‘HCCL bal­ance sheet wor­ry­ing’

Chronicle (Zimbabwe) - - Business - Pros­per Ndlovu Busi­ness Ed­i­tor

HWANGE Col­liery Com­pany Lim­ited (HCCL) this week re­leased its in­terim fi­nan­cial re­sults for the half year ended 30 June 2016, which paint a sad pic­ture about the per­for­mance of the strate­gic en­tity.

While man­age­ment projects the com­pany as a go­ing con­cern, af­ter nar­row­ing losses to $22,7 mil­lion from $44 mil­lion, a look into the firm’s bal­ance sheet tells a dif­fer­ent story.

The com­pany’s per­sis­tent losses have chewed share­holder value, as re­flected by a de­cline in to­tal eq­uity since 2013. To­tal eq­uity dropped from $106.62 mil­lion recorded in 2012 to a neg­a­tive $77.83 mil­lion in 2015, pre­vi­ous re­ports in­di­cate. Share­hold­ers eq­uity as re­ported is now neg­a­tive at $ 106 mil­lion. Share­holder value as in the re­ported bal­ance has been wiped out.

The com­pany’s li­a­bil­i­ties at $310 mil­lion shock­ingly out­weigh the $61.4 mil­lion as­sets value by 408 per­cent, which shows the com­pany is tech­ni­cally in­sol­vent, a state of in­abil­ity to pay one’s debts.

By ze­ro­ing in on the bal­ance sheet again it is ev­i­dent that the col­liery’s li­a­bil­i­ties are in­creas­ing ex­po­nen­tially thereby putting the com­pany at high risk de­spite ef­forts to pro­tect it.

For in­stance, the fi­nan­cial re­port in­di­cates that be­tween De­cem­ber 2015 and June 30, 2016 the li­a­bil­ity bur­den rose by $23 mil­lion from $287 mil­lion to $310 mil­lion.

The com­pany owes sub­stan­tial amounts to its dif­fer­ent cred­i­tors who in­clude work­ers, fi­nance in­sti­tu­tions and sup­pli­ers. Ex­perts say this debt bur­den cre­ates a se­ri­ous prob­lem in the eco­nomic value chain es­pe­cially con­sid­er­ing that trade cred­i­tors in the pri­vate sec­tor, for ex­am­ple, also have obli­ga­tions to meet such as labour and taxes. Cit­ing al­leged mis­man­age­ment, work­ers are de­mand­ing that the com­pany be placed un­der ju­di­cial man­age­ment while man­age­ment in­sists on hav­ing scheme meet­ings with its cred­i­tors in or­der to come up with a doc­u­ment that stip­u­lates the struc­ture of the scheme and a pro­posal to liq­ui­date cred­i­tor claims. While man­age­ment ap­proached the courts for pro­tec­tion against bank­ruptcy it has missed its own tar­get to meet with cred­i­tors more than two times.

As a re­sult of ac­cu­mu­lated losses, the com­pany has failed to hon­our its obli­ga­tions in­clud­ing those in­curred af­ter be­ing granted pro­tec­tion from ag­i­tated cred­i­tors. The com­pany is fail­ing to sup­port its con­tin­u­ing con­cern ac­tiv­i­ties in­clud­ing pay­ing em­ploy­ees. The cases the com­pany has lost in lit­i­ga­tion amount to over $40 mil­lion. The de­te­ri­o­rat­ing bal­ance sheet does not sup­port the al­leged man­age­ment po­si­tion of go­ing con­cern ca­pa­bil­i­ties.

It ap­pears there is a dire need to con­trol fur­ther ac­cu­mu­la­tion of the debt bur­den which con­tin­ues to ex­pose the firm. Given this out­look it re­mains un­clear how the col­liery will make it­self at­trac­tive to fi­nance houses.

Board chair Mr Win­ston Chi­tando has high­lighted some plans meant to im­prove op­er­a­tions at Hwange go­ing for­ward. The plans are an­chored on the pro­posed scheme of ar­range­ment that is yet to be fi­nalised. The scheme in­clude cost re­struc­tur­ing, re­vi­tal­is­ing open cast and un­der­ground min­ing, coke pro­duc­tion and an­tic­i­pated busi­ness from Hwange Ther­mal Power Sta­tion ex­pan­sion as well as coal bed meth­ane gas op­por­tu­ni­ties.

These projects re­quire sub­stan­tial fund­ing and in the cir­cum­stance of a non bank­able bal­ance sheet it is pru­dent that man­age­ment looks at more pru­dent op­tions as bor­row­ing is not an op­tion. Re­sus­ci­ta­tion of un­der­ground min­ing alone re­quires $6.3 mil­lion, said Mr Chi­tando. He added that the com­pany was also in talks with some fi­nance en­tity to se­cure $7.5 mil­lion work­ing cap­i­tal and an ad­di­tional $3.5 mil­lion from an­other bank.

Iron­i­cally, this is a com­pany that last year re­ceived a $32 mil­lion boost in pro­duc­tion through a Govern­ment guar­an­teed loan. The equip­ment was of­fi­cially com­mis­sioned by Vice Pres­i­dent Phelekezela Mphoko mid-2015 and has not yielded pos­i­tive gains in out­put, re­cent re­ports show. The re­port is con­spic­u­ously not re­port­ing on progress made to get the equip­ment to con­trib­ute to the per­for­mance of the com­pany.

As Mr Chi­tando puts it, “The com­pany has been fac­ing chal­lenges in meet­ing sched­uled re­pay­ments on loans and leases ow­ing to liq­uid­ity chal­lenges”. More­over, as part of ZAMCO loan agree­ment, Hwange Col­liery was obliged to in­sure all its mov­able as­sets and stocks val­ued at $15 mil­lion as part of col­lat­eral for the $14.8 mil­lion loan. The com­pany is yet to in­sure these as­sets, again due to liq­uid­ity con­straints. These state­ments re­flect that the com­pany is not on a re­cov­ery path, it is chok­ing un­der debt com­mit­ments.

The com­pany is also set to re­struc­ture its bal­ance sheet with the largest share­holder, the govern­ment, which holds 37 per­cent eq­uity, agree­ing to re­struc­ture short-term obli­ga­tions amount­ing to $87.9 mil­lion into long term fi­nan­cial in­stru­ments, a move which is ex­pected to re­lieve the com­pany from its con­strained work­ing cap­i­tal po­si­tion. The bal­ance sheet re­struc­tur­ing ef­fort has been on the cards for the past three years.

Fur­ther, the com­pany ex­pects to gain lever­age of up to $7.5 mil­lion from coal sup­plies to the power sta­tions yet in the past it has ad­mit­ted to in­ad­e­quate sup­ply to the same as ev­i­denced by its sup­pressed av­er­age out­put.

Hwange Col­liery’s core busi­ness rev­enue from min­ing has been go­ing down from $30 mil­lion in June last year to $20 mil­lion in the same pe­riod this year due to de­pressed pro­duc­tion. The fig­ure ac­counts for 33 per­cent de­cline. A cor­re­spond­ing drop is no­tice­able in coal sup­plies to ZPC as well as in­dus­trial cok­ing coal. Sales of ma­jor prod­ucts, coal and coke, have been drop­ping with sub­dued com­mod­ity prices also con­tribut­ing to the fall in rev­enue.

The es­tates di­vi­sion has also not been spared, more so given the back­ground of a $2 mil­lion scam in­volv­ing paid-for sup­plies that were never de­liv­ered to the com­pany as re­vealed in an in­ter­nal au­dit re­port re­leased re­cently. Promi­nently miss­ing in the fi­nan­cial re­port is the ex­pla­na­tion and com­ments on the in­put of the con­trac­tor Mota Engil, which has been do­ing the bulk of the work and is owed mil­lions of dol­lars.

This has be­come a fa­mil­iar script for the miner, which has some­how be­come a sym­bol of cor­po­rate in­ef­fi­ciency de­spite get­ting all the sup­port from the ma­jor share­holder, the govern­ment.

Other ma­jor share­hold­ers in­clude Ni­cholas Van Hoogstraten with 31 per­cent eq­uity through var­i­ous ve­hi­cles and Mit­tal Steel Africa with 10

Newspapers in English

Newspapers from Zimbabwe

© PressReader. All rights reserved.