When we published “The Achilles Heel in ZCCM IH’s Armory”, we decoded signals of an investment in peril. The ZCCM IH 2017 annual report and other SENS announcements were very clear that Ndola Lime was a problem child.
A recap of published information on SENS shows the critical time line of official announcements coming out of ZCCM IH.
13 June 2017 Announcement on ZCCM IH Audited Financials 2016 FY
“The Ndola Lime recapitalization project is undergoing hot commissioning. The K651 million shareholder loan that ZCCM-IH lent to Ndola Lime Company Limited (NLC) was converted into Equity in order to strengthen the company’s balance sheet.”
31st May 2018 SENS Announcement on ZCCM IH Audited Financials 2017 FY
“Total assets marginally reduced by 2% from K9, 797 million to K9, 579 million largely on account of impairment of Ndola Lime Company Limited (NLC) plant (the 100% subsidiary of ZCCM-IH). As a result of a continuing loss making position and operational challenges experienced by NLC, assets amounting to K861 million were impaired during the year.”
2017 Published Annual Report
On the recapitalisation of Ndola Lime Company
“Further to the hot commission phase of the Recapitalisation Project which commenced in prior the year, NLC continued to optimise the performance of the Vertical Kiln (VK2). The project was met with a series of technical hurdles which affected the performance of the company.”
“The Board is undertaking a review of the entire operation of the company to determine an appropriate option that will result in improving the operations of NLC as well as the performance of the Group.”
In the notes of the 2017 AR
Impairment loss
“During 2017, due to continuing loss making position and operational challenges experienced by the entity, the Group tested the related product line for impairment and recognised an impairment loss of K861 million with respect to Ndola Lime Company Limited’s plant. In assessing whether the Company’s cash Generating Units (CGU) were impaired, Ndola lime Company Limited (NLC) considered the guidelines as set out under International Accounting Standards 36 –Impairment of Assets (IAS 36).”
3rd August 2018 SENS Announcement on update on on-going transactions
“Ndola Lime Company Limited (“NLC”) continues to be in distress. The ZCCM-IH Board is considering options to determine the way forward for NLC. The decision will be communicated in due course.”
Fast forward to present day, we had the exclusive from ZCCM IH’s press office regarding the real position of Ndola Lime. This followed weeks of speculation in the exuberant Zambian social media as well as callous statements regarding the true fate of the lime company.
9th November 2018 Press Release from ZCCM on Status of Ndola Lime
“The position is that two former NLC employees applied to Court to place the company under supervision pursuant to the Corporate Insolvency Act No. 9 of 2017. By order of the Court dated 5th October 2018, the Official Receiver was appointed as Interim Business Rescue Administrator of NLC. ZCCM-IH is seeking legal redress regarding the aforementioned proceedings.”
It is no secret that Ndola Lime is in financial distress. We had indicated that the management team would face serious questions from Pius Kasolo (ZCCM IH CEO) regarding his firm’s investment in the company. The K651 million that was lent to NLC which was subsequently converted to equity (no doubt due to solvency concerns regarding liquidation) saw ZCCM IH owning a lion’s share in equity. Pius’ financial analyst must have conducted an extensive credit analysis of NLC and predicted that this firm would be in distress hence fail to payback the shareholder loan leading to the decision of converting debt into equity.
However, the conversion of debt into equity alone is not enough. It is clear from the published statements that the failure of the optimization project of the vertical kiln impacted the fate of NLC. NLC’s management are now faced with the challenge of an undelivered project and an anxious shareholder. ZCCM IH’s board is cognisant of the fact that asset NLC is weighing heavily on them. Discussions on options are inevitable and unavoidable.
Although Financial Insight would lobby for the disposal of the asset, another option would be turnaround. The prediction of turnaround is a complex, difficult and subjective task that involves all the steps imbedded in thorough analysis that include: business strategy analysis, accounting analysis, financial analysis, and prospective analysis.
In light of the matter that ZCCM IH is now seeking legal redress, business rescue proceedings are proceedings aimed to facilitate the rehabilitation of a company that is financially distressed by providing for – the temporary supervision of the company, and the management of its affairs, business and property, by a business rescue practioner.
According to Werksmans Legal Advisors, the aim of business rescue is to restructure the affairs of a company in such a way that either maximises the likelihood of the company continuing in existence on a solvent basis or results in a better return for the creditors of the company that would ordinarily result from the liquidation of the company. The reason why ZCCM IH are seeking legal redress in this case is that they are affected persons and have an important role to play in the business rescue process.
For now, the outcome of the proceedings is crucial. Keeping an eye on that will give a clear signal of how the board at ZCCM IH will proceed with this troubled asset.