Govt moves to consolidate shareholding in Cottco

28 Jul, 2022 - 00:07 0 Views
Govt moves to consolidate shareholding in Cottco Minister Masuka

The Herald

Business Reporter

The Government has started taking steps to buy out some of the Cottco Holdings minority shareholders as it seeks to raise its shareholding to a controlling 51 percent.

Currently, the Government owns 37 percent in the largest cotton-producing company, shareholding it gained after buying shares previously owned by the National Social Security Authority of Zimbabwe and Old Mutual in an off-market transaction sometime in 2025. 

Cottco, a listed entity, is currently suspended from trading. The other 63 percent is largely owned by as many as 13 000 individual shareholders.

The cotton company applied for the voluntary suspension of trading of its shares in November 2014 following the application for provisional judicial management. 

The application for provisional judicial management was necessitated by the company’s failure to settle debts amounting to US$56 million following its failure to recover the costs of inputs supplied to contracted cotton farmers due to massive side marketing.

 Following the application for provisional judicial management, the Government intervened through the introduction of the Presidential Inputs Scheme in 2015 in exchange for withdrawal of the application for provisional judicial management by the company.  In 2016, the Government facilitated the restructuring of Cottco’s debt through the Zimbabwe Asset Management Company (Zamco).

 Cottco has since repaid the debt. After acquiring 37 percent stake in Cottco, the Government was supposed to make a mandatory offer to the minority shareholders

 In terms of the Zimbabwe Stock Exchange rules, a person or entity who acquires at least 35 percent of securities in a public listed company will have an obligation to make an offer to other holders of the same securities on a basis agreed with the ZSE.

 The Companies and Other Business Entities Act also requires that a person who alone or together with the person’s associate(s) has acquired a control block of shares (at least 35 percent) of a public company must give notice in writing to all of the remaining company’s shareholders offering to acquire the company’s ordinary shares belonging to them except for instances where a shareholder meeting adopts a decision to waive the rights of shareholders to sell the shares belonging to them.

 “This is what the government should have done in line with the law,” said a source who requested not to be named because is not authorised to talk to the press.

 In April this year, the Government, which has been financing cotton farmers through Cottco since 2015  had set the target to complete the acquisition of a majority stake of Cottco by July 1 to “legally empower the Government to provide more funding to the company,” Dr Anxious Masuka, Agriculture Minister said.

 “It was not what the Government thought. Now they have been advised to take the right steps,” the source said .

Last week, Cottco filed a note with the ZSE advising that “the Government is in discussion with specific shareholders as well as the Zimbabwe Stock Exchange to explore the possibility of the Government’s acquisition of a controlling stake in the company.”

Cottco, through the Government, finances about 85 percent of cotton farmers in the country. It has projected a 26 percent decline in cotton output this year compared to last season due to bad weather. 

The cotton crop suffered two major setbacks—the late-onset of the rainy season and a very long dry spell experienced in most cotton-growing regions during mid-season. However, unusually heavy rains in March through April undid some of the damage that had been caused by the mid-season dry spell.

“The late onset of the rains and erratic rainfall patterns have led to a reduction in the expected intake to 85 600 tonnes for the season compared to 116 000 tonnes in 2021,” said acting company secretary Mrs Jacqueline Dube in a trading update for the first quarter to June 30, 2022. 

As of March 31, 2022, Cottco sold 50 000 tonnes of lint ginned last season. Of that, 77 percent was exported while the remaining 23 percent was allocated to local spinners. 

Cottco’s local toll-spinning arrangement resulted in 937 tonnes of lint being value added. Ginned seed of 62 000 tonnes was sold mainly to local oil expressors and stock feed suppliers.

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