Khayah Cement secures US$900,000 short-term funding
HARARE – Khayah Cement Zimbabwe has made progress on its corporate rescue plan, with the cement maker having secured US$900,000 in short-term funding out of the required US$1.5 million.
The Arcturus-based entity is now actively sourcing the remaining US$600,000.
According to an official, “The company has secured approximately US$900,000 of the total US$1.5 million required for short-term capitalization and is currently seeking the remaining US$600,000 to complete its funding requirements.” However, the official did not reveal where the funding was sourced from.
This aligns with the company’s objective of saving it from a bleeding balance sheet.
In addition to the progress in short-term funding, the official added that Khayah Cement has completed the VCM pit stop and optimization. The focus now shifts to securing funding for the refurbishment of the kiln and exploring the possibility of delisting from the Zimbabwe Stock Exchange (ZSE).
Khayah Cement, one of the country’s largest cement manufacturers, was granted permission by the High Court to implement a corporate rescue plan earlier this year. The company had been facing financial distress, struggling to pay its debts, which totaled approximately US$68 million. The corporate rescue plan aims to resuscitate the company’s financial status and prevent liquidation.
The success of Khayah Cement’s rescue plan is crucial for Zimbabwe’s economy. The company is a significant player in the construction industry, and its collapse would have far-reaching consequences for the sector. Corporate rescue proceedings focus on providing relief to financially distressed entities like Khayah Cement, allowing them to restructure and recover.
What Went Wrong?
Khayah, formerly known as Lafarge Cement, underwent rebranding in May 2023. However, the company has faced significant operational challenges, including recurring mechanical breakdowns and production delays. Critical components of the cement production process, such as the kiln plant and Vertical Cement Mill (VCM) plants, have been particularly affected by these breakdowns. The aging kiln, a crucial part of cement processing, requires refurbishment, contributing to decreased production volumes.
The decline in sales volumes has been evident over the past few years. Cement sales dropped by 20.5% to 240,404 in 2021. Sales further declined to 192,110 tonnes in 2022. Although there was a slight increase to 212,790 tonnes in 2023, sales plummeted to 182,470 tonnes in 2024.
Production costs have also skyrocketed due to the reliance on imported clinker. In 2023, the company had to import clinker from Zambia at a cost of US$140 per tonne, compared to the local production cost of US$85 per tonne. Given that clinker accounts for approximately 76% of Khayah Cement’s production costs, this disparity has significantly impacted the company’s financial performance.
Furthermore, the company has struggled with accessing funding due to sanctions imposed on its major shareholder, the Fossil Group, by the United States’ Office of Foreign Assets Control (OFAC) in December 2022. This has exacerbated the company’s financial difficulties.
Additionally, Khayah is burdened with a legacy debt of US$42.9 million, inclusive of interest, inherited from the Holcim Group. This outstanding loan, which dates back over seven years, continues to strain the company’s financial resources.
A thorough business analysis reveals that Khayah’s financial distress was caused by a combination of internal and external factors. The company’s aged kiln plant and VCM plants required significant investment to maintain production levels. The sanctions imposed on Fossil Group limited Khayah Cement’s access to funding, making it difficult to address its production challenges.
The company’s reliance on imported clinker increased production costs, making it challenging to compete in the market. The persistent mechanical breakdowns and production delays further reduced the company’s revenue and profitability.
Why Khaya Cement Zimbabwe should be rescued?
Rescuing Khayah Cement Zimbabwe is crucial for several reasons:
- Economic Impact: The collapse of Khayah Cement would significantly impact Zimbabwe’s economy, particularly the construction industry, which is experiencing a surge in demand due to various infrastructure projects. These projects include housing construction, road development initiatives driven by the government, and dam construction, all of which require substantial amounts of cement. With its existing capacity, Khayah Cement is well-positioned to capitalize on this demand, making its rescue essential to meet the country’s cement needs and support ongoing construction activities.
- Industry Stability: Saving Khayah Cement would help maintain stability in the cement industry, ensuring a consistent supply of cement for construction projects. As a well-established business with a proven track record in producing cement, agricultural lime, aggregates, and dry mortar products, Khayah Cement has the potential to thrive. The company boasts adequate limestone reserves estimated to last at least 13 years and a cement production capacity of 700,000 tonnes per annum (tpa). With sufficient funding, this production capacity can be fully utilized, contributing to the stability and growth of the industry.
- Resilience and Future Potential: Khayah Cement’s ability to operate despite sanctions demonstrates its resilience and potential for growth. Under new shareholders not subject to sanctions, the company’s production capacity could increase significantly. The practitioner’s plan to source new investors is a positive step, and the effort to secure funding for recapitalization shows the company’s commitment to its rescue and future success. With new investment and strategic management, Khayah Cement could not only recover but it could also thrive, contributing to Zimbabwe’s economic development.
- Job Preservation: Khayah Cement employs hundreds of people, and its rescue would preserve these jobs and contribute to the country’s economic stability.
- Investor Confidence: A successful rescue plan would demonstrate the effectiveness of Zimbabwe’s corporate rescue framework, boosting investor confidence in the country.
Khayah’s corporate rescue plan represents a vital step towards revitalizing the company’s financial health and ensuring its long-term sustainability. The progress made so far is promising, particularly the company’s focus on securing funding for the critical refurbishment of the Kiln, which is essential for restoring optimal production capacity. Additionally, exploring delisting from the Zimbabwe Stock Exchange (ZSE) could provide the company with greater flexibility to restructure and recover.-finx
