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| Business |
| Broke MDC in ambitious deals |
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by
Ephraim Munthali, 28 October 2004
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08:10:45
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Broke Malawi Development Corporation (MDC) has lined up new multi-billion kwacha projects that can only be implemented if its debt-ridden balance sheet is cleaned up.
MDC—the government’s investment arm—wants to embark on an airport rehabilitation and commercialisation project, a fish farming project, a fertiliser manufacturing project and carry out feasibility studies.
The airport project will pool two major airports—Chileka and Kamuzu International Airports— and redevelop another one in Mangochi to support the lakeshore tourism establishments.
But for the project to materialise, MDC has to convince government to transfer the assets to the parastatal under a subsidiary operation in order to attract commercial investors to the airports.
“The airports could be concessioned to MDC,” suggests the company’s board of directors in a Situation Analysis and Strategic Options for the company.
It is not clear how much this project would cost but the firm says it has opened talks with potential developers and investors in the project like International Finance Corporation, Murray and Roberts, Development Bank of Southern Africa and other institutions.
“Once the developments have been completed, the airports could be commercialised with a reputable airport operator,” says the board.
The government’s investment arm is planning to execute the US$10 million (over K1 billion) fish farming project at Kasinthula in the Lower Shire.
The board says a Memorandum of Understanding for a joint venture and technical collaboration with Lake Harvest, a company based in Kariba, Zimbabwe was scheduled for signing in June this year.
Lake Harvest is expected to empower local communities around lower Shire by providing technical and advisory services to enable people to start small scale fish farming and support the new company’s operations. MDC planned to commission the firm mid next year.
The parastatal also plans to promote the establishment of a phosphate mining operation at Tundulu in Phalombe, a venture the MDC hopes will support Optichem—in which the corporation has 49 percent stakes—in fertiliser production.
But MDC, which has long term debts in excess of K1.6 billion and an average net current liability of more than K500 million, notes that these proposals will not bear long term benefits if it does not grow its portfolio.
“The income base issues can be addressed by growth in portfolio. However, the cash flow situation cannot accommodate any new project investment,” says the board.
It adds: “There is need for more investment in various projects if there is to be sustainability of the company and the proposed structure,” says the board.
MDC Limited is currently on the verge of collapse with bankers imposing a loan ban at a time when the company’s K100 million average income level is so meagre that it cannot finance its operations.
Short term borrowing to finance long term investments, financing equity ventures with borrowed funds and poor performance of its investments has contributed to the firm’s failure to settle liabilities, says the board.
“There is no free cash flow. All MDC bank accounts are tight with not enough room to even finance operational requirements let alone debt servicing. The company is in default in all its debts commitments,” stated the board.
MDC is also said to have lost K500 million to list its subsidiary Sunbird Tourism Limited on the Malawi Stock Exchange. The firm initially failed to attract investors due to, among other things, poor awareness campaign.
Meanwhile, French Firm Le Meridien has clarified that it was Sunbird corporate management itself that was supposed to handle the publicity prior to the hotel chain’s listing and not Le Meridien itself as reported in our story last week.
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