The Reserve Bank of Zimbabwe has assumed legacy debt amounting to $54.9 million owed by National Foods to its major grain supplier following an agreement late in 2018.
The engagement followed an acute forex crisis in Zimbabwe which significantly impacted production as companies failed to access forex through RBZ, the sole custodian of forex until early this year.
In a statement accompanying its earnings for the 6 months period to December 2018, Natfoods said debt assumption was part of an agreement which will see the debt being settled over an agreed period.
As part of the deal, Natfoods settled the full amount in local currency equivalent, RTGS, to the RBZ, which resultantly drove the net creditors position on its books lower.
Natfoods is the biggest player in the flour milling space in Zimbabwe accounting for the largest market share in that respective sector. The company demanded circa $2 million to $2.5 million monthly in forex monthly to satisfy its raw materials import needs in 2018.
The broad sector has been facing challenging in procuring raw materials notably that of wheat, which remains in production deficit locally. Zimbabwe demands 450,000 tonnes of wheat per annum while local production stands at 200,000 tonnes leaving a deficit of 250,000.
In December of 2018 Natfoods issued a statement advising that it was suspending its flour mills due to a failure to source raw materials.
The company said “Due to delays in repatriating payments to our foreign wheat suppliers, our wheat suppliers have today instructed National Foods to cease draw down of wheat stocks. National Foods will mill out the wheat in process and we anticipate both our mills in Harare and Bulawayo on Wednesday 5th December.”
The statement prompted a swift response from government through the RBZ, which led to the consummation of the debt swap deal highlighted above.
Regretably RBZ went on to renage on the deal through delays in payments, which has consequently led to a disruption in flour supplies for the market.
In its financials National Foods said due to the relative strength in bread demand, a function of affordability, it decided to prioritise bakers at the expense of prepacked flour where volumes eased by 40.8%.
Despite the plunge the company’s mills operated at maximum capacity and was unable to satisfy demand for Bakers flour.
Natfoods believes the ongoing sustainability of the flour milling unit will largely be driven by the availability of imported wheat and market related pricing across the flour to bread value chain.
Bakers Inn which falls into the value chain and is owned by Innscor, Natfoods’ majority shareholder has since increased the price of its bread by over 70c.
– Equity Axis News
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