Grace Mugabe has 'confiscated' land from a horticultural company, putting the government-owned Agribank at risk of defaulting on IDC loans.
Government-owned Agricultural Bank of Zimbabwe Limited (Agribank) has made huge impairment charges citing "peculiar negative circumstances" that could relate to loans extended to horticultural company Interfresh, whose farms were confiscated by First Lady Grace Mugabe.
The move is expected to affect the banking institution's balance sheet at a time it is going on the market to court a suitor for a 49% stake for recapitalisation.
Agribank chairman Sijabuliso Biyam said the bank had made an impairment charge of $5.8-million during the year to December 31 2013, due to a "challenging operating environment".
"The high level of impairment provisions is substantially a result of the peculiar negative circumstances of three of the bank's major customers, who constitute 62% of the impairment allowance," said Biyam.
He did not disclose the three major customers, but banking sector sources said the financial institution was beginning to get "weighed down" by exposure to Interfresh.
Increasing impairment charges for Agribank would be particularly a headache, because its reduction of equity could come to a point where the bank could technically default on external loans.
If this happens, Agribank may fail to refinance its debt to development financial institution Industrial Development Corporation of South Africa (IDC), which has extended a $30-million credit line to the Zimbabwean bank.
Interfresh secured a six-year, $5-million loan from the IDC in May 2011 through Agribank, to fund Interfresh's working capital and capital expenditure requirements.
Information from Interfresh documents obtained by the Mail & Guardian shows that the loan was secured by two properties in Harare and a Notarial General Covering Bond, which is a form of security bond covering movable assets worth $7-million. The two Harare properties were held by AI Clothing Exports, a company wholly owned by Interfresh.
Some of the assets covered by the NGCB were taken over by Mugabe in January 2013 when she confiscated a portion of land from Interfresh comprising at least 46%, or 1 599 hectares, of the total arable land at its Mazoe Citrus Estates, which had operations that included citrus lemon production, crops and horticultural activities.
Interfresh was forced to write down the immovable assets, which included biological assets and property, plants and equipment. An asset impairment amounting to $6,2 million in the consolidated financial statements was consequently incurred. As a result, Interfresh was forced to delist from the Zimbabwe Stock Exchange in December to seek further funding to help re-organise its balance sheet.
First Lady's orphanage
The company had agreed to stick to repayment terms as agreed with the bank. But then, in January, Mugabe took a further 800 hectares from Mazoe Citrus Estates.
The first lady has an orphanage and a private school that she runs close to the estates. The confiscated land from Interfresh is reportedly meant to expand the orphanage, said Mashonaland Central governor, Martin Dinha, who spearheaded the land acquisition on behalf of Mugabe.
The additional land seizure has plunged Interfresh into insolvency; its assets now constitute a tiny fraction of its liabilities, according to its statement of accounts.
"The company has lost its capacity to service the debt," said a Reserve Bank of Zimbabwe surveillance official, who declined to be named.
He said IDCSA and Agribank had raised concern with the Reserve Bank over the land seizures and its potential effects on future business with offshore lenders. "But there is nothing we can do because of the people involved," said the official.
Lishon Chipango, the chief executive of Interfresh, could not be reached for comment. But at Interfresh's last shareholders' meeting held before de-listing from the stock exchange, Chipango declined to discuss issues involving Mugabe's acquisition of the company's assets.
Biyam did not mention problems related to Interfresh or the IDC facility in his statement to shareholders issued over the weekend.
But he noted: "The bank benefitted from a second tranche on the IDCSA line of credit amounting to $30-million, and $17.5-million has so far been drawn down."
A banking sector executive said the effect of the land grab would be felt in the current financial year and is likely to extend Agribank's bad loan book.
"If IDCSA also fails to recover its money from the properties and the bond, there is a probability it will call government, which is the guarantor of the facility to Agribank," said the executive, who works for a privately-owned commercial bank.