Source: Teetering OK draws up internal corporate rescue plan -Newsday Zimbabwe
STRUGGLING retailer, OK Zimbabwe (OK) owes its creditors, mostly suppliers, a whopping US$30,34 million as government’s induced exchange rate distortions doubled the firm’s US dollar obligations.
In its trading update for the quarter ended December 31, 2024, OK revealed that the volatile nature of the ZiG caused its US dollar obligations to double.
Hence, suppliers began demanding upfront foreign currency payments from retailers and wholesalers.
However, with the Reserve Bank of Zimbabwe and Treasury controlling the exchange rate, a premium emerged between the formal and parallel foreign currency rates estimated at over 30%.
This left retailers essentially selling goods at a discount and consumers turning to the informal sector for higher purchasing power.
OK has felt the brunt of these distortions, with the retailer appealing for urgent government intervention in a recent submission made to the Parliamentary Portfolio Committee on Industry and Commerce.
These challenges experienced by OK left the firm with only 67 US cents to every dollar of short-term debt, leaving the firm illiquid.
“The total cost of the CMA [consignment stock management arrangement] under Grant Thornton is 1,5% of the supplier payments with an upper limit of US$200 000 per month (i.e supplier payments of up to US$13 333 333 per month),” OK said in a question-and-answer revealing its total debt obligations.
“This cost will be shared on a 50/50 basis and therefore the actual cost to OKZL [OK Zimbabwe Limited] will be 0,75% of the supplier payments (maximum US$100 000 per month). OKZL has also set up a direct consignment stock agreement through the bank at no extra cost.”
Added OK: “Suppliers have a choice to go with Grant Thornton or directly with OKZL and the bank. Most big suppliers are choosing to deal directly with OKZL.”
Failure by OK’s management to navigate exchange rate difficulties as well as high taxes, informalisation and poor utility service delivery, caused the board to fire the management.
The retailer recently fired chief executive officer (CEO) Max Karombo, chief financial officer Phillimon Mushosho and the supply chain director Knox Mupaya.
The board then brought back former CEO Willard Zireva, who will lead a team which includes his successor, Alex Edgar Siyavora, who returns as the chief financial officer.
Zireva retired from the retail giant at the end of March 2017, having decided to take early retirement.
Both Zireva and Siyavora joined OK Zimbabwe in 2001 as chief executive and financial director, respectively.
Siyavora took over as CEO from Zireva in 2017.
“The CMA will be open to all the suppliers that wish to join to avoid litigation from aggrieved suppliers. Where a supplier is unwilling to participate in the CMA and is owed by the business, management will utilise cashflows from sales of the current stock holding as well as bank facilities to settle and/or enter into a payment plan with them,” OK said.
“The CMA is targeted first and foremost to the suppliers who are owed bigger amounts that cannot be settled immediately.
“The CMA onboarding process is underway, and it is expected that at least 50% of the suppliers with outstanding balances will be onboarded and, therefore, unlikely to initiate legal action against the business.”
OK said to clear the outstanding amounts due to the rest of the non-participating suppliers, the business would require at least US$7 million and about ZiG170 million.
“Currently, the business is receiving letters of demand from suppliers with amounts owed averaging ZiG3 million (or US$100K).
“Once the business is fully restocked and trading optimally, these amounts should be easy to deal with,” OK said.
“Management have grouped the small suppliers into batches based on amounts owed and has started settling suppliers with outstanding balances in the lowest bracket of up to ZiG100k. Management will continue to monitor this area and defend the business.”
OK has engaged Axcentium Zimbabwe to undertake a post implementation review.
As part of cost-cutting measures, OK will restructure business operations, reduce overheads, make funding cost effective, further reduce its branches, and engage stakeholders for a bailout including banks.
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