Starafrica sails to safe waters

DIVERSIFIED conglomerate, Starafricacorporation (Starafrica), is on track to return to former glory as the company’s production, profitability and financial figures show signs of life after the recent equipment upgrade and considerable progress made in restructuring the group’s debt-ridden balance sheet.
As at March 31, 2018, the group’s latest reporting date, Starafrica has yet to return to profitability but its vital signs are reassuring.
Loss after tax has narrowed to $3,8 million from a low of $17 million in 2011.
Over the past three years, the company’s revenues have also been on a recovery path buoyed by production improvements at the company’s core unit, Goldstar Sugars Harare (GSSH) following an upgrade of the plant.
Revenue for the year ended March 2018 came in at $48 million up from about $9 million in 2015.
The company has also just broken out of a net liability position for the first time since 2012, with net assets amounting to about $1 million in the period under review.
The company had slipped deep into a net liability position which had gradually worsened from about $400 000 in 2013 to $41 million last year.
A company assumes a net liability position when its total liabilities are more than its assets.
A persistent net liability position leads to a situation where the company cannot realise its assets to discharge its liabilities, practical insolvency at which point liquidation will be inevitable.
The sudden improvement in the company’s financial position into a net asset position has followed the considerable progress made over the past few years in the restructuring of its balance sheet, which heavily featured government corporate bailout implement — Zimbabwe Asset Management Company (ZAMCO).
In November, 2016, the High Court sanctioned an elaborate and systematic plan of action for the company’s dealings with its creditors.
This ‘Scheme of Arrangements’ provided for a six month moratorium on the payment of interest and principal, reduced interest rates applicable on the company’s debts and established settlement periods for the outstanding debts.
The scheme also provided an option for key creditors to convert amounts owed to them to shares in the company.
As of March 2018, 70 percent of convertible debt had been converted, shaving $46,8 million of debt off the company’s books while the company’s shares in issue increased by 4,2 billion. Of this amount, $34,5 million was converted by ZAMCO which had earlier assumed debt owed to several entities by the group.
With this deal, the special purpose vehicle assumed controlling shareholding of the company and is currently discharging a plan to dispose of some of the stake.
The scheme also provides for fresh financing amounting to $ 2,5 million which is made up of $1 million for working capital financing and $1,5 million for the refurbishment of the secondary plant which was not part of the main upgrade at GSSH.
In addition to all of the above, finance costs — which have continuously supressed the company’s profitability are also expected to gradually decrease into the near future as debt repayment and restructuring progresses.
Since 2009, the company has coughed out an average of $4,7 million annually in finance costs owing to the piles of debt which persistently soiled its balance sheet over the period.
In the year to March, the company’s operational profitability was neutralised by finance costs of $6,2 million. The company believes that “the interest figure will significantly decline in the ensuing year” owing to the recent debt clearances.
While the company is not out of the woods yet, all the signs point to it being well on its way to return to profitability in the short to medium term.
And as the country’s economy has remained in the doldrums all through the company’s recent recovery spurt, any improvement in that regard will also undoubtedly help the company’s board and management along in their attempt at successfully flogging a dead horse.
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