1. AN ANALYSIS ON THE EFFECTIVENESS OF CORPORATE DEBT
RESTRUCTURING MODELS ADOPTED BY ZIMBABWEAN PUBLIC
LISTED COMPANIES IN REDUCING BANKS’ EXPOSURES (2009-2013)
Ignatius Doro

2. Layout of Presentation
• Introduction
• Problem Statement
• Research Objectives
• Methodology
• Data Analysis
• Results and Discussion
• Conclusions
• Recommendations

3. Introduction
• The introduction of the multi-currency regime in 2009 led to
liquidity constraints in both the money and capital markets.
• Prior to 2009, Zimbabwe Stock Exchange was one of the best
performing stock markets in the world with growth driven by
inflationary pressures on equity prices. Notwithstanding this
growth, Gross Domestic Product (GDP) was on a decline
trajectory.
• A plethora of challenges including inadequate cheap long term
funding, low capacity utilization and stiff competition exerted by
cheap imports has distressed the Zimbabwean corporate sector.
• The Zimbabwean economy has not been spared by the
exogenous ripple effects emanating from the global economic
recession more so with the advent of multi currencies in our
mainstream financial system.

4. Introduction cont`d
• Zimbabwe's non-performing loans have grown substantially by
more than 10 percentage points to over 15% since dollarization
in 2009, indicating stagnation in the economy.
• According to statistics released recently by the World Bank
Zimbabwe Financial Sector Report (2013), non-performing loans
in the country have increased from about 3.2% in March 2009 to
15.3% in May 2013, while during the same period liquidity ratio
declined significantly from approximately 48% to around 27%.
• A large portion of this increase is attributable to the broad based
unprecedented quantum leap in financial distress of public listed
firms as compared to consumer loans which are considered less
risky.

5. Introduction cont`d
• This demonstration of vulnerability of the financial sector has
spurred this research which attempts to demonstrate the nexus
between corporate debt restructuring models and sound credit
risk management.
• Further deterioration of corporate loan books has forced
financial institutions to resort to schemes of arrangements,
indexing interest payments to earnings, judicial management,
debt to equity swaps, rescheduling, leveraged buyout model,
delisting on the Zimbabwe stock exchange and out of court
settlements so as to induce ultimate realization of the principal
plus interest values from clients.
• The nature of financial liabilities (deposits) held by the country’s
banks has largely remained transitory in nature. This is in
contrast to the long term funding nature required by the local
industry which has come out of a scathing decade of economic
recession during the period 2000-2008

6. Introduction cont`d
• Banking institutions have thus distributed short term surplus
funds to corporate entities with long term financial needs
thereby creating funding mismatches.
• The rise in litigation cases between corporate clients and
financial institutions to recover accounts in excess or arrears has
exacerbated the dire situation. Direct bankruptcy costs,
leverage, short-term liquidity, and debt structure are widely
acknowledged as key drivers of the restructuring route.
• The rise in litigation cases between corporate clients and
financial institutions to recover accounts in excess or arrears has
exacerbated the dire situation. Direct bankruptcy costs,
leverage, short-term liquidity, and debt structure are widely
acknowledged as key drivers of the restructuring route.

7. Introduction cont`d
• Although outright liquidation cannot be ruled out in the case of
non-viable firms, other firms might be facing severe but
temporary payment difficulties. It is important to develop
avenues for such firms to avoid, wherever possible and suitable,
bankruptcy but rather negotiate viable rehabilitation plans.

8. Problem Statement
• The broad based unprecedented quantum leap in financial
distress of public listed firms has continued to pose a great
threat to the ever increasing exposures faced by banking
institutions.
• Several listed companies have in recent years lurched into going
concern crises due to huge debts and negative balance sheets.
Adverse selection by banking institutions have left them
encumbered with non-performing assets (NPAs) arising out of
corporate accounts.
• It has become imperative to formulate possible solutions for this
pandemic.

9. Research Objectives
1. To establish the causes of financial distress affecting large
corporates in the local industry.
2. To evaluate the concentration risk imposed to financial
institutions relative to non performing accounts.
3. To identify the implications associated with implementing the
available corporate debt restructuring techniques and methods for
both the creditor and debtor.
4. To determine the relationship between debt workout strategies
and banks‟ exposures.

10. Methodology
• The researcher assumed a descriptive research design in which
the facts, attitudes, perceptions and opinions of respondents
towards corporate debt restructuring implementation are
measured.
• The researcher aimed at acquisition of facts and opinions from
people whose information would enhance the depth of the
research through the provision of significantly valuable
information on corporate debt restructuring in Zimbabwe with
the main focus on determining the viability of banking
institutions thereto.
• The targeted population included Zimbabwe Stock Exchange
equities traders, chartered accounting firms, banking
institutions’ credit analysts, risk managers and account
relationship managers.

11. Methodology cont`d
• The questionnaire was constructed based on research
questions.
• Questionnaires were critically analysed in order to check
accuracy and unsatisfactory part of questionnaires discarded.

12. Data Analysis
• Data was analysed in a descriptive and interpretative manner.
The data was processed using Microsoft excel and the research
findings were presented in frequency tables, pie charts, area
graphs and bar graphs.
• The data was arranged and categorized into statistical methods
and principles that helped the researcher to identify, simplify
and solve problems related to research presentation and
drawing of conclusions.

13. Results & Discussion
• On answering the causes of financial distress in Zimbabwean
public listed companies, the research revealed that there has
been an increase in financial distress cases amongst public listed
companies since the introduction of the multi-currency system
in 2009. The leading signs and trends of these distressed firms
included late debt repayments, perennial operating losses and
debt modification requests. Since the introduction of the multi-currency
payment system, the research established there has
been an upsurge in bankruptcy cases evident in financially
distressed firms.
• The research revealed that credit risk was negatively affecting
bank lending practices in Zimbabwe.

14. Results & Discussion cont`d
• The research revealed that credit risk was negatively affecting
bank lending practices in Zimbabwe.
• Since lending is the core business of every banking institution,
the subdued performance of corporate accounts has left the
financial institutions vulnerable to concentration risk attached to
this segment of the market.
• The research showed that to a greater extent the
implementation of corporate debt restructuring models in
Zimbabwe have been effective in reducing credit exposures of
banking institutions.
• Banking institutions have benefited vastly from the
implementation of corporate debt restructuring models. Notably
they have managed to retain potentially viable corporate clients.
The other benefits have been reduced credit risk exposures,
reduced collection and recovery efforts.

15. Results & Discussion cont`d
• As part of its findings, corporate debt restructuring models have
been highly severe to the already existing insolvency and
bankruptcy laws.
• This implies that the introduction of corporate debt
restructuring has had effects on the current national laws. In
addition, it was revealed that bank profitability and liquidity
have been affected by these debt workout methods

16. Conclusion
• The research concludes that banking institutions have benefited
vastly from the implementation of corporate debt restructuring
models. This was further postulated by Micucci and Rossi (2010)
who suggested that debt restructuring may preserve the on-going
concern of firms facing financial distress but which still
have profitable investment projects

17. Recommendations
• Regulatory agencies i.e SECZ, RBZ have to provide the following
to ensure effective corporate debt restructuring 1) appropriate
legal foundations, 2) mediation and incentives for out-of-court
resolutions, 3) direct financing as with other nations like India,
Thailand, Korea and United States.
• Large scale debt workouts may require an overhaul of the legal
framework and corresponding enforcement mechanisms. A
workable insolvency law is essential for giving the sides
incentives to cooperate. The government has a role to introduce
or amend such a law to spur and start debt restructuring if the
current framework is deficient.
• A distressed firm with a stronger bank relationship has a shorter
duration to successfully restructure its debt through private
renegotiation. Thus banking institutions have to maintain good
customer relationships with its corporate clientele

18. Recommendations
• Banks must have internal training of its human capital in this
relatively new field. This will remove the knowledge gap that
currently exists. This is in addition to enhancing their own
internal risk management tools, which are effective in mitigating
risks.

19. Thank You
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