.

Following the suspension of Seed Co International from the Zimbabwe Stock Exchange (ZSE), causing the firm to delist and relist on the Victoria Falls Stock Exchange (VFEX) last year, the entity then offered to acquire Seed Co .

Since Seed Co International and Seed Co  operations fall under the same management, the latter sought to tap into the foreign currency exposure that the former receives through operating in regional countries having an asset base worth US$137,2 million as of March 2021.

However, in a virtual analyst briefing on Wednesday, Seed Co group chief executive officer Morgan Nzwere said the RBZ blocked the acquisition by Seed Co International.

“The reason that they (RBZ) cited was that the international businesses were formed out of the country and therefore out of Zimbabwean assets. They didn’t think that the Zimbabwe business should come under the international business. The RBZ was basically saying, look, it (Seed Co ) is a national asset and we don’t think they should be bundled into Seed Co International,” he said.

He said the idea behind the acquisition of Seed Co by Seed Co International was to have a unified balance sheet where two businesses would be attractive to get funding in capital markets.

The RBZ blocked the transaction after telling the company in September 2020 to fulfill requirements following Seed Co International and Seed Co ’s initial application in the prior month.

These requirements were independent valuations of both Seed Co International and Seed Co  and the consent of the shareholders of both firms, as well as the approval of the ZSE, Botswana Stock Exchange and Securities and Exchange Commission of Zimbabwe.

“As you will understand in terms of international capital markets where you are trying to raise US dollars, the Zimbabwe market has yet to fulfil this in terms of US dollars,” Nzwere said.

“You know that you need money, particularly, if you are doing big projects and this is the reason we wanted to consolidate on an exchange where we can be able to access hard currency when we need it.

“If you want to access local currency there is no challenge in Zimbabwe. I think it’s just a case of us looking for a stock exchange where we are able to access hard currency.”

He said due to the country risk associated with Zimbabwe, consolidating Seed Co International and Seed Co into one company would have allowed them to be more attractive in seeking hard currency.

“It is not easy to get the US dollar facilities in Zimbabwe at the moment,” Nzwere said.

“It was also meant to harmonise in managing the group, making sure that we have one board in terms of corporate governance and ensuring that we do not have duplicated costs and all those other costs that come up with two listed entities.”

Now that the acquisition by Seed Co International of Seed Co has been blocked, the two firms will continue to operate as separate entities with trading of the latter’s shares recently resumed on the ZSE, while the former’s will trade on the VFEX.

Before the deal was blocked by the RBZ, Seed Co International made primary and secondary offers that had been accepted by Seed Co shareholders controlling 95% of the entire issued share capital of the latter firm. It then triggered a drag-along provision to acquire the remaining 5% that was blocked.

Seed Co  joining with its sister company Seed Co International comes at a time when the latter posted a near 82% increase in profit after tax to US$11,1 million in the year ended March 31, 2021 from 2020’s comparative US$6,1 million.

“The group’s profit performance improved markedly spurred by robust revenue growth and interest cost savings,” Seed Co International said in a statement of their results for the year under review.

“Strong sales volume and revenue growth was achieved due to heightened seed demand on the back of favourable weather conditions; attractive maize grain prices and government, quasi-government and non-government food security initiatives.”

Revenue rose to US$88,5 million in the year under review from a comparative of US$70,1 million in 2020.

“Gross margin remained unchanged while other income declined significantly as the massive exchange gains recorded in prior year did not recur. Overheads rose because of distribution costs linked to the growing sales,” Seed Co International said.

“The group’s much improved cash generation resulted in a reduction in borrowings and associated finance costs. Associate and joint venture’ contribution remained negative mainly attributable to product shortages.”

Nzwere said Seed Co International would continue to look for opportunities in countries where it is most profitable.

Besides Zimbabwe, Seed Co International operates in Botswana, Ghana, Kenya, Malawi, Nigeria, Rwanda, South Africa, Tanzania, and Zambia.

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