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Sub-Saharan Africa’s biggest cotton company seeks rescue partner

After talks with the China-Africa Development Fund collapsed.

Cottco Holdings, sub-Saharan Africa’s biggest cotton company, said it’s seeking a partner to help it with funding after talks with the China-Africa Development Fund collapsed and as it renegotiates debt payments with lenders.

“The business was looking for a partner to work with in its efforts to grow the crop volumes,” Collins Chihuri, Cottco’s managing director said in an interview on May 15 in Gokwe, 227 kilometers (141 miles) southwest of the capital Harare.“The negotiations did not go through for now, but the business will continue to look out for opportunities.” He declined to say why talks failed.

The company, based Harare, operates five ginneries in the southern African country with an annual processing capacity of 150,000 metric tons of seed cotton. Zimbabwe has about 200,000 cotton farmers.

It posted a loss of $10 million in the six months ended Sept. 30 as the national harvest fell as some farmers switched to other crops with the international price of cotton falling 20 percent over the past year. As of Sept. 30 the company had borrowings of $58 million and it applied to be placed under judicial management the next month. Trade in its shares on the Zimbabwe Stock Exchange was suspended.

The company has suspended its application for judicial management and is talking to lenders about reorganizing its debt, Cottco said in a document sent to investors in March. Cottco, which started as the Cotton Marketing Board in 1969, was sold to private investors in 1994 and began trading on the bourse in 1997.


Drought, Floods

Zimbabwe’s cotton crop is expected to plunge to between 90,000 and 100,000 tons this year from 145,000 tons last year, Chihuri said.

“The decrease in crop is, in the main, as a result of poor weather,” he said. “Most areas in the country, especially in the lowveld were declared drought areas. The Zambezi valley was affected by floods.”

Cottco expects to buy a third of the national crop, he said. Competitors include the local unit of Singapore’s Olam International Ltd., a company known as China Africa Cotton Zimbabwe Ltd. and ETG Parrogate.

“Some farmers have moved to other crops including tobacco and soybeans,” he said. “Increase in acreage for other crops has been higher in areas with generally higher average rainfall.”

The cotton industry is still negotiating with farmers for this year’s producer price, which will be determined by the international lint price, costs of production for the farmer and cost of the ginner, Chihuri said. Last year, the average price was 60 cents per kilogram of seed cotton.

Nqobizitha Nyoni, a cotton farmer in Njelelele, a ward in Gokwe, says he has reduced his cotton growing area by half since 2013 to four hectares (10 acres) and switched to soybeans and sweet potatoes.

“At times, I don’t have money for cotton inputs and at times the prices offered by merchants is bad,” Nyoni says from his soybean field. “My family needs food on the table.”

©2015 Bloomberg News

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