Cottco Holdings Ltd., sub-Saharan Africa’s largest cotton company, is seeking a new partnership to provide funding after negotiations with the China-Africa Development Fund dissolved as the company works to renegotiate its debt repayment with its lenders.
Based in Harare, Zimbabwe, a country of approximately 200,000 cotton farmers, Cottco operates five ginneries with a yearly processing capacity of 150,000 tons of seed cotton. In the six months ending September 30, the company posted a loss of $10 million as the international price of cotton fell by 21% over the past year, driving some farmers to switch to other crops. As of September 30, the company has borrowings of $58 million, and in October 2014, applied to be placed under judicial management, and trade in its shares was suspended on the Zimbabwe Stock Exchange. Since that time, the company has suspended its application for judicial management, and is in negotiations with its lenders regarding reorganizing its debt, according to a document sent to its investors in March.
Zimbabwe’s cotton crop is forecast to decline to between 90,000 and 100,000 tons this year compared to a harvest of 145,000 tons last year due to poor weather. “Most areas in the country, especially in the lowveld were declared drought areas. The Zambezi valley was affected by floods,” Collins Chihuri, Cottco’s managing director tells Bloomberg News.
Cottco expects to purchase a third of Zimbabwe’s total cotton crop this season, with the rest being bought by its main competitors, Singapore’s Olam International Ltd., China Africa Cotton Zimbabwe Ltd., and ETG Parrogate.
So far the cotton industry is still negotiating with farmers for this year’s farmgate price, which will be determined according to the international lint price, the cost of production for the farmer, and the cost of the ginner. Last year’s average seed cotton price was 0.60 cents per kilogram.
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