• Zimgold aims to raise US$5 million through the private placement a commercial paper to fund local sourcing of soya beans and sunflower seeds.
  • The limited quantities of oilseed production in Zimbabwe have resulted in the dependence on imports.
  • Zimgold has grown rapidly and invested in multiple categories, becoming the largest producer and marketer of cooking oil in Zimbabwe.

Harare- Zimgold Oil Industries (Pvt) Ltd, the largest producer and marketer of cooking oil in Zimbabwe, is looking to raise US$5 million through the private placement of a commercial paper. The company is in the business of processing oil seeds, extracting vegetable oil, and refining crude oil into edible oil for the local market. Zimgold has expanded its operations to include baker's fat, margarine, laundry soap, bottled water, and bathing soap.

Private placements are a way for companies to raise capital from private investors rather than through a public offering. A company will privately offer and sell new shares to a limited number of accredited investors.  By raising funds through private placement, a company can avoid the lengthy and expensive process of registering shares with the SEC required for an initial public offering (IPO).  Private placements are often faster, cheaper, and more flexible than an IPO.  

The local demand for soya beans is on the rise due to its multiple uses, including cooking oil, stock feeds, and other foods. However, soya bean production lags behind demand, leading to the importation of soya beans/soya meal from Zambia, Malawi, and South Africa. Zimgold intends to source soya beans locally during the grain marketing season, capitalizing on the locally available soya beans and sunflower seeds. However, local suppliers of soya beans and sunflower seeds prefer payments in USD, making it necessary to approach the market through a debt instrument.

While the agricultural sector has seen some positive developments, local production remains inadequate to meet the supply requirement of the industry, leading to the importation of soya beans, soya meal, and soybean crude oil. Zimbabwe's oilseed-to-edible-oils value chain is concentrated around three seeds: soya bean, cotton, and sunflower, which are mainly used for the production of cooking oil for household and industrial use. Given the limited quantities in local production of oilseeds, edible-oil producers make use of import markets to source oilseeds.

Zimgold has invested in soya bean, cottonseed, and sunflower crushing, and the company has a combined reining capacity of 450,000 tonnes per year. The oil crushers in the country have a combined oilseed-crushing capacity of about 200,000 tonnes per year. Edible-oil producers sell the oil cakes to the stock feed industry. There is some level of vertical integration between edible-oil producers and stock feed producers. Zimgold Industries, as an edible oil producer, has agreements with feed manufacturers to supply cake for feed manufacturing.

To become self-sufficient in oil, the county has to produce approximately 700,000 MTs of soya bean annually, which will give 550,000 MTs of soybean meal. However, this will be a challenge to export the soybean meal due to regional price parity. The best mix is for the country to produce approximately 200,000 MTs of soybean annually, which will cater to the entire soya meal demand and reduce the import dependency on crude oil.

Zimgold's intention to raise US$5 million through a commercial paper will fund the procurement of soya beans and sunflower seeds from local growers. This move is significant for the industry as it highlights the importance of local sourcing and reducing import dependency. Additionally, it will increase the company's production capacity, which will, in turn, boost the local economy. Overall, this move will help the company meet the increasing demand for its products and reduce the need for imports, which will have a positive impact on the country's foreign currency reserves.

For Zimgold, the commercial paper provides a source of short-term funding at a lower cost compared to other sources like bank overdrafts. It also provides funding flexibility and diversifies the company’s funding sources. However, there is a risk of default if Zimgold fails to repay the principal amount with interest. For investors, commercial papers from Zimgold provide an opportunity to earn interest, although at a higher risk.

The oil expressors industry in Zimbabwe relies heavily on imported oilseeds and crude oil due to inadequate local production. The industry has a combined oilseed crushing capacity of 200 000 tonnes per annum compared to the over 400 000 tonnes annual demand. Zimgold, with the second largest oilseed crushing capacity, stands to benefit immensely from increased local oilseed production through lower costs and higher capacity utilization. Overall, increased local oilseed production will boost the local edible oil industry, reduce reliance on imports and save foreign currency for the economy.

-Equity Axis News