Merlin ready to resume operations

Merlin ready to resume operations
Published: 29 August 2017
DEFUNCT textile firm Merlin Limited has expressed readiness to resume operations on a joint venture basis and hopes to exit judicial management within 12 months of operations.

The Bulawayo-based entity was placed under judicial management in 2012 for the second time in 10 years and requires at least $30 million in the long-term to operate at full throttle.

Responding to questions from Business Chronicle, Merlin judicial manager, Mr Cecil Madondo, said details of the imminent turnaround deal were contained in the Joint Venture Contract and would be presented to the company's creditors at their third meeting on September 27.

He revealed the company has already signed a non- disclosure agreement with the partner and that they were unable to give more details presently regarding the joint venture partnership

"Following some technical delays in securing an institutional investor to inject at least $30 million required to revamp the whole production process at Merlin, it was decided that, as a way forward, the company could start with a minimum capital.

"Although there have been delays in the disbursement of the funds, we are in contact with the creditor and their representatives hence we anticipate the process to be finalised within the next two months," he said.

In the short-term Merlin needs about $2.1 million for major repairs and maintenance as well as sourcing of raw materials with production anticipated to start from a low capacity of between 20 percent and 30 percent, said Mr Madondo.

He said the immediate injection of the funds will enable the company to start production at a very small scale by producing samples and getting orders from the market.

"Production will then increase gradually as more orders are received from the market. We anticipate that the company will start from a very low capacity and increase gradually to about 50 percent within a year while efforts to bring institutional investors are in progress," he explained.

The envisaged Merlin re-opening, Mr Madondo said, would cover napkin production on a downsized scale but focus more on producing a range of high quality and high demand products such as face towels, bath towels, morning gowns, bed sheets, baby carriers, bath mats, wrappers and kitchen towels.

"The company can also produce and sell yarn, which is also on demand. However, we have emphasised the need for the company and the investors to consider setting up a division that produces diapers, women sanitary wear, school uniforms and corporate wear to compete with current products and trends and also to complement the existing products.

"It must be underlined that the production of napkins would not be abandoned but can only be downsized," he said.

Mr Madondo said the textile firm already has some work in progress in the form of unfinished product units that were left when the company closed down due to working capital shortages.

He said they have proposed that within 12 months of resumptions of operations, Merlin would be removed from judicial management into a Scheme of Arrangement in terms of section 191 of the Companies Act (Chapter 24:03).

It is believed that the proposed scheme of arrangement would allow the members and the creditors to work together for the good of the business.

"The parties could agree to work with an equity investor who could be offered shares in the company, while creditors would be open to convert their debts into redeemable preference shares. The existing shareholders would therefore be paid for their shares subject to a number of business factors, such as business valuation, statutory provisions and legal opinion. The modalities of the scheme would be discussed and agreed at the material time," he said.

Mr Madondo added that with the approval of the creditors and members, he would identify obsolete and non-core assets, which should be sold to raise additional working capital.

"The judicial manager will subsequently make an application in terms of section 307 of the Companies Act (Chapter 24:03) for a court order to dispose of the identified non-core assets and obsolete machinery.

"The anticipated money to be raised from the sale of the non-core assets will be injected in the business to add to the working capital pledged by the creditors," he said.

Mr Madondo said they were also working with a number of capital finance institutions in Zimbabwe and South Africa who were assisting in soliciting for local and foreign investors.

"There is a lot of interest from foreign investors who are keen to invest in Merlin textile business. However, we have faced a number of economy related issues 'perceived country risk' that have delayed the finalisation of negotiations with potential investors," he said.
- chronicle
Tags: Merlin,

Comments

Latest News

Latest Published Reports

Latest jobs