via Govt rescues Cottco | The Herald November 9, 2015
GOVERNMENT has come to the rescue of cash strapped Cottco Holdings after agreeing to provide inputs to support the company’s contract farming programme this season.
The Government, which has a 16 percent shareholding in the country’s largest cotton company through the National Social Security Authority, and has plans to raise its equity to at least 65 percent if plans to take over Cottco’s debts materialise, is said to have finalised an inputs deal for the company to support its strong grower base of nearly 100 000 farmers.
“The numbers in terms of money and quantities (of inputs) have been finalised and it is hoped that the support will help Cottco to increase its market share from 30 to 50 percent this season,” a source privy to the development said in an interview last Friday.
“The input package is specifically for Cottco and not for the Presidential Input Scheme.”
Cottco executive director Dr Douglas Ncube declined to comment, referring questions to chairman. The source said the move would be a “major step” towards reviving the country’s cotton sector, which has over the years been facing challenges including lack of adequate funding after financiers cut funding due to side marketing as well as abuse of inputs.
Having reached 353 million kg in 2012, the national crop size declined to 135 million kg in 2013 before increasing to 146 million kg a year later but fell again to 100 million kg in 2015.
“Cottco has always been a major player in the industry with annual output contribution averaging 100 million kg,” an official at the company said.
“Therefore, the scope for viability of the company to drive growth of sector is immense and this is why Government is coming in.”
An analyst said while Government’s intervention is commendable, there is need for multi- stakeholder effort to stop abuse on inputs and bring back “culture of repaying debts”.
Cottco owes various creditors, mainly banks, about $56 million and the Government has decided to take over the debt in exchange for shares. Negotiations with other existing shareholders are at an advanced stage.
People involved in the transaction said the Government may end up owning at least 65 percent of the company. But it has remained unclear which Government ministry or department Cottco will fall under after the transaction.
Meanwhile, Cottco has completed its restructuring, which has resulted in the company cutting management staff from 89 to 45. According to insiders, the current level of the business was no longer sustainable to support a high cost management structure.
“The business has declined from an average of 100 million kg of cotton and we are at 30 million kg. The company had to trim the management structure in line with reduced volumes to underwrite competitiveness,” the source said.
“The restructuring will certainly bear fruit by driving competitiveness and better growing viability.