Zimpapers Logo

Martin Kadzere Senior Business Reporter
COTTCO Holdings chairman Mr Freeman Kembo has resigned in an unexpected move widely believed to have been triggered by “debt problems” at the company.
Sources at the ZSE-listed firm said the recent recapitalisation of the business was not adequate to extinguish the entire legacy debt. The company was recently served with summons by the Deputy Sherriff over a $5 million debt arising from a BancABC loan.

The group’s net debt as at March 31 amounted to $41,6 million. Proceeds from the sale of Seed Co’s stake and rights issue amounting to $32,1 million were spent on debt repayments.

“We have some challenges at the company, both debt and operational, similar to the challenges faced by other cotton operators,” said one source who requested anonymity.

Sources said while Mr Kembo’s official position was that he had secured consultancy work outside the country, it took everyone by surprise and the general feeling is that he could have just succumbed to debt pressures and mounting operational problems.

Cottco, just like many other cotton company is facing operational challenges due to continued decline in output and side marketing that has resulted in high levels of defaults.

Local cotton farmers are almost 100 percent financed through contract farming as they lack the means to access funding from financial institutions.

Last week, Cargill Zimbabwe closed its local cotton business citing operational challenges.
It cited changes in the cotton sector driven by a shrinking cotton crop that has resulted in over-capacity among ginners, shrinking margins, high levels of loan defaults by farmers and side marketing (farmers selling to competitors and not honouring contracts).

Cotton output for the 2013 /14 season declined 6,2 percent to about 136 million kilogrammes, from 145 million kg a season earlier, the Cotton Ginners Association said yesterday.

The decline was attributed to a number of factors, chief among them, poor rainfall distribution across the country and a reduction in inputs support by the cotton industry on speculation of poor industry compliance and excessive side-marketing. Mr Kembo, however, said his departure had nothing to do with debt and operational challenges at the company.

“I have additional commitments which would require a lot of time. I will be actually travelling to Johannesburg,” said Mr Kembo.
Meanwhile, China Africa Fund, which intends to buy significant stake of Cottco has asked for an extension of 90 days to “carefully study Cottco’s proposal”.

“China Africa Fund was supposed to have come with a position in the past few weeks, but requested for 90 days to carefully study the proposal and as such negotiations have been temporarily frozen. But this does not follow that the deal has collapsed.”