Barloworld is divesting out of its Zimbabwean associate unit after terminating distributorship agreements for heavy earthmoving equipment with Barzem in the southern African country.
The move follows Barloworld’s announcement in June 2022, it would be terminating its distribution agreement with Barzem with effect from October, although it would continue to be the sole distributor of Caterpillar equipment in the country.
This has left the Zimbabwean suppliers of earthmoving equipment and other heavy machinery to miners and construction companies scrambling to find replacements.
Barloworld is divesting out of Barzem, which had been the supplier of Caterpillar heavy equipment, and whose parent is ZSE-listed Zimplow, which has the controlling stake.
Zimplow is now buying out the 49% stake held by Barloworld in Barzem, which has suffered heavy financial losses from the termination of distributorships by Barloworld due to retrenchment costs.
“The board is following through on protecting shareholder value by acquiring Barloworld’s 49% shareholding in Barzem at a discount in line with the remedies provided in Barzem’s shareholder agreement,” Zimplow board chair, Godfrey Tsikai Manhambara, said.
Further worsening prospects for Zimplow is an “operating environment that remains unpredictable” despite “the growth being experienced in the mining and agricultural sectors”.
Tough market
Despite starting off 2022 on a positive note, with strong demand being experienced across demand for equipment for mining, construction and agriculture, the impact of the dry spells experienced at the beginning of the year “significantly slowed down demand of agriculture equipment” products.
Mining and construction categories could have come to the rescue for the company given the strong metal and mineral prices, but the company suffered termination of the Caterpillar distributorship by Barloworld.
Zimbabwe has also instituted various monetary and fiscal measures in 2022 to contain an implosion in its currency. These included higher interest rates, curbing the amount of foreign currency earnings exporters can retain in hard currency, as well as directing companies to only use the Zimbabwe dollar for accounting and reporting purposes.
“The monetary measures and the general reduction in liquidity to tame the import inflationary pressures, caused demand for capital equipment, especially the agricultural segment, to dry up,” said the company.
Zimbabwe is not Barloworld’s only challenging market, and it also has a presence in sanctions-hit Russia, which accounted for almost a quarter of the group’s revenue in 2022. Ratings agency Moody’s said in April, while keeping Barloworld’s long-term credit rating unchanged with a stable outlook, that an upgrade is unlikely as long as uncertainty about the potential financial fallout from the Russian operation persists.
Zimplow, meanwhile, has had to set up a new structure for heavy equipment and earthmovers, transitioning from Barzem to a new entity, TPS, which has already started securing affiliations and accreditations with key suppliers to be able to continue to serve customers.
