adminassets to retire expensive debt and shed off loss making operations.
The struggling listed counter, emerging from a huge US$16 million loss for the year ended March 31, 2011 is battling to bring its debt to sustainable levels.
Sources say the group’s head office in Borrowdale is being considered for sale – including plant and machinery.
The group’s restructuring exercise has seen the review of Red Star operations and the closure of Gold Star in Bulawayo and West Bev.
During the financial period, the group’s operations contributed to the bulk of the loss (US$9,8 million) while continuing operations contributed a loss of US$6,6 million.
With equity of US$17,9 million, starafrica is set to have zero equity in the full year to March 2012 if it does not significantly improve on its loss position. The business currently has more debt than equity (debt to equity ratio is 1:59) and an unfavourable liquidity position (current ration of 0: 83) suggesting that successful disposal of the non-core business like Red Star and the restructuring of the short-term debt is of paramount importance for survival.
starafrica’s problems started when its subsidiary, Red Star, was operating at a loss and failing to break even.
Post-dollarisation, Red Star failed to raise US$15 million to restock the group with a view to raise capacity utilisation from an average of 33 percent to about 70 percent.
Apparently, the sugar wholesale business remained attractive considering that Red Star managed to rake in US$54 million in revenue in the full year to March, but this was achieved on the back of US$48 million cost of sales.
The company had also suffered from increased competition in the retail sector – throughout 2009/2010 Red Star tried to maintain its extensive branch network and distribution capacity but overheads had a significant impact on profitability ad cash flow.
High levels of accumulated debt also resulted in critical cash flow problems.
starafrica unbundled Red Star and subsequently listed the division on ZSE in 2006 in efforts to unlock shareholder value, but viability constraints and onerous liabilities seem to have cut short its autonomy.
starafrica has also failed to return to profitability despite completing a successful recapitalisation exercise last year.
The group was on the market to raise US$20 million through a rights issue offer and a private placement of convertible debentures to ABC Holdings Limited. Its rights issue closed with 29,1 percent subscription level – representing a substantial dilution of shareholders.
Despite the liberalisation of the economy in February 2009, companies have continued to operate under their potential due to lack of funding.
Local banks have failed to support local industries and the only available expensive short-term financing has resulted in companies reeling under unsustainable debt.
A number of listed companies have shown stress for funding resulting in companies rationalising or down- scaling operations.
Some companies are negotiating for possible mergers while others are planning to delist from the bourse as a way of rebuilding value and attracting new investors.
Yesterday sta-rafrica traded at US$1,80c after opening the year at US7c representing a year to date loss of 74 percent.
Online Reporter