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Zimre working on toxic relationships

ZIMRE Holdings Limited, which has its roots in insurance and property, has revealed that it is expanding its focus from insurance to wealth creation via investment banking pursuits in strategic national developments through Zimre Capital. Our senior business reporter Melody Chikono (MC) recently had a conversation with Zimre CE Stanley Kudenga (SK) to discuss this development as well as other issues relating to the company.  Of interest is the fact that the company will finally exit Zupco, in which it held 49% shareholding after reaching a compensation agreement with the government, an issue that has been dragging since 2004 when the decision was made. Below are the excerpts of the interview;

MC: You stressed on Zimre having capacity to control wallet power and deployment of resources. Can you explain that?

SK: Generally, when you look at insurance, which is the key sector that we are into, the basic factor is that you pull resources to cover eventualities for your clients. You have to ensure that the pulled resources give you capacity to invest and generate higher returns that grow the fund. So basically we are saying that we want to re-establish ourselves on that basis so we are able to pull funds that give us cash wallet power which allows us to then make impactful investments that give returns and protection to the insurer.

MC: You also spoke of raising capital from your business. How much are looking at and what are the drawbacks to that?

SK: When I referred to capital raising capacity it was not on a specific project. It was basically to say when you have got control of your assets, it allows some level of leverage, because not all projects are funded by equity. It is also less expensive to fund your project using debt. As a group we are saying we do not have debt but we have a strong asset base which gives us leverage. So we do not really unpick certain projects. Like I said we have Selborne Park, which has to be funded and we are looking at the funding mechanism, which can be through leveraging on our asset base but we can also bring in third party funds. The new environment now allows us, REITS structures where we bring in other peoples’ funds to invest directly into an asset as an investment. So, as to how much we really need to raise, will come project by project.

The other project I have mentioned which is massive is the Beitbridge highway. This is going to require serious external funding outside ZHL and also outside the country in terms of capacity. So basically where we are as a group is to say we want to have that capacity as Zimre capital to be able to raise capital for projects.

MC:  There have been issues of retrocession claims in the reinsurance sector which have been threatening the whole industry as the central bank is delaying resolving those issues. What are your comments?

SK: It is true we have got some legacy debts in which fortunately or unfortunately the Reserve Bank has approved half of. We are in the process of negotiating with them to approve the other half which they were questioning. But I think the good thing is that   our business partners internationally appreciate our environment and are happy with an environment where these are defined as legacy debts and also waiting for the central bank to decide on how these are going to be paid.

The good part is also that these are legacy creditors, the new obligations that we accrued in the past 3-5 years we have extinguished. The beauty of the new environment is that the auctions system and use of nostro accounts have allowed us to meet our obligations as they come.

MC: How much are we talking about?

SK: For us we are talking about US$2 million.

MC: You hinted that we are soon going to hear an announcement concerning your shareholding in Zupco. May I know what have been the sticking points that delayed finalisation of this issue?

SK: The exit decision was made in 2004. At that point in time Zupco needed capitalisation and they were not in a very healthy state and the decision was taken to say it needed new capital. As Zimre we made a decision to say we are not in a position to continue to put in capital into an organisation that is run to meet a social obligation which is providing affordable urban transport and not so much commercial. At that point in time it was agreed subject to us agreeing on a value. So the sticking point has been agreeing on a value and I am happy that we now have some kind of agreement to say how much we can be compensated in a manner that is amicable and we move on. We are concluding the exit.

What we have been discussing with the government has been compensation and we have reached an agreement. It is unfortunate I will not be giving a figure because we are yet to sign the agreement.

MC:  You also spoke about CFI. Why is it taking you long to resolve your differences?

SK: We are happy that in a way, CFI is running profitably but you know we are a major shareholder. We could have been happier if we found common ground with the other major shareholders. It is unfortunate we have not reached that as we are still fighting wars, which to me, (without capture of history) is unnecessary. We could all co-exist and allow our shareholder to actively run but with any active word participation from the other shareholder even at board level. So that is really where we are with CFI. It is a significant asset exposure to us but we are not able to actively participate in it and unfortunately we have no clear exit options as it is a trapped investment. You will appreciate that they are under suspension from the ZSE and also when you have a toxic relationship, even finding another investor to come in becomes very difficult because everyone will be seeing the toxic relationship.

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