via ZSE suspends PG Industries | The Herald January 2, 2014 by Happiness Zengen
THE Zimbabwe Stock Exchange yesterday suspended PG Industries from trading citing a possibility of information asymmetry in the troubled counter due to soon-to-be-released price sensitive information.
The ZSE made the announcement during yesterday’s call-over saying the exchange had seen it prudent to place the company on suspension until further notice.
PG issued a cautionary statement in early December saying it was involved in negotiations which will have a material effect on the company. Well placed sources told The Herald Business that the discussions around the counter point to a possible capital restructure.
The company is, however, in negative capital area and most analysts do not expect a short term, recovery until fresh capital is added.
The group is expected to have a Scheme of Arrangement with its lenders, creditors and debenture holders as well as pursue a US$3,5 million rights offer.
Funds from the rights offer will be used to strengthen its working capital position by purchasing additional stock. The company’s stock mix is currently sub-optimal and characterised by a number of slow moving lines. The funds will be used to reconstitute this stock mix in a bid to enhance stock turnover.
According to documents seen by The Herald Business, the company’s balance sheet as at September 30, 2013 was made up of US$5,3 million worth of expensive bank loans; US$18,7 million worth of creditors; US$5,9 million worth of debentures and a negative equity position of US$3,3 million. It is feared that the group’s going concern status is severely at risk.
PG has since dollarisation been suffering under huge working capital challenges. In a bid to try and boost its working capital position, PG has had to rely on short term expensive debt to fund operations. This has resulted in decreased sales and consequently persistent losses.
Under the proposed recapitalisation initiatives PG will have a secured lenders scheme offering selected properties as settlements for the us$5,3 million owed to them.
The weighted average discount on the disposal of the properties that are being swapped for debt is 16,1 percent of the their current book value translating to an aggregate loss on disposal of us$754 375.
On the proposed creditors’ scheme, only one creditor, Sherwood International’s Zimbabwe unit Super Group Trading is secured. PG owes US$1,4 million to Sherwood which is secured by a guarantee from a local financial institution. Under the proposal, Sherwood will continue to supply the group.
The remaining creditors, owed about US$16,3 million will be offered either PG ordinary shares in lieu of amounts owed at a price of US$0,001 by way of private placement or a deferred payment plan to settle the amounts over a 36-month period plan.
The scheme will also seek to have debenture holders convert their debentures to PG ordinary shares. The debentures are worth US$6,72 million.
Analysts say the main problems facing PG has been a group structure which creates overheads without the income to support them. Markets analyst Jerome Negonde said: “The market does not believe in the plan to streamline and consolidate the current group structure as we believe they do not have the cash to finance pre-requisites like retrenchments and all.”
“The finance costs which are in the US$3 million region are too much for a business turning over just under US$40 million as this means that about 7 percent of revenue is going towards servicing debt. What are the margins that can absorb this cost?”