Business News Update (11-06-07)

1) THE deteriorating economic environment in Zimbabwe is negatively impacting on South Africa’s business environment, the South African Chamber of Business (Sacob) said.
The Chamber said SA’s business confidence has been on a downward trend since January this year.
Sacob said

its Business Confidence Index (BCI) slipped slightly to 99,5 in March from 100,5 in February.
“The Zimbabwe situation is affecting business confidence and the political situation is affecting this economy. We’re not denouncing anybody but we’re saying it should be sorted out soon,” said Richard Downing, Sacob economist.
“Our porous borders cannot prevent continued inflow of people from Zimbabwe, which will have further consequences for unemployment and poverty in South Africa,” Sacob said in a statement.
Sacob said timely planning to ease constraints before they become serious obstacles would lift business confidence in the economy.
“The BCI is experiencing a bumpy ride this current turbulent wave (declining confidence trend) is the fourth experienced since the beginning of 2005,” Sacob said.
The business organisation said the economy was growing fast but that improvements in infrastructure were not keeping up with expansion.
“Some of these (constraints) carry considerable risk, and could have severe consequences if they are not timeously and appropriately addressed,” Sacob said.
2) INSURANCE giant, NicozDiamond shareholders on this week (Tuesday June 5) approved a proposal by the listed insurance giant to consolidate its shares as well as buyback fractional shares.
NicozDiamond chairman, Phineas Chingono, told shareholders that the large volumes of shares was creating speculation on the market and undermining the value of the insurance firm’s share price.
“The large number of shareholders, which is over 5,000, means it is expensive to maintain the share register and disseminating information to shareholders,” he said.
The shares will be consolidated at a rate of 1:3 while the insurer will buyback a maximum of 10% of the company’s issued shares.
Consolidation will result in company’s one billion shares of Z$0,00005 each being merged into 333,333,333 ordinary shares of Z$0,0015 each.
 The merger would also result in the company earnings per share improving while the share buyback would address issues of administrative costs.
Shareholders holding less than 300 shares after the consolidation will be required to sell their shares at the going rate on the bourse, he said.
“The share buyback will be financed from a reserve fund appropriated out of revenue reserves, to be set up by the company for that purpose,” he said.
NicozDiamond is the country’s second largest insurer and has operations in regional countries including Uganda, Malawi and Zambia.
Formed in 1981 the company was listed on the Zimbabwe Stock exchange in 2002.
3) CLOSE to 30% of the country’s bakeries closed down during the first quarter of the last year due to viability problems caused by escalating input costs, industry sources told The Zimbabwean.
A source in the industry said most bakeries failed to cope due to price controls on the retail price of bread.
“Bread is a controlled commodity, yet 80% of the inputs used to make it are not controlled,” the source said.
Most of the closed bakeries were small, depending exclusively on bread making for their sustenance.
He said it was against this background that bakers this week announced that they would push for another increase in the price of bread which, if approved, would see a standard loaf costing $20 000 from $15 000.
“Bakeries are always three months behind cost movements and when we effect the  increases they would be so steep and that is why we are proposing a monthly nominal rise of the price of bread,” an official with a confectionary company said.
In a letter to the Ministry of Industry and International Trade recently, the Bakers Association of Zimbabwe proposed a monthly price review for bread to keep abreast with inflation, currently at 3 713,9% for April.
The association said a monthly review of bread prices would enable bakeries to “just break even” and remain in business.

4) THE property market is expected to experience increased activity during the second half of the year, spurred by investors seeking to hedge against the ever rising inflation.
Inflation surged to 3 713,9% for the month of April, from 2 200,2% the previous month.
Ideal Properties director, Gary Shilton, told The Zimbabwean this week that the recent inflation figure would inevitably push property prices upwards and might force owners to hold on to their assets as a cover against inflation.
Those seeking to hedge themselves against spiraling inflation will push demand for properties.
“Properties have become the safest form of investment as a hedge against inflation in Zimbabwe. As such property prices will continue to be pegged in line with the prevailing inflation rate,” said Shilton.
“The recent increase will soon translate into property prices,” he said.
“Over the past six months we have seen property prices increasing four times. The increases witnessed were not due to an increase in demand over supply in the market but due to sellers increasing the selling prices in line with inflation to ensure that they are not losing in real terms,” said Shilton.
He said since the beginning of the year, property owners have ensured that they maintain the value of their properties in line with inflation.
Shilton said that going forward, prices would continue to firm if the local dollar continues to lose value against major currencies in a hyperinflation environment.

5) KINGDOM Bank has reviewed its minimum lending rates (MLR) to 560% from 500% to hedge against inflation.
Reserve Bank in April increased the overnight accommodation rates to 600% for secured and 700% for unsecured. In a statement to shareholders Kingdom which was the third best performing bank for the financial year ending December 31 2006 said it had reviewed its minimum lending rates from 500% to 560%.
Economic analysts told The Zimbabwean that the recent increase in rates could curtail the growth of bank loan books as borrowers evade huge interest charges on borrowings.
Analysts also said most bank were likely to follow suit this week. (week ending June 13)
Most Commercial banks interviewed said they were in the process of reviewing their minimum lending rates but could not divulge to what levels.
 “By revising their rates upwards, banks stand a better chance to manage their liquidity conditions under a hyperinflationary environment currently prevailing,” a market analyst said.
The analysts said the attractiveness of returns on savings would, however, depend on the margin between deposits and lending rates, which is usually a huge gap.               
6) HUNYANI Holdings recorded a $103,4 billion turnover in the half year ended April 30, 2007 against $2,3 billion posted comparable period prior year.
 The 4 428% growth in turnover was mainly as a result of inflationary pricing.
Operating income was $32,4 billion rising from $535,7million in the comparative period. Net interest paid was $2,1 billion leading to a profit before tax of $30,3 billion.
Effective cost control led to the 6 705% increase in PBT as well as favorable exchange rate on exports.
Net borrowings amounted to $3,6 billion at the end of April and these relate to the financing of exports.
Earnings attributable to shareholders were $20,95 billion. Basic earnings per share were $66.05 (HY06: $0.97).
No interim dividend was declared.
Group volumes were for the comparative period under review declined by 11% mainly attributed to a decline in local volumes and the late commencing of the tobacco packaging exports.
Declining disposable incomes and consumer resistance to prices caused a reduction in local volumes.
Hunyani holdings was founded in 1951 and listed on the stock exchange the following year.
7) ECONET Wireless shareholders gave a unanimous approval for the company to issue new shares to foreign investors.
The leading telecommunication company in Zimbabwe said it has already reached an agreement with a South African institutional investor who will buy new shares for US$15 million.
This is the first time the company has raised equity finance by issuing shares to a foreign investor since it was listed in September 1998.
Econet said it was finalising the purchase arrangements with the investor. It plans to use the proceeds of the sale to help finance its expansion from 800 000 to 1,2 million subscribers.
The company has also secured vendor financing, and loans for the rest of the expansion. Econet Wireless Zimbabwe is part of the Econet Wireless Group based in South Africa, and has operations and investments in 9 countries, mostly in Africa. The Zimbabwean company is the only member of the group which is listed. 
Econet Wireless Zimbabwe CEO, Douglas Mboweni, said the issuance of new shares to raise foreign currency had become necessary because of the acute shortage of foreign currency in Zimbabwe.
“As a company we generate a lot of Zimbabwe dollars, but we cannot obtain foreign currency to pay for equipment. This issuance of shares has allowed us to raise money from our foreign shareholders as well as new investors,” he said.

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