Business Reporters
COTTCO Holdings has engaged its creditors and lenders for a scheme of arrangement on how the group can retire its $48 million debt and turn around the business’s waning fortunes.
Sources told The Herald Business that the proposed arrangement could result in the group’s earlier plans to be placed under provisional judicial management being put on hold.
The scheme of arrangement could also result in the conversion of some debts into equity.
Cottco is technically insolvent with liabilities at $48 million, against an asset base of $36 million.
“The parties realised that the court process was not the best to rid the company of the challenges it is facing. As such, it has been put on hold and they are pursuing the scheme of arrangement,” said a source who commented on condition of anonymity.
Group chairman Dr Douglas Ncube confirmed the proposed scheme of arrangement, saying parties to the negotiations were exchanging positive information, but would not explain further. He said the plans were necessary as the company was technically insolvent, meaning there was urgent need to restructure its balance sheet to improve its viability.
“At the moment I cannot give you details because discussions are ongoing. Both sides exchanged positive information and we hope for a positive result,” he said.
Cottco recently applied to the High Court to be placed under judicial management, stressing that since the firm was technically insolvent some of its creditors could seek foreclosure.
In its application, the group said operations had been seriously affected by depressed international lint prices, side marketing of contracted crop and sub-optimal capacity utilisation.
A board meeting in October, presided over by Dr Ncube and attended by senior directors including chief executive Mr Collins Chihuri, concluded that the group could no longer meet its immediate obligations, hence the decision to have it under judicial management.
Some of the creditors had already issued summons and these included BancABC, which sought to recover $5 million plus interest after Cottco paid only $200 000 of the $1,3 million instalments.
Cottco has a ginning capacity of 150 000 tonnes per annum against national industry potential of 700 000 tonnes.
Last season Zimbabwe produced about 140 000 tonnes of cotton with Cottco accounting for 45 000 tonnes of that output, which is not enough to cover the group’s overheads.
The company’s management said in the wake of the challenges besetting the entire cotton industry, Cottco needed to restructure its operations in line with low cotton output.
They also said that the company needed to find both technical and financial partners.