- Nampak Zimbabwe faces liquidity challenges
- As a result raw material supply management was challenging for Hunyani
- US Dollar linked Kwanza bonds provided effective protection against the Angolan Kwanza devaluation
Diversified packaging manufacturer Nampak Limited with a Zimbabwean unit Nampak Zimbabwe said it has registered healthy liquidity in its Angolan and Nigerian operations with the exception of Nampak Zimbabwe for the five months to February 2020.
In a voluntary trading update, Nampak said, “Zimbabwe was the only country where Nampak experienced problems with foreign currency liquidity.”
This was a result of the continuity of the contraction of the Zimbabwean economy, whose Zimbabwean Dollar devalued by 18% in the five months period ended February 2020 despite the establishment of an interbank foreign exchange market in February 2019.
“Liquidity in Zimbabwe remains challenging and the government has recently announced that it will allow US Dollars (fixed at ZWL25 for every USD1) as legal tender, in order to address the liquidity problem.” reads part of the update.
The Nampak Group has not provided further funding to its Zimbabwean operations since April 2018, with these businesses being cash generative and self-funding.
During the period under review, raw material inputs into Zimbabwe continued to be funded by US dollars provided by customers, traders and commercial banks as well from foreign exchange generated through exports to neighbouring countries.
In the paper segment, the company said raw material supply management was also challenging for Hunyani in Zimbabwe due to the lack of foreign currency liquidity in the market but however, demand and profitability in this business remains strong.
In its Angolan operations, Nampak said, “A currency devaluation of more than 32%, since September 2019 and lagging wage inflation have placed consumer spending under severe pressure. Consequently, very weak demand for beverage cans has prevailed throughout the period, resulting in trading income from Angola reducing to near break-even levels.”
US Dollar linked Kwanza bonds have provided effective protection against the Angolan Kwanza devaluation against the US Dollar with 56% of the Kwanza cash balances currently hedged.
“The requirement to have US Dollar imports, supported by cash backed letters of credit, has contributed to the reduction in the proportion of cash in country that is hedged. These bonds continued to be settled on time and in full by the Angola government. Where early redemption has been possible the average discount has been below 3%.” The company said.
Nampak added that cash balances have reduced to the Rand equivalent of R624 million with a pleasing transfer of R639 million to offshore treasury from Angola since September 2019.
Furthermore, the company said while general consumer demand has been somewhat constrained in Nigeria, demand for beverage cans has remained positive.
According to Nampak, cash levels were maintained at the optimal level required to fund the day-to-day activities of operations, while R543 million was timeously transferred to settle outstanding supply chain financing provided by the Group and this has limited exposure to potential Naira currency movements.
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