Source: Delta to raise US$60m capital investment – The Standard
BLUE chip beverage maker Delta Corporation Limited will raise up to US$60 million in capital investment for its big projects next year after revealing that banks now lack capacity to lend.
After the government announced it would ban the multicurrency regime post 2025, local banks had all but stopped lending foreign currency.
As a result of the uncertainty many firms were failing to source funding for their capital projects that threatened their long-term projects.
Big firms such as Delta, which has a market capitalisation of nearly US$800 million were not spared.
The government has since extended the use of foreign currency to 2030.
Delta CEO Matlhogonolo Valela told standardbusiness that the company was making its own money to put back into the business.
“We are very aware that in Zimbabwe banks do not have much capacity at the scale that we would want to lend money,” Valela said.
“So, as a strategic plan, we have gone out to make sure that we make our own cash and put it back into the business.
“That is why you see we are very conservative on our dividend payouts because we are using largely our own capital.
“We know that in Zimbabwe when you borrow, it is costly because lenders have very short-term deposits.
“So they are worried about balances in their loan book in terms of available deposits versus loans and it results in high costs as they do not have proper lines of credit.”
He said it would be costly to grow the business through borrowings, hence the need for inward capital generation.
“For 2024, we are likely to end up with approximately US$50 million to US$60 million for capital investment, but for the few months of this year, we have seen capitalisation of just US$47 million to US$50 million,” Valela said.
He said that Delta had some overlaps of capital expenditure from last year to this year.
“So, you will see that during some months last year, we announced an investment of US$70 million in various plants we commissioned,” he said.
“Some of that capital expenditure is flowing into this year. This is what you should expect.”
The International Monetary Fund recently said the Reserve Bank of Zimbabwe’s banking capital metric was flawed and encouraged the adoption of a new internationally recommended calculation.
This new metric would be based on Basel III Capital Accord, a new international regulation designed to restrict risk within the international banking system specifically among banks.
Under this new regulation, a bank must determine its own banking economic capital to reveal the amount of capital that financial institutions must hold over the regulatory requirements.
Valela revealed that incessant power cuts were hampering Delta operations, but ruled out using part of its 2024 capital investments on alternative energy sources such as solar.
“When it comes to solar investment, it becomes a challenge because while solar is good technology, it is dirty power,” he said.
“It fluctuates with the sun and our machines are very sensitive to power fluctuations. “So, we do not want to run our machines based on solar.
“Also, for you to work with solar, you need a field of batteries.
“In this world, you can see that the battery world is getting better, but we do not want to venture into it because we might have technical challenges without backup.”
The Delta boss said the company was also facing water supply challenges from the municipality and hinted at plans to have a direct line of water from the municipality water reservoirs.
“For every litre of beverage, you need maybe two to three litres of water depending on what beverage it is and for the whole process of having all these beverages out there, we need water,” Valela added.
He hinted that some of the 2024 capital would be used to create two or three water reservoirs as an alternative water source for the beverages manufacturer.
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