THE Cotton Company of Zimbabwe has applied to the High Court to be placed under provisional judicial management, the company said on Thursday, with its application suggesting it was technically insolvent.
Cottco has a debt of $56 million which attracted an interest bill of $16.8 million in the full year to 31 March 2013 and finance costs of $6 million per year. Its market capitalisation as of Wednesday, November 5 is $2,1 million.
The company concluded a rights offer in January this year to raise $15 million and also sold some of its assets to raise capital to reduce the debt to between $20 million and $30 million.
In January this year, as AICO Africa it received $20.4 million for the partial sale of its stake in SeedCo to British firm Limagrain as part of a $60 million private placement deal sealed last year. It rebranded to Cottco Holdings soon after.
Analysts say it was likely that the company, the single largest ginner of cotton in Southern Africa, did not repay the debts and some of the creditors had instituted proceedings to recover loans.
The move by the company to apply for judicial management, if granted would keep the wolves at bay and give it time to recover and repay the debts.
“The Company’s sole operating subsidiary, namely The Cotton Company of Zimbabwe Limited, which is 100% owned by Cottco Holdings Limited, has applied to the High Court of Zimbabwe for a provisional order placing it under Judicial Management,” Cottco company secretary, Pious Manamike said in a statement to the Zimbabwe Stock Exchange (ZSE).
The stock market suspended trading in the company’s shares following the announcement.
Analysts say the company situation had become unsustainable as its liabilities exceeded assets.
Ray Chipendo, Emergent Capital’s head of research recently wrote that Cottco was worth more ‘dead than alive,’ citing the challenges facing the company.
Disposal of the SeedCo stake; internal problems (Cottco fired its managing director, David Machingaidze in November last year after a forensic audit showed possible fraud involving $800,000) depressed cotton prices; and problems with the inputs credit scheme were cited as the major causes of distress.
Its share price has fallen by 97 percent this year to 0.20 cents.
“A dark mood hangs on the cotton marketer – reasonably so, as Cottco’s revenue spectacularly plunged from $129 million a year ago to $42 million this year. The market, perturbed by Cottco’s recent performance, has condemned the share,” wrote Chipendo.Advertisement
“We say so because, according to our calculations, the company is now trading at less than its liquidation price. It is worth more as a liquidated company than when it is operating.”
He added: “Each time a company is trading below liquidation value, there are two possibilities: either it is a call on management to throw in the towel and wind up operations, or the market might simply be overreacting.”
Cottco’s major shareholders include the National Security Authority (NSSA) with 22,19 percent stake; Old Mutual with 13,7 percent and Standard Bank Nominees which holds 11,66 percent.