adminthis year. Companies have failed to increase production because of the high cost and short tenor of debt instruments in the market.
The high cost of funding has created a vicious circle, where most companies are failing to expunge huge piles of debt sitting on their balance sheets.
For the financial period ending December 31, 2011 about 36 percent of the listed companies on the Zimbabwe Stock Exchange made losses.
Companies have attributed losses to low liquidity, the cost of funding, low production and an unfavourable operating environment.
An economic analyst, Mr Brains Muchemwa, said equally at fault were some of the poor operating models that are no longer efficient and have resulted in companies failing to have healthy cash flows that would be able to service debt. He said companies should streamline operations and inject fresh capital or other hybrid equity
structures that have no huge claims on the near-future profits and cash flows.
“Cash flows are some of the most optimal strategies to ride out the debt crisis which is expected to worsen, more so now that revenue growth of most of the companies is now flattening,” he said.
The market has a severe liquidity challenge while most companies are facing recapitalisation issues.
“This has affected most major shareholders who are having to face the recapitalisation costs,” said another analyst. “The funding option taken is often based on the one with the least dilutive effect on the shareholders.”
As a result most shareholders tend to support recapitalisation plans with debt structures, hoping operations would recover to service the debt and limit the dilution.
This has seen most companies choking with heavy debt burdens as the cost of funding has been high in Zimbabwe on the back of the liquidity squeeze.
The adoption of the multiple-currency system in Zimbabwe, after 10 years of hyperinflation characterised by acute foreign currency shortages and low investment, has brought about economic stability.
But it has also caused even worse economic challenges.
During the period, there was no substantial capital reinvestment across all sectors of the economy.
The prevailing pricing system in the country was distorted and most assets were overvalued and the introduction of the multiple currency saw most institutional shareholders failing to support their assets.
The business model being used by businesses during the Zimbabwe dollar era continued into the multiple currency era, and companies have failed to adapt to the new settings.
Online Reporter