RBZ grapples with Natfoods’ foreign debt

HARARE- South African foods giant Tiger Brands, which upped its stake in National Foods to 37% in 2011 to solidify its position as the second largest shareholder after Innscor Africa, has said the Zimbabwe food processing giant, still remains with a huge foreign debt exposure due to RBZ’s lack of forex

In a statement accompanying its half year results for the period to March 2019, Tiger Brands said foreign currency challenges worsened in Zimbabwe particularly in the 6 months period between October 2018 and March 2019.

“The ongoing forex liquidity challenges in Zimbabwe have intensified significantly over the last six months.” said the JSE listed group.

“The challenge of trading sustainably in this environment for NFH has been exacerbated by the delays of the Reserve Bank of Zimbabwe in making payments of debts to the major supplier of NFH, which were assumed by the Reserve Bank of Zimbabwe as part of a funding agreement concluded during the period under review” , the statement further stressed.

In March, Equity Axis revealed that The Reserve Bank of Zimbabwe had 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.

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.

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.

Government expects flows on the interbank will improve following a promised $500 million liquidity injection. Authorities further argue that there is $800 million in FCAs held by mostly corporates which can be unlocked to provide interbank liquidity.

These improved flows coupled with scrapping of market controls, may help the economy unlock the forex gridlock which now threats business viability.

EQUITY AXIS NEWS

Respect Gwenzi

Respect is the Lead Analyst and Managing Director at Equity Axis. He has 8 years experience in respective fields of finance and media. Particular areas of expertise include Asset Management, Stockbroking and Financial Media. Respect is on a mission to change the course of Financial Media in Africa through digitalization

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