State-owned Agriculture Development Bank (Agribank) has completed a due diligence to ascertain its asset value before calling for bids from prospective strategic partners willing to inject capital in exchange for equity.
The partial share disposal is part of broad measures by the Government to improve the performance and viability of State enterprises as well as parastatals to ensure that they contribute optimally to efforts aimed at growing the economy.
About 38 out of 93 State-owned enterprises audited in 2016 incurred a combined loss of US$270 million as weak corporate governance practices and ineffective control mechanisms took their toll.
SOEs now contribute less than 2 percent to Gross Domestic Product (GDP) against 40 percent at the peak of their powers.
A number of the State-owned entities have perennially depended on Treasury for handouts, despite the fact that the Government itself was leaving on a shoestring budget.
Government has identified several SOEs and parastatals for privatisation, restructuring, dissolution or integration into relevant line ministries, as part of efforts to reduce financing burden on Treasury and enhancing the performance and viability.
Among entities earmarked for privatisation or restructuring, dissolution and integration were Agribank, Zisco, AirZimbabwe, National Railways of Zimbabwe, POSB, TelOne, CMED, Industrial Development Corporation, Willowvale Mazda Motor Industries.
Notably too, the agriculture development bank has evolved over the years into a fully fledged commercial bank, which has grown its appetite for funding in order to fulfil its mandate of supporting agriculture, as well as other strategic productive sectors.
This comes after the financial institution received $200 million from the Reserve Bank of Zimbabwe under its $2,5 billion support facility for the productive sectors, which has all been disbursed to clients desperately in need of the funding.
While many clients have borrowed, the bank says available resources fall far short of the $1,3 billion pipeline loan applications for funding from the bank, given farming remains the fulcrum of Zimbabwe’s agriculture driven domestic economy.
It is against this background that the bank believes the coming on board of a strategic technical partner, to inject both critically needed resources as well as the relevant modern technology, would augur well for growth of agriculture in Zimbabwe.
Chief Accountant in the Ministry of Finance and Economic Development Memory Mukondomi told Business Weekly after the bank’s Annual Meeting this week that transaction Advisor, Ernst and Young (EY), had completed the internal valuation.
“We appointed a transaction advisor and a lot of work has been done, the due diligence and evaluation of the asset was done.
“They came up with an independent opinion and information they will give us to share with the shareholder,” she said.
Government, the current sole shareholder in the bank was, however, still to digest the full contents of the valuation report before inviting expressions of interest from deep pocketed prospective buyers who can inject capital in return for shares.
The due diligence exercise and its recommendations will help the Government fully appreciate the implications and benefit of roping in an equity partner against the bank’s mandate of providing affordable financing to the agriculture sector.
Chief executive Elfas Chimbera said due diligence was important in the process to rope in a technical partner, given the exercise will provide a scientific basis determining the true value of the bank, which is critical for bargaining purposes.
“I have a value that I can place on the bank because I am internal, but of course being internal means I may be subjective in my valuation of the bank’s true value.
“So, to shy away from that subjectivity and ensure transparency and something that can withstand public scrutiny, we had to bring in independent advisors,” he said, adding the valuation would help show strengths and weaknesses of the bank.
Mr Chimbera said the need for independent opinion to evaluate the agriculture development bank was the reason behind the engagement of transaction advisors in reputable accounting firm, Ernst and Young to carry out the due diligence.
He said due diligence exercise entailed the process of coming up with a document that will be used in the “road-show seeking suitors who would buy their asset”.
Mr Chimbera would, however, not share details of what the evaluation found saying the report had not yet been seen and commented upon by the shareholder, which is the Government of Zimbabwe.
“In terms of bringing in a technical partner, the envisaged advantage, remember this was conceived in 2018 and the environment since then has changed, we need access to international markets.
“We need cheap funding, in terms of capitalisation the Government discovered that if we search locally we may face some constraints, remember we were under a closed environment economically.
“The country is under sanctions, even Agribank was under sanctions before they were lifted, so if you bring in a technical partner, they have access to international markets,” he said.
Mr Chimbera said the process of seeking a technical partner was critical for the raising of capital required to optimally execute the bank’s agriculture support operations and compliance with US dollar linked regulatory minimum capital thresholds.
Further, Mr Chimbera said the current state of ‘closed’ economic environment meant that the bank required an external technical partner to leapfrog the financial institution in acquiring the latest technologies consistent with trending dynamics. — ebusinessweekly.co.zw.