LISTED diversified group Art Corporation has regularised its position on debt to equity ratio to allow the company to increase its borrowing limit to $20 million in line with the company’s Memorandum and Articles of Association.
This followed the approval of a special resolution at the company’s Extraordinary General Meeting (EGM) in Harare yesterday that seeks to double the amount of the issued and paid up share capital for the time being in the company so as to increase the company’s borrowing limit to twice the equity cover.
Art Corporation chief executive officer, Richard Zirobwa told journalist on the sidelines of the EGM that shareholders have approved the special resolution that will allow the company to borrow beyond the current equity cover of $10 million.
“We were asking the shareholders to allow us to borrow beyond the current equity cover $10 million so that we are able to bring in capital equipment into the business.
“After the five year period the turn around process should be complete and invert to normal status and that’s the implication of it, so we are not pumping in new money but what we are saying is we are regularising our position on debt to equity ratio as prescribed in the new Articles of Association,” Zirobwa said.
He said in the absence of this resolution it could have been very difficult because then company would be running an organisation outside the Articles of Association.
“So before our equipment come in, the company took a position to say let’s regularise so that when this new equipment comes our articles are in in line with what’s on the ground,” he said.
Commenting on the company’s recapitalisation exercise, Zirobwa said the group was currently raising funding for capital expenditure in order to improve manufacturing efficiency in its factories and resultantly improve its product quality which would also reduce product manufacturing costs. This has an effect of increasing the company’s debt to equity ratio.
He however said that the equipment was worth $1,9 million and was already in the sea and would be commissioned in October this year.
He added that the new equipment will increase efficiency such that the company would remain competitive.
“What we want is for instance when we manufacture batteries our manufacturing cost will be cheaper than the imports,” Zirobwa said.
Local companies have been battling to produce products that are competitive due to obsolete equipment which makes the cost of production higher. The situation has been worsened by the inability of banks to advance long term funding for companies to buy new equipment.