Lately, cases of reported foreclosures have been on the rise, though many no doubt still go unreported. Financial Sector Spotlight with Omen Muza
I guess matters are finally coming to a head as relationships that were once well-intentioned turn toxic, easily being downgraded to mere transactions. Companies that once worshipped at the altar of creditworthiness today sing the sad tune of financial infidelity.
Unlike in marriage where partners eventually get parted by death, borrowers and lenders of today are parted by debt, the same thing that brought them together. The parting is, however, never without incident, it is a mortal struggle for restitution that ends only at the courts.
Recently, two major cases have come to light in a manner that is truly emblematic of the rising malady of loan defaults.
On May 3, 2013, Gulliver Consolidated Limited, an engineering, galvanising and fabrication firm saw its main factory in the Aspindale Industrial area being auctioned for $920 000 to settle outstanding debts owed to ZB Bank, believed to be in the region of $1,8 million.
The manufacturing company was suspended from the ZSE nearly two years ago after facing financial problems that saw it lose nearly two-thirds of its value such that by 2010, it had the third lowest market capitalisation.
On the same day, the operating assets of Valley Technologies, trading as Brodacom, a telecommunications company that promised so much only two years ago, were scheduled to be auctioned following a protracted dispute with AfrAsia Kingdom Bank over an unpaid loan of $10 million (some have put it at $20 million) advanced to the company for network expansion.
Consequently, through judgments HC 14505/12 and HC10268/12, the High Court granted AfrAsia Kingdom Bank a writ of execution against those of Brodacom’s assets which had been pledged as security for the loan.
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In both cases, the relationships between the two companies and their bankers have by now been cremated by the incidences of default and now lie in pitiful piles of ash. It will be some time before they can do normal business with each other again.
Sadly, they will not be the last relationships to end in such inauspicious, if not acrimonious, circumstances, but the process is necessary in order to cleanse the credit markets of toxic blood that currently flows through its veins.
“We are going to see more of that as the economy is in a downturn. Some of it has been happening silently,” said CZI president Kumbirayi Katsande.
As I contemplated the consequences of these and other unfolding cases, some unresolved questions kept nagging me for answers: Credit Reference Bureaus (CRBs) are part of key market infrastructure that goes a long way in curtailing multiple-borrowing and pre-empt the incidence of actual credit default. So much has been said about CRBs, but actual progress been painfully slow. Are the delays in introducing this much-needed market infrastructure a reflection of the neurosis of those who do not want to see the true extent of the debt problem laid out in the open and dealt with once and for all?
There have always been lingering suspicions that the true extent of non-performing loans (NPLs) is much higher than reported and provided for by the banking sector. Some industry sources even contend that at least 20% of loans issued in this market are not recoverable, while another 20% is made up of bad loans which are, however, partially recoverable. Unfolding events seem to confirm these fears.
When all is said and done, and the true extent of the debt problem eventually crystallises on banks’ balance sheets sooner or later, will those who say Zimbabwe needs something akin to the Asset Management Corporation of Nigeria (AMCON) to bail out banks be vindicated?
Were the proceeds of the debt contracted by companies over the years put to good use? It would appear that some of it fails this basic test, if the increasing chorus for debt audits is anything to go by. The notion of debt audits has previously commonly been suggested in context of the national/public debt (RBZ) and in the case of parastatals (Air Zimbabwe), but now appears to have caught up with private sector companies as well.
In late April 2013, Hwange Colliery Chairman Farai Mutamangira confirmed that the dually-listed company had engaged forensic auditors to investigate its costly legacy debt of over $30m. A comprehensive account of how borrowed funds were applied was expected, amid fears some of the money could have been misused. Is this the first of a wave of debt audits for private sector companies, which might see further debt-induced parting of ways?
Feedback: [email protected]. Omen N Muza writes in his personal capacity. You can view his LinkedIn profile at zw.linkedin.com/pub/omen-n-muza/30/641/3b8
