News / Local
CBZ tops blocked funds list
10 Jan 2022 at 05:57hrs | Views
CBZ Bank has the highest amount (US$424 million) out of 580 companies with funds that could not be repatriated from the country - commonly known as blocked funds - latest official figures show.
The list of companies mainly in the banking sector, the aviation industry, petroleum and manufacturing in general, is contained in Act No. 7 of 2021 Finance Act that was released last Friday.
According to the Act, the Zimbabwe Government is liable for a total of US$2,5 billion for funds belonging to foreign counterparties that provided loans and credit facilities to "a person resident in Zimbabwe and was entitled to such payment", but could not be paid when the funds were due.
Section 51, subsection 1 of the 2021 Finance Act states that any liability payable in foreign currency that was incurred by any of the persons specified in the Act before February 22, 2019, and in respect of which such foreign currency could not be repatriated from Zimbabwe shall constitute blocked funds qualifying for relief.
Such persons must have submitted their claims on or before April 30, 2020, for validation of their claims by the Reserve Bank of Zimbabwe; and the equivalent, in Zimbabwe dollars, of the blocked funds forming the basis of the claim, must have been remitted to the central bank.
Once validation and reconciliation of the relevant claims are completed the Minister of Finance and Economic Development shall, on behalf of the State, assume responsibility for the discharge of the outstanding blocked funds.
While the issue of blocked funds has been in the public domain for more than two years now, names of the affected entities and persons were yet to be fully revealed.
Through the 2021 Finance Act, the Government has released names of the affected parties with the country's biggest bank emerging as the most exposed.
The country's biggest bank by both the loan and deposit book is yet to repatriate US$230,3 million in offshore loans. An additional $56,8 million loan facility from CBZ Bank is also part of the blocked funds.
Another amount of $127,4 million to what is identified as CBZ Gap is also part of the blocked funds.
This comes as the bank is the most exposed to delayed payment of local loans it extended to the agriculture sector for the growing of wheat and maize.
According to the Statement of Public Debt released by Treasury November 25, 2021, of the $21,7 billion CBZ Bank disbursed for the growing of the summer maize crop, $4,8 billion had been recovered as at November 11, 2021 representing a 22 percent recovery rate.
In addition, of the $1,5 billion disbursed for the production of soyabean, $0,199 million had been recovered as at November 11, 2021, representing a 13,29 percent recovery rate.
The second most exposed company to the blocked funds is beverages giant Delta.
A total US$142,3 million was yet to be repatriated by the time of releasing the Finance Act.
Delta Corporations' general manager, corporate affairs, Patricia Murambinda, confirmed the amount and said blocked funds included in the 2021 Finance Act for Delta itemise an amount of US$104 million for dividends accrued to foreign shareholders for the period to February 2019.
"As previously reported, Delta Corporation was unable to access foreign currency for remittance of dividends declared from 2016 to 2019.
"These qualify under the blocked regulations. Delta has also registered amounts as tabulated in the list relating to foreign loans and amounts due to foreign suppliers," Murambinda said.
According to the 2021 Finance Act, Delta is yet to pay for imported goods and services worth $48,5 million. It also has unpaid offshore loans amounting $23,8 million.
Effects
Analysts said failure to service foreign lenders and suppliers on time makes it difficult for local companies to access loans at reasonable rates and goods and services at reasonable credit terms.
"What all this does is to push up the risk premium on loans and reduce one's credit terms. Local firms are now getting supplies on a cash basis because of previous failure to service their debts on time," said analyst Walter Mandeya.
Confederation of Zimbabwe Industries (CZI) president, Kurai Matsheza, said as a result of the outstanding debts, suppliers were now demanding upfront payments while others are completely refusing to provide credit as long as they are still owed.
Mr Matsheza said some manufacturers have had to switch suppliers as a result.
According to the Treasury, outstanding blocked funds may be liquidated through the issuance of Government-backed zero-coupon or non-interest-bearing foreign exchange savings bonds or other debt instruments denominated in foreign currency. However, the 2021 Finance Act does not say if such instruments are now in place.
Issuing debt instruments is however not seen as a panacea to the country's credit profile.
According to Mandeya, the decision to convert blocked funds into a debt instrument will reflect poorly on the country's credit rating as firms will be forced to accept a debt instrument for a payment they were essentially supposed to receive on-demand.
Corporates would be prudent to not recognise this asset given the track record of blocked funds having been delayed for as much as six years.
"The debt instruments serve to further prolong this tenure before settlement," said Mandeya.
The list of companies mainly in the banking sector, the aviation industry, petroleum and manufacturing in general, is contained in Act No. 7 of 2021 Finance Act that was released last Friday.
According to the Act, the Zimbabwe Government is liable for a total of US$2,5 billion for funds belonging to foreign counterparties that provided loans and credit facilities to "a person resident in Zimbabwe and was entitled to such payment", but could not be paid when the funds were due.
Section 51, subsection 1 of the 2021 Finance Act states that any liability payable in foreign currency that was incurred by any of the persons specified in the Act before February 22, 2019, and in respect of which such foreign currency could not be repatriated from Zimbabwe shall constitute blocked funds qualifying for relief.
Such persons must have submitted their claims on or before April 30, 2020, for validation of their claims by the Reserve Bank of Zimbabwe; and the equivalent, in Zimbabwe dollars, of the blocked funds forming the basis of the claim, must have been remitted to the central bank.
Once validation and reconciliation of the relevant claims are completed the Minister of Finance and Economic Development shall, on behalf of the State, assume responsibility for the discharge of the outstanding blocked funds.
While the issue of blocked funds has been in the public domain for more than two years now, names of the affected entities and persons were yet to be fully revealed.
Through the 2021 Finance Act, the Government has released names of the affected parties with the country's biggest bank emerging as the most exposed.
The country's biggest bank by both the loan and deposit book is yet to repatriate US$230,3 million in offshore loans. An additional $56,8 million loan facility from CBZ Bank is also part of the blocked funds.
Another amount of $127,4 million to what is identified as CBZ Gap is also part of the blocked funds.
This comes as the bank is the most exposed to delayed payment of local loans it extended to the agriculture sector for the growing of wheat and maize.
According to the Statement of Public Debt released by Treasury November 25, 2021, of the $21,7 billion CBZ Bank disbursed for the growing of the summer maize crop, $4,8 billion had been recovered as at November 11, 2021 representing a 22 percent recovery rate.
In addition, of the $1,5 billion disbursed for the production of soyabean, $0,199 million had been recovered as at November 11, 2021, representing a 13,29 percent recovery rate.
The second most exposed company to the blocked funds is beverages giant Delta.
Delta Corporations' general manager, corporate affairs, Patricia Murambinda, confirmed the amount and said blocked funds included in the 2021 Finance Act for Delta itemise an amount of US$104 million for dividends accrued to foreign shareholders for the period to February 2019.
"As previously reported, Delta Corporation was unable to access foreign currency for remittance of dividends declared from 2016 to 2019.
"These qualify under the blocked regulations. Delta has also registered amounts as tabulated in the list relating to foreign loans and amounts due to foreign suppliers," Murambinda said.
According to the 2021 Finance Act, Delta is yet to pay for imported goods and services worth $48,5 million. It also has unpaid offshore loans amounting $23,8 million.
Effects
Analysts said failure to service foreign lenders and suppliers on time makes it difficult for local companies to access loans at reasonable rates and goods and services at reasonable credit terms.
"What all this does is to push up the risk premium on loans and reduce one's credit terms. Local firms are now getting supplies on a cash basis because of previous failure to service their debts on time," said analyst Walter Mandeya.
Confederation of Zimbabwe Industries (CZI) president, Kurai Matsheza, said as a result of the outstanding debts, suppliers were now demanding upfront payments while others are completely refusing to provide credit as long as they are still owed.
Mr Matsheza said some manufacturers have had to switch suppliers as a result.
According to the Treasury, outstanding blocked funds may be liquidated through the issuance of Government-backed zero-coupon or non-interest-bearing foreign exchange savings bonds or other debt instruments denominated in foreign currency. However, the 2021 Finance Act does not say if such instruments are now in place.
Issuing debt instruments is however not seen as a panacea to the country's credit profile.
According to Mandeya, the decision to convert blocked funds into a debt instrument will reflect poorly on the country's credit rating as firms will be forced to accept a debt instrument for a payment they were essentially supposed to receive on-demand.
Corporates would be prudent to not recognise this asset given the track record of blocked funds having been delayed for as much as six years.
"The debt instruments serve to further prolong this tenure before settlement," said Mandeya.
Source - The Herald
