Source: Govt pays US$35m to CAPS creditors | The Financial Gazette March 23, 2017
GOVERNMENT has paid US$35 million in Treasury Bills (TBs) to CAPS’ creditors, some of whom had previously taken the troubled drugs-maker to court to recover debts.
The development extricates the beleaguered drugs manufacturer from an encumbrance that had ruined operations.
Reserve Bank of Zimbabwe (RBZ) governor, John Mangudya, confirmed the release of TBs to CAPS creditors but could not reveal their identity.
“Government has issued about US$35 million worth of TBs to pay the liabilities or creditors of CAPS. If you check with me when I am back at the office I will be able to tell you their identities,” he said.
Efforts to contact the RBZ governor thereafter were fruitless.
Government recently took over CAPS Holdings’ drug manufacturing unit, CAPS Pharmaceuticals, and Health Care (Private) Limited — two entities which used to be part of the group.
QV Pharmacies and St Anne’s Hospital fall under the Health Care unit.
CAPS Holdings was majority owned by businessman, Fred Mtandah.
Traditionally, TBs used to be attractive and safe debt instruments issued by government to raise money on the domestic market.
But they have lost their lustre due to uncertainty over government’s ability to pay due to its cash situation.
Government is currently struggling to pay civil servants’ salaries on time.
A number of TBs that have been issued to the market have been rolled over.
The fact that Treasury has defaulted on several of its payment commitments has meant that the market has been skeptical of lending to government or to support debt instruments in which it is a guarantor.
Government’s latest intervention on CAPS comes at a time President Robert Mugabe’s administration is courting private investors to help resuscitate the pharmaceutical company, which was once one of the largest drug manufacturers on the African continent.
The company, however, ran into problems a few years ago due to debts.
Also at the centre of CAPS’ problems was government’s failure to pay for drugs, as well as an influx of cheap imports.
Government is the largest customer for pharmaceutical products in Zimbabwe.
Most of the 1 531 health institutions operating in Zimbabwe fall under the Ministry of Health and Child Care.
Financial distress resulted in one of the company’s key properties, an industrial complex situated in Southerton industrial area, Harare, which sits on 17 043 hectares of land and was also used as the pharmaceutical company’s head office, being put on auction to recover debts owed to CBZ Bank and FBC Bank to the tune of US$4 million.
The auction followed a High Court judgment in favour of the financial institutions, but the property was later placed on sale by private treaty after it failed to generate viable offers.
A private treaty sale refers to a sale of a property between two parties that agree on terms and price directly without an intervening agency.
It also later emerged that that the sale by auction was not sanctioned by the High Court after the highest bidder offered a price far below the properties’ market value.
CAPS was founded in 1952 and listed on the local bourse in 1969.
Government had a 31,77 percent stake in CAPS but disposed of its entire interest in the drug manufacturing firm in July 2002 to Audway Investments (25 percent) and CAPS Employee Share Ownership Trust (6,77 percent).
After exiting CAPS, government established its own pharmaceutical company called the National Pharmaceutical Company of Zimbabwe.
Former executive chairman Mtandah, through his investment vehicle, Fredex Financial Services, acquired 40,6 percent of CAPS while FCIV Investments controlled 14,8 percent.
CAPS Holdings, the integrated pharmaceutical firm, however, voluntarily de-listed from the Zimbabwe Stock Exchange in 2011 after shareholders approved the move at an extraordinary general meeting (EGM) held in June that year.
The EGM also approved the unbundling of the firm into three entities, CAPS Pharmaceuticals Manufacturing, Distribution and Health Care.
Now that government has retaken control of the pharmaceutical firm, it faces the difficult task of making sure the drug maker returns to viability under the leadership of Abigail Shonhiwa, the permanent secretary in the Ministry of Industry and Commerce, who now heads the company’s board of directors appointed last year.
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