11 January 2013

Zimbabwe: Swiss Firm On Verge of Turnall Acquisition

Swiss-based investors are reportedly on the verge of acquiring a stake in Turnall Holdings Limited for US$13,5 million, in a deal that could see banking group, FBC Holdings Limited, exiting the fibre products manufacturer.

FBC has a 49 percent stake in Turnall.

Sources said a Swiss private equity firm Zurmont had partnered with a United Arab Emirates investment firm called Augan Investments, and a local company called Ryan Capital to buy FBC's stake in Turnall.

Zurmont was understood to be acting on behalf of a Switzerland-based fibre supplier, Ramatex, which has been supplying Turnall with fibre for several years on friendly credit terms.

The Financial Gazette's Companies & Markets understands that the investors had conducted due diligence on Turnall and were satisfied that it would be a good buy.

FBC Holdings has been issuing cautionary statements to shareholders since November advising of negotiations that could have "a material effect on the structure of the group and may have a material impact on the company's business and share price".

Market players said the cautionary related to the planned sell of Turnall.

Turnall's managing director, John Jere, told analysts during his presentation of the company's half year results for the period ending June 30, 2012 that the company was on the market for financial partners to restructure its costly short-term debt.

Turnall has been hampered by limited cash flow, delays in customer payments, low Foreign Direct Investment inflows and relatively high interest rates.

Jere said the cash-flow challenges had been mainly due to the lack of ownership of their distribution chain.

Turnall is targeting ownership of its distribution network after the group announced that it was forecasting revenue to reach US$300 million by 2015.

"We are forecasting revenue to reach US$300 million by 2015. We are looking at buying into our distributors considering the prevailing environment to reduce our debtors book as we continue to scout for financial partners to restructure our debt into long term at low cost," Jere said.

Turnall is majority owned by FBC Holdings after its banking unit, FBC Bank, converted a US$8 million debt owed by Shabanie Mashava Mine (SMM) to the Africa Export and Import Bank into equity.

FBC Bank subsequently transferred its stake to FBC Holdings, as Reserve Bank of Zimbabwe regulations forbids extended holdings in non-core businesses by banks.

SMM was the former controlling shareholder in Turnall and had pledged the shares, translating to more than 50 percent equity in the company, as collateral for the loan.

Jere said the company was expecting a flat performance for the year to December 31, 2012 as it had reduced volumes growth while aggressively pushing for collections from debtors.

"We were forced to change course midway through the six months after realising that some of the distributors were failing to pay for the product even after having collected cash from their own customers," said Jere.

"Following the realignment of the business during the interim period, results are showing a 13 percent and 17 percent drop in volumes and turnover respectively," Jere said.

He added that in the second quarter they did half the volumes for first quarter but the business was still profitable.

"Due to an environment where liquidity challenges continue to persist and a not so pleasing agricultural season save for tobacco, we had to strike a balance between growing our volumes while at the same time managing our working capital," said Jere.

Capacity utilisation was reduced from 65-70 percent of the installed 120 000 tonnes to 40-45 percent in line with the new model mainly because payments were not forthcoming.


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