The Sunday Mail
Textiles firm Merlin Private Limited has escaped the clutches of liquidation for the second time in a decade, raising expectations that it will be able to reinvent itself.
The Bulawayo-based business was placed under judicial management in December 2011, marking the third time it has been under the court-supervised process since founding in 1954.
Merlin, according to a High Court Order issued in Bulawayo on October 6, 2016 (HC2353/ 11) had up to June 30, 2017 to show cause why it should not be liquidated.
The company’s judicial manager, Dr Cecil Madondo of Tudor House Consultants, told The Sunday Mail Business last week that while significant efforts had been made to rope in a suitor, one of Merlin’s biggest creditors was willing to invest significant amounts to restart the business.
An estimated US$2 million in short-term capital is required to kickstart operations, while US$30 million is needed over the next 10 years.
“We would like to advise that a lot of progress has been made in raising working capital to resume production. We are preparing a statutory report to the stakeholders with our recommendations that should be implemented instead of liquidation. Our proposed action plan entails involvement of all stakeholders willing to be part of the turnaround of the company,” said Dr Madondo.
“One of the major creditors has shown interest to assist in raising working capital for the company and have already pledged to inject sufficient working capital to resume production. Our position is still the same that the company is viable and with adequate capital injection, it can become a successful concern again and be saved from liquidation for the benefit of all stakeholders, especially the customers, creditors and the employees.”
In the interim, funding is needed for minor repairs and maintenance, including purchase of raw materials and administration expenses. Medium to long-term capital will be for refurbishment of machinery and equipment, replacing the obsolete plant with new state-of-the-art machinery, and setting up a ginning plant to complete the full production cycle, which will be complemented by cotton growers.
A chunk of the capital will go towards paying both pre and post-judicial creditors if a scheme of arrangement expected to substitute the judicial management process is sanctioned. According to Dr Madondo, through the envisaged scheme, the company’s creditors will be persuaded to convert their debt into equity.
“By so doing, the company will be relieved of its indebtedness; thereby making it more attractive to potential investors. Some creditors will then participate in the raising of more funding to support the Scheme,” he said.
There are efforts to reconfigure the business to produce diapers, school uniforms and corporate wear that is in sync with modern tastes. The production of cloth napkins will not be discontinued, but rather downsized.
“Our business research shows that some markets are still in favour of napkins, although at a small-scale. In addition, the business of Merlin was not focused on the napkins only but a whole range of products,” explained Dr Madondo.