Disposals, mergers dominate market

seek to raise funds for recapitalisation.
Most companies have been failing to secure offshore funding while local financial institutions are offering short-term funding which is expensive. This has resulted in companies downsizing, merging or disposing of non-core business entities to raise capital.

Many companies listed on the Zimbabwe Stock Exchange acquired several quick-cash generating businesses during the Zimbabwe dollar era. But under the dollarised economy, these business have become unprofitable while some can no longer fit into the company’s core structures.
Last week Radar Holdings Limited said it has concluded disposal its entire shareholding in its wholly owned subsidiary, United Building Merchants, to a management consortium.

The transaction came at a time when the company is negotiating for a US$7 million loan to fund its expansion programmes and for working capital. However, analysts indicated that with the correct level of working capital support, UBM could have turned around.
They said UBM was a good asset for Radar and it only needed management to adopt lean and mean structures to reduce revenue leakages.

Chemco, a group which specialises in the manufacture of agro-chemicals sold its subsidiary, Agpy Limited, to a management consortium for an undisclosed sum. The disposal of Agpy was aimed at reducing the group’s expensive debt and improving working capital for restocking purposes.
The group also disposed of its two non-core businesses and closed two other loss-making divisions, Chemco Transport and Farm-A-Rama, to improve the group’s earnings.

Chemco is now focusing on the two remaining core operations – Agricura and TS Timbers.
Since dollarisation in 2009, Chemco, like many other companies in the country, has relied on short-term borrowings to sustain its businesses, thereby assuming a huge interest burden.
Some of the companies which expanded during the Zimbabwe dollar era are now realising windfalls from the disposals. For example, starafricacorporation is eyeing as much as US$22 million from the

disposal of non-core and loss-making entities.
The company has so far raised about US$12 million from the disposal of West Bev, a beverages manufacturing firm and Red Star that was listed on the local bourse.

Subsidiaries Arthur Garden Engineering and Marathon Tyre are also being chopped from the group.
CFI said they are expecting just under US$10 million from the sale of Dore & Pitt, its stake in fertiliser company Windmill and from its 45 percent shareholding in Maitlands Zimbabwe.
The group is also disposing several other assets.

Companies have opted for disposals after failing to carry out rights issues and out of fear of private placements, which result in dilution of major shareholders.
Some failed to secure underwriters after offshore financier requested offshore underwriters.

Phoenix Consolidated Industries also indicated that it had reached a decision to sell its 51 percent shareholding in Pacprint.
Recently, investment company TA Holdings said its recovery forecast is to continue streamlining operations and disposal of non-profitable and non-core local operations.

In a statement to shareholders for the interim period ended June 2011, the company said the strategy would result in an improved and more solid profit performance for the group in the period ahead.
During the period under review, TA realised revenues of US$30,8 million and a profit after tax of US$1,6 million.
About 90 percent of the profit after tax came from external operations as local business contributed US$164 000 to profit after tax.
Hospitality group Rainbow Tourism has earmarked a US$15 million rights offer to recapitalise operations and retire debt and is in the process of selling its non-core assets, which are weighing down the group’s profitability.

It is expected that the disposal will be concluded this year and the proceeds channelled towards product upgrade and working capital.
RTG chairperson Mrs Tracy Mpofu said the group had not been adequately recapitalised since dollarisation as it relied mainly on short-term loans.

Aico is also disposing its entire shareholding in frozen vegetable business Exhort and 75 percent in Scottco.
PG is disposing of Manica Boards, and Steelnet was in the process of offloading Tube & Pipe before it went into provisional judicial management.