HARARE - A wave of private sector unbundling, subsidiary disposals and corporate restructuring across the dollarised Zimbabwean economy is expected in 2010, Imara Asset Management has said. (Pictured: With the Zimbabwean currency scrapped, many businesses that exploited
In their latest report to international investors and fund managers, Imara said historical factors in Zimbabwe led to the creation of conglomerates and wide-ranging holding company structures, but dollarisation could be a catalyst for change. Imara Asset Management chief executive officer, John Legat, said: Operationally, doing business has become considerably easier under dollarisation(this) implies that good management will quickly spot any inefficiencies in their business models and take appropriate action. Many business models in Zimbabwe simply do not work in the new dollarised and competitive environment, but managed to get by in a less competitive and inflationary environment. Such companies could well be those whose models were built on import-substitution products, he said.
Imara said such businesses will either be closed, sold or remodelled. Scrutiny of Zimbabwes listed companies indicates that a number are holding companies. Often there may be little synergy or correlation between each business, largely because group structure was a product of history, driven by former mergers or economic imperatives, said Legat. In Zimbabwe, exchange controls and lack of foreign exchange were such imperatives. Legat gave an example of Delta, which was reported to have taken control of Ariston to access foreign exchange. Post-dollarisation, Delta has chosen to sell its Ariston stake to unlock capital for its core brewing and beverages business. We believe there is huge scope among listed companies to undertake such restructurings, given the need for capital and skills, says Legat. Imara pointed out that one mechanism is the issuing of shares in a subsidiary to a technical partner able to provide capital and skills.
Where there is little or no synergy between the subsidiaries of a company, it makes sense to unbundle them. This is a great method to adopt should the major shareholders wish to remain invested in both businesses while allowing management of the parent company to focus on the core business of the group. It further allows management of the spun-off division to act independently, Legat said. Legat said as most Zimbabwean companies needed money for working capital or long-term capital investment, it would often make sense for them to restructure or unbundle. Shareholders will need to accept dilution if their businesses are to grow significantly from current levels through capital expansion. Rather have a smaller share of a much bigger pie, Legat.
Post published in: Economy