Seed Co sitting on US$40m TBs: FD

Seed Co will use the US$40 million realised upon the maturity of its stock of Treasury Bills (TBs) in the next quarter to clear its debts and pay farmers for seed deliveries, a company official says.

By Melody Chikono

Seed Co financial director John Matorofa told businessdigest this week that the group would be paying for seed deliveries.

“We will be paying for seed as farmers deliver. We also increased our production and will need to match that production with funding. As the TBs mature, we will be paying for that. We also have short-term borrowings,” he said.

The group currently has US$40 million in TBs sitting on its balance sheet and has borrowings of US$906 000.

Matorofa said the group might have a problem of too much cash in its 2019 financial year.

Locally, the group is seen with no borrowings, but at regional level the amount may be around US$25 million resulting from high levels of production.

By the first half of its financial year, the company’s US dollar borrowings outside Malawi and Zimbabwe were at interest rates of between a margin of 3,5% per annum and 4,25% per annum plus 90-day London Interbank Offered (Libor).

Libor is the benchmark interest rate that banks charge each other for overnight, short-term loans of up to a year.
Onshore borrowings in Zimbabwe are at interest rates of between 6% per annum and 7% per annum, while in Malawi, the kwacha borrowings are at between 19% to 23% per annum.
Matorofa told businessdigest last week on the sidelines of the company’s annual general meeting that the company had little borrowings locally.

“Locally, we currently have very little borrowings. In fact, we are actually to have a problem of too much cash with the production that we are going to have of close to 19 000 to 20 000 metric tonnes (mt). We will probably need a maximum of about US$8 million but like I said before, because of the maturing TBs in the next two to three months, which are close to US$40 million, we will have more money in this financial year,” he said.

Matorofa said the approximate regional borrowings in the region of US$15 million to US$20 million by FY2019 will be critical to sustain seed carry-over in the region.

“In the region, we have also ramped up our production of seed which was really an issue in the last financial year. We will probably end up selling around 39mt to 40mt from 54mt we produced.

“So, we will carry over around US$15 million to US$20 million at the end of the financial year. Because it is critical that we carry over production because we increased our production, it is critical that we carry over seed and that has to be funded,” he said.

According to Matorofa, Seed Co will not be using the proposed funding capital raised to fund short-term projects.

Seed Co intends to raise US$19,2 million through a private placement on the Botswana Stock Exchange following the proposed partial unbundling of 71% of Seed Co International, which will see the group retaining 26% shareholding.

The capital raise is intended to fund Tanzania, Kenya and Nigeria.

“We will be accepting TBs unless the economic situation changes after the elections. TBs will significantly reduce as most of it will have been repaid.

“But depending on the level of government participation, at the moment it’s a fluid situation,” he said.

“Response of the international market to the election result is key as they may chip in and bring FDI (foreign direct investment) which will see the extent to which government uses TBs reduced. If not, we will be accepting those TBs and we are looking at US$25 to US$30 million by end of our financial year,” he said.

Seed Co sees improved maize seed deliveries in the current financial year after failing to provide popular varieties last year.

In a trade update to shareholders at the group’s annual shareholders’ meeting in Harare last Thursday.

The seed company’s CE Morgan Nzwere told shareholders that he left a lot of money on the table due to a shortage of popular varieties last year and had moved to address that deficit.

Management hopes to receive 53 500mt of maize seed from last year’s 39 332mt, a 36% increase.

A total 7 020mt of soya bean are expected, compared to 4 744mt in prior year.

Local production in Kenya and Tanzania increased from 3 800mt in prior year to 6 200mt in the current year.