ZAMPALM: The prodigal son that never was
Agriculture

The story of biological assets can often be a long one for premier companies. We trailed the history of ZAMBEEF’s prodigal child who was recently sold to IDC. The story dates back to the epilogue of the last decade.

According to the 2009 Annual Report, Zambeef secured a US25m term loan from DEG in order to finance three large capital projects. The report states that, Zambeef secured a US25m term loan from DEG in order to finance three large capital projects. They projects were Chiawa Farms, a new Stockfeed plant and the Palm Project. The DEG loan was a secured by a floating charge/debenture of US5m ranking pari passu with Citibank Zambia (US9.5m), Standard Charted Bank Zambia (US5m) and Zambia National Commercial Bank (US1.5m and K6 Billon). In case you are wondering what pari passu is, it’s a Latin phrase meaning “equal footing” that describes situations where two or more assets, securities, creditors or obligations are equally managed without any display of preference. Basically, Latin for syndicated loan (recall we exposed the Zamsugar one in one of other articles).

The intentions were pure. Zambeef had also acquired Zamanita and they were hoping for a blend or product mix of 75% palm oil and 25% seed crushing. However, they soon discovered that margins were low on the palm side hence their decision to change their business model with less emphasis on the low margin palm oil to an increased focus on the high margin oil seed crushing. Their decision paid off as the company saw a surge in the pricing of edible oil and feed cake line with increasing soft commodity prices in the earlier part of this decade.

Up until 2016, the ZAMPALM project has costed Zambeef north of US$21 million (Source: AR Capex from 2009 to 2016). The chart in article shows the confidence that the management team had in this project. With pressure of leverage unabated, the US $16 million valuation could not go without the additional US $2 performance bonus that has been factored into the deal. In addition, a review of the 2009 to 2016 AR showed no trace of revenue. In the earlier years, the segmental reports would show zero revenue up until the “CFO got tired” of reflecting nil year on year. We don’t blame him.

IDC now has the mammoth task of getting the revenue engines cranking. It is clear the former owner was capitalizing the project and circumstances of sticking to core business led them to exit the palm oil arena. Therefore, it is up to the new owners to ensure they have a strategic plan that will see revenue rise from the palm fields of Mpika.

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