PG seeks nod to sell Mutare subsidiary

strategic to the group. The directors of PG Industries also feel MBD is unlikely to declare a dividend beneficial to the group in the next five years.
An Extraordinary General Meeting of shareholders has since been set for December 12 2012 for permission to sell the MBD stake and assets excess to requirements of the group.

The building materials manufacturer said failure to approve the transaction would worsen the working capital position of its unit PG Merchandising, which would continue to underperform.

Further, PG said that the high interest cost on the group’s mostly short-term loans ranging between 18 percent and 22 percent would continue to weigh down its financial performance.

PG said its investment in MBD has a book value of about US$3 million and the group also expects to recover the US$1,3 million loan it had earlier advanced to its former associate.

“After careful consideration, the board has come to the conclusion that the investment is not strategic and therefore proposing disposing of the stake to recapitalise other group companies,” said PG in a circular to shareholders of the group.
After the disposal Old Mutual will have a controlling 69 percent stake in MBD while PG Bison Africa will hold the remainder.
“It is anticipated that MBD will not be in a position to declare a dividend, which would directly benefit PG Industries’ Zimbabwe cashflows until 4 or 5 years post recapitalisation.”

PG also expects to raise US$5,1 million from the disposal of commercial, industrial properties and residential properties.
The firm said the properties are non-core, excess to its operational requirements and are generating insignificant returns.
Directors believe the transaction would reduce the group’s debt by US$4,5 million to US$6,3 million, payable by US$10 million from US$14 million and working capital by US$4 million.

It would also whittle down finance costs PG pays annually from US$2,2 million in 2012 to about US$960 000 by 2014.
However, after the transaction working capital remains below the required amount by at least US$2,8 million, but the current ratio would improve from 0,66 to 1 from 0,74 to 1.