Zimbabwe Asset Management Corporation bails out seven major companies

The Zimbabwe Asset Management Corporation which was set up by the Reserve Bank of Zimbabwe to take over non-performing loans from banks to strengthen their balance sheets has so far restructured loans totaling $357 million and has bailed out at least seven major companies.

The companies are:

1. RioZim                                 $33 772 100
2. Cottco                                   $29 875 091
3. Hwange                               $14 868 435
4. Cairns                                   $6 924 164
5. Border Timbers                   $6 666 919
6. CSC                                        $2 197 737
7. Global Horizons                   $1 041 041

Central Bank governor John Mangudya said the companies were in critical sectors of the economy.

 ZAMCO was optimistic that the acquisition and restructuring of loans for the affected companies would firmly set them on a path to return to viability in the short to medium term, thereby supporting employment and economic transformation.

Below is an extract on monetary developments from Mangudya’s monetary policy statement:

Whilst the multi-currency system (or dollarization) is an inhibiting factor to the full conduct of monetary policy by the Bank, the Bank has not been found wanting. It has managed to develop monetary policy tools consistent with dollarization, and outside the conventional tools of monetary policy. The non-conventional tools include the African Export Import Bank Trade Backed Facility (AFTRADES) which has a lender of last resort characteristics, the Zimbabwe Asset Management Corporation (ZAMCO) which has stimulus package characteristics, interest rate guidelines, introduction of small denomination coins (bond coins) and demonetisation.

Usage of these tools by the Bank has managed to stabilise and strengthen the banking sector as detailed below.

The US$200 million Lender of Last Resort Type Facility underwritten by the African Export-Import Bank (Afreximbank) under the Afreximbank Trade Debt Backed Securities (AFTRADES), was a game changer in addressing financial stability through providing a liquidity support window for banks at RBZ. This facility supported banks in an amount of US$178.8 million as at 31 December 2015, for tenors of up to 2 years maturing on 13 February 2017, with initial support granted on 19 March 2015.

This facility also brought discipline in the financial market as no funds are granted without security. The interest rates under this facility are a good benchmark for managing domestic interest rates as the Aftrades interest rates are basically the base lending rates and reflect the marginal cost of funds. Surplus banks earn interest of around 6.5% per annum whilst borrowing banks are charged interest rate of around 8.5% per annum.

The Zimbabwe Asset Management Corporation (ZAMCO) has made notable progress in fulfilling its mandate of cleansing banks’ balance sheets through acquisition and restructuring of non-performing loans. As at 31 December 2015, ZAMCO had acquired and restructured non-performing loans totalling $357 million from a number of banking institutions.

ZAMCO has acquired and restructured loans for distressed companies that have good turning around prospects. These companies are in critical sectors of the economy such as mining, agro-processing and manufacturing. The restructuring involved extending the loan repayment period, grace periods for capital repayment and reducing interest rates and in some instances converting debt to equity.

ZAMCO is optimistic that the acquisition and restructuring of loans for the affected companies, will firmly set them on a path to return to viability in the short to medium term, thereby supporting employment and economic transformation. Some of the major companies whose debts have been restructured and taken over by ZAMCO include the following:

• RioZim                                  $33 772 100
• Cottco                                   $29 875 091
• Hwange                               $14 868 435
• Cairns                                    $6 924 164
• Border Timbers                    $6 666 919
• CSC                                        $2 197 737
• Global Horizons                $1 041 041

A total of eighteen (18) NPLs amounting to $77.4 million are at various stages of evaluation. Further, ZAMCO, in conjunction with judicial managers, is at advanced stages of concluding restructuring transactions of four (4) companies, with combined value of $31 million. Finalization of these transactions will mark the completion of the first phase of NPLs acquisitions.

In the first quarter of 2016, focus will be on all other eligible NPLs outside the top 100 with a minimum amount of $50 000. In that regard, banking institutions are required to ensure that loan and security files as well as business plans in respect to NPLs they wish to sell to ZAMCO in the second phase are in place to facilitate the due diligence and asset review processes.

The introduction of bond coins on 18 December 2014 for promoting divisibility of money was necessary to enhance price competitiveness and to enable the conduct of sub-dollar transactions. Given the low levels of employment in the country, lack of change or small denomination coins was very regressive as the poor were bearing the brunt of dollarization at the expense of business. They were paying more in proportionate terms.

An amount of US$10 million of bond coins is in circulation in the economy. The coins which are widely used throughout the economy are a good store of value as they are indexed to the US$. They trade one to one or at par with the US$. The coins are not susceptible to exchange losses in the wake of the fall or depreciation of emerging market currencies to the US$ that have seen the Rand depreciating by 45% between December 2014 and January 2016 from R11.4 to the US$ to the current level of R16. This is, therefore, not surprising that consumers had to switch from rand coins to bond coins. This is quite permissible and rational under a multi-currency system which provides a wider range of choice for mitigating exchange loses.

The demonetisation of the Zimbabwe dollar which was announced by the Minister of Finance and Economic Development in the 2014 National Budget, as well as, in the Mid-term Fiscal Review, and in the Monetary Policy Statement of January 2015, commenced on 15 June 2015 and ended on 30 September 2015. The purpose of demonetization of the local unit was to promote consumer and business confidence by providing credibility to the multi-currency system and legally retiring the Z$. A Statutory Instrument was promulgated to that effect on 12 June 2015. An amount of US$9 million out of a budget of US$20 million was converted at the closure of the demonetization program.

The Bank is currently working with the Deposit Protection Corporation (DPC) to ensure that account holders whose balances were held with closed banks are paid. DPC is expected to fully pay out these beneficiaries by the end of April 2016.

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