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The Cold Storage Company floated a three-pronged turnaround proposal on Wednesday. Ngoni Chinogaramombe, the chief executive said the parastatal was awaiting government approval for it to sell some of its idle land and assets like houses and also to unbundle itself into three units. The land to be sold is that on which the CSC’s abattoirs are built while the parastatal’s houses are dotted in many towns and cities across the country. It is becoming increasingly costly, he said, for the CSC to continue owning the properties given the limited business as the assets are contributing to the huge debts arising from fixed costs such as salaries, wages, rates and taxes. If the government agrees to the land and houses sale, CSC would be able to raise $14 million that can go a very, very long way in liquidating part of its debt of $22 million. It can also be ploughed back into the business for operations.
“We need to break the CSC into three companies for investors to come in,” he said.
“The first company being Chinhoyi and its farms, second being Bulawayo and its farms and finally Masvingo and its farms. We are saying the CSC plants are still intact. They are functional and can operate at any time but are being underutilised because of lack of capital. If partners come in, they would have to invest in the production of cattle. More money is required to grow the herd for CSC and private farmers including A1 and A2 farmers. We used to run the cattle finance scheme and we think that scheme should to be revived so that cattle production increases.”
The parastatal owns abattoirs in Bulawayo, Masvingo, Chinhoyi and Kadoma and a good number of farms. Only two abattoirs are operational while the farms carry a herd of 8,533 animals of which 7,741 are owned by tenants.
The state of affairs at the CSC is saddening, for a parastatal that was the largest beef processor in Africa some 15 years ago when it handled up to 150,000 tonnes of beef and associated by-products earning around $50 million per year. It was so competitive that one of its markets was the highly perceptive and lucrative European Union that bought 9,000 tonnes of beef from the CSC yearly. Now the fallen giant owns a measly 792 head of cattle, down from 10,000 and slaughtered 5,600 animals between January and May. This output is just 5,8 percent of the total number of animals slaughtered nationally during that period. It is struggling to settle its $22 million debt that recently resulted in 400 of its cattle herd being auctioned. In addition, the parastatal is failing to pay its workers.
However, we are confident the CSC is an outstanding asset with an uncontested national coverage. It has all the infrastructural presence along the beef value chain too, from the farms where cattle can be reared, to slaughtering facilities to out-compete rivals and at some point, ran retail outlets. Also, the CSC can rely on its historical public goodwill.All these factors make the parastatal attractive to any serious investor.
While its extensive geographical presence can be an advantage to some, it can actually be a disadvantage to others who might feel that it is too unwieldy to run efficiently, hence the proposal to unbundle the asset into three units.
Splitting the giant should make the three stand-alone businesses leaner and easier to run. Businesses organised in this manner are frequently more profitable, so we support this argument. The second proposal to sell houses so that the CSC can concentrate on its core business of farming cattle and processing beef is noble. Workers can always find their own housing and pay maintenance costs. This is standard practice.
We are agreeable to the sale of non-core assets and the splitting of the business into three, but we need more information on the proposal to sell idle land. Chinogaramombe did not specify to everyone’s understanding the location of the land and the extent of the idleness because, practically, the entire CSC infrastructure from ranches to slaughtering facilities is idle.
The Bulawayo abattoir is built in an urban setting, not on a farm, so we want to be educated on where the idle land capable of being sold is. At the same time, if the parastatal has some abattoirs situated on farms, it means all the land around them, in other words the farms or sections of them would have to be sold because everyone knows that they are underutilised.
The challenge in this case would be how possible it is for the CSC to sell its idle farmland, which is actually State land. We know the legal position that prohibits sale of State land. So which idle land on which abattoirs are situated is to be sold? How much more idle is it than other pieces of land that CSC owns? How will the land be sold? Will it be through a transparent, open tendering process? If so, who is likely to buy the land if it goes to an open tender?
We seek clarity on this point but on the whole, we want the CSC to be revived. It is a tremendous asset of outstanding potential.
Online Reporter