RioZim – from death bed to sexy once more…

RioZim’s story pleases mostly because it has achieved many things that market forces have clearly demonstrated inability to balance within the Zimbabwean context. The most important for me is whipping banks into line. Why banks insist on sticking to an interest charging regime that stifles and kills their client is beyond me. This problem is worsened by the fact that most companies are multi banked with lines of credit from a cocktail of bankers some of whom make advances with no proper credit analysis. In the event of default or deterioration of credit quality of the borrower, banks fight to outdo each other in slapping punitive interest rates to the already frail company in the process bringing it swiftly to its knees.

With a deal like the one for RioZim, ZAMCO plays the go between, forcing banks to be realistic with their claims and receive liquidity which they are short of anyway. On the other hand, ZAMCO reconfigures the client’s debt to terms that ensures survival and ability to service debt. The company thus pays for its sins in full, while the bank has to take a haircut on exorbitant claims and receive a liquid asset in return. Most importantly, jobs are saved. Bankers do even better because their clients are formally employed and qualify for their elitist type product offering. Such a solution which is clearly what our situation demand is otherwise unachievable without the intervention of an authoritative part, the RBZ in this instance.

The impact to the economy is profound. RioZim’s case can still demonstrate how important this intervention can be to an economy. With the collapse in commodity prices whose driver many are still to decide whether it be the super cycle or technological advances could not have come at the worst time possible. The company which was hardly breathing was destined for certain collapse as revenue generation could not sustain its loan repayment under the conditions imposed by its bankers. The fact that low commodity prices appeared destined to stay for longer meant that the option to collapse the whole thing with shareholders only losing to the extent of capital already outlaid was right in the money. Liquidating the company was probably the only economic option left. This was thwarted simply because payment terms were varied with the company making good its obligations anyway but only over a long period of time.

The second positive is the strategic decisions that RioZim now has to make in light of its changes circumstances. High interest rates and poor liquidity meant that any project that the company intended to pursue needed to produce super profits if it had to pass key huddles that would make it economic. Which improvements on both fronts (leverage and liquidity), RioZim invariably has more projects that have become viable and can also be executed sooner. What easily comes to mind is the company’s coal assets that require investments in power stations as well as the mooted project to transform ENR to be able to process platinum group metals (PGMs). The company’s investment in Murowa Diamonds may also have been encouraged by positive developments as regards management of its debt and liquidity challenges.

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