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0 Introduction
This chapter covers the background of the study, the statement of the problem as well as aim of the
research. The research objectives are also highlighted followed by the significance of the study,
justification of the study, assumptions and delimitations. Definition of terms and conclusion
constitute the final part of the chapter.

1.1 Background of the Study

Zimbabwe Iron and Steel Company (ZISCO) is one of the largest iron and steel companies in the
Southern region. It started in 1938, formed by private members. In 1942 the government formed the
Rhodesian Iron and Steel Commission (RISCOM), a statutory body which then took over the
Bulawayo plant, Kwekwe lime works and adjacent limestone deposits. In 1946, a small plant was
established in Redcliff and it commenced production. After independence the commission was
named ZISCO with a capacity of one million tones of liquid steel per year being produced. The
company became the pillar of Zimbabwe since it became one of the largest foreign currency earners
in Zimbabwe operating above 50%. Since then the company began to face some difficulties.

In 2001 its plants became disintegrated and mills stopped functioning. The blast furnace number
three stopped functioning due to lack of finance and spare parts Apart from what was taking place
in-house, there was unreliable supply of coal from Hwange caused by lack of adequate equipment.
This led the company to operate below capacity and resulted in it failing to finance the projects of
bringing back No.3 blast furnace and mills into function.

In addition to the above the whole plant began to deteriorate. All the refurbishment required foreign
currency but before dollarisation the company could not possess foreign currency even though 70%
of its outputs were for export. Therefore the company could not raise the required capital. The
government of Zimbabwe (the major shareholder of the company) failed to rescue the company. In
2006 the government clinched a $400-million Zimbabwean dollar management deal with Indian
Steel maker Global Steel to help loss making firms like ZISCO but the deal collapsed within two
months. In 2007 the company had to raise 5.4 trillion Zimbabwean dollars for plant operations but

failed although there was capital injection by the government and a number of strategies by the

On January 19 2008 blast furnace No. 4 stopped functioning due to the load shading of December
2007, which affected the coke oven batteries leading to the collapse of coke ovens. The batteries
needed to be resuscitated and the furnace was also due for relining but the company could not
finance the projects and it seize production.

In September 2009 the company’s chief executive officer reported that the company is saddled with
large debts of about US$ 18.5 million. The company need about US$78 million to operate viably.
The capital projects need about US$54 million. These include recapitalisation of its wholly owned
subsidiary (Buchwa Iron Mining Company).

The company has got seven subsidiaries and need to rescue the troubled ones. Ramotswa, one of
them ceased operating in September 2008 partly because it had not been getting steel from ZISCO.
The regional subsidiary companies are indebted to the tune of US$ 5 million and some creditors
have instituted legal actions against them with the possibility of these subsidiaries being taken over
if the parent company does not step in to rescue them.

The company has lost 1 006 workers since 2007 because of the general hostile economic
environment which has compromised the company’s ability to pay competitive salaries on time.

Funding Requirements
All equipment related to the production process has to be refurbished. No. 4 Blast furnace is the
major project that needs funding. In addition to that all ancillary equipment has to be refurbished.
Plant equipments to be refurbished are; Sinter Plant, Iron Plant, Steel plant, Bar Rod Mill, Medium
and Light Mills, Carters 1 and 2 and the lime kilm. There is need to purchase new locos, gondola
coal wagons and refurbishment of No. 3 Coke Oven Battery.

Immediate funding requirements
In order to turnaround the fortunes of the company, an immediate capital injection is required to
adequately fund the following projects and working capital.

Capital Projects US$

No. 4 Blast Furnace Refurbishment 6 000 000
No. 3 Coke Oven Battery 3 000 000
Lime kilm 2 Reline 340 000
Turnaround projects 4 841 000
• Slag splashing 1 022 000
• Lance Tip Improvement 148 000
• Casters Improvement 731 000
• Medium + Light Mill 720 000
• Br Rod Mill 1 220 000
• Constancy Fees 1 000 000
Catch-Up-Maintenance 28 800 000
Bimco Projects 11 200 000
Subtotal 54 181 000
Working Capital (per annum)
Coal 500 000
Coal Railage 720 000
Iron Ore 500 000
Salaries + Wages 2 500 000
Steel Imports 770 000
Subtotal 4 990 000
Total 59 171 000
Source: Zimbabwe Iron and Steel Company, Proposed Turnaround Strategies, (2009)

The company embarked on the following strategies to raise capital:

 Asset reduction
Assets such as land, buildings and equipment not essentially to the basic activities of the business
were sold. Some houses in Redcliff Rutendo and Torwood were sold to employees of ZISCO.
Redcliff Hotel was also sold to the minister of Defence Ho. E Mnangangwa. All these belonged
to ZISCO and it was meant to increase working capital. However the No. 3 Blast furnace and
rolling mills which need refurbishment were not financed after this strategy.

 Reduction in operational costs
The company had to reduce costs through cost effective measures. It engaged into contract of
leasing assets rather than purchasing them. It leased locomotives and front end loaders from
Dusty ltd. This was to ensure that instead of buying these the money is reserved for the rolling
mills and to bring back No.3 blast furnace into operation.

 Selling of anything liquidable

The company had mounds of waste material from steel production which was being pilled since
the company started production. Zero production and lack of capital led the company to realise
that what it termed waste was not but important by-products to the company. The waste includes
coke, chilled pool iron, scrap steel and slag. These are used in other steel furnaces for steel
production and slag is used for cement manufacturing.

 Toll Manufacturing
In 2008 the company faced difficulties that it could not afford to pay its workers. It entered into
contract of toll manufacturing with SteelMakers Thus ZISCO provides Steelmakers with steel
scrap to produce steel on its behalf. This strategy managed to raise some capital but could not
manage to finance the projects in question.

 Reducing working hours and cutting salaries

The company negotiated with its workers to reduce working hours and cut salaries by half.
Currently ZISCO employees are working for two weeks and are given half salaries. This is to the
exception of those directly involved in working towards the accomplishment of the projects in
question. The strategy was aimed at giving priority to projects of bringing back the plant into

 Contract Selling
The company agreed with some of its customers to make advance payments on ordered products.
These customers include; Metma, Bold Moves and Reclamation. This was done to quickly raise
the required capital since old ways of payment were taking long to raise the capital.

 Consignment Stock
The company obtains consignment stock from Steel Source Company in South Africa. Thus
ZISCO acts as merchant to Metma and sell the products locally. This is done to raise capital for
the recapitalisation rather than to rely on by-products and toll manufacturing.

 Strategic Partnership
The company realized that all the above strategies are failing to bring back the company into
operation. The majority shareholder decided to find strategic technical partner so as to carry out
the recapitalization program together and timeously. Six foreign steel producers had been
identified by the government to bid for the shareholding, and had all completed due diligence on
ZISCO. The final bidder is yet to be formally announced.

ZISCO is not the only company in Zimbabwe that faced recapitalization challenges. Steelmakers
Zimbabwe, ZIMASCO, Dyno Nobel Pvt Ltd, Sable Chemicals only to mention a few faced such
challenges but managed to come up with successful strategies.

ZIMASCO had one of its furnaces accidentally burnt in June 2006 and it required US$36million to
bring it into operation. The company could not raise such amount using sales of products from
remaining two furnaces. The owners (Chinese) contributed some of the money and the company
introduced unpaid leave to its employees. It is prohibited to export chrome ore without value
addition but the company negotiated and agreed with the government to export chrome ore which
was to be used in that furnace. This was done in order to raise capital to refurbish the furnace. Had it
not been the Zimbabwean economic crises and world recession which effected prices and demand of
chrome ore and chrome the company could have managed to raise the money early last year.
However, the company is only left with a third of the required capital.

Dyno Nobel Private Limited, the country’s sole manufacture of explosives faced problems in rising
capital for plant refurbishment and to import 80% of its raw materials (cuesell and sodium) from
South Africa. The company did toll manufacturing with some of its customers (Shabani Mine and
Cycle Cement). Thus the customers could source raw materials for Dyno to produce on their behalf.

In April 2009 the company received loan from Kingdom bank and generator from Dyno Nobel-
Zambia. The company managed to refurbish its plant and to import raw materials and it is now
producing above 50% capacity.

In 2007 some transformers at SteelMakers were accidentally burnt. The company leased some
transformers from ZESA while the burnt ones were under refurbishment. It also received capital
assistance from its headquarters in Kenya and its sister company in India.

Having recognized the above challenges and strategies implemented by other companies, the
researcher is triggered to carry out a research to find out what is exactly behind these eternal
recapitalization challenges at ZISCO and to come up with strategies effective enough for the
company to climb out of the mess.

1.2 Statement of the Problem

Since 2001 ZISCO is facing recapitalisation challenges. It implemented a number of strategies to

raise the required capital but up to today the company is undercapitalised. With all the implemented
strategies, why the company’s performance still precarious?

Sub problems
 What strategies were used in attempt to raise capital?
 Did the company raise adequate resources for recapitalisation?
 What challenges were faced by the company in trying to raise the required funds?
 What are the recommendations in strategies to source the funds?

1.3 Aim of the research

To identify major recapitalisation challenges facing the company and come up with effective
recapitalisation strategies to address the problem.

1.4 Research Objectives

 To identify recapitalisation strategies implemented by the company?

 To find out whether the company raise adequate resources for recapitalisation
 To identify challenges faced by the organisation in raising the required funds.
 To come up with recommendations in recapitalisation strategies that can be used in sourcing
adequate resources.

1.5 Significance of the Study

 To the researcher
In carrying out the research the researcher will analyse a variety of recapitalisation strategies and
come up with best strategies to address the problem thus enabling thinking and enhancing
analytical skills. After carrying out a detailed research the researcher will gain experience and
hence serve as a foundation for future management. Also, the research is to be carried out to
fulfil the requirements of Midlands State University Business Management department. It is a
prerequisite that every forth year student carries out such a project before graduating.

The project will provide information on how best the recapitalisation challenges can be
addressed. Thus ZISCO management can use the findings as a guide in implementing
recapitalisation strategies. The findings will be used as basis for improvement if any loopholes in
the implemented strategies are identified.

 To the public and other organisations

Future researchers can use the document as reference. The research is focused on management
challenges hence its relevance to management students. Most management students write/ wrote
on either financial or marketing aspects ignoring challenges in the program they are studying. It
is the researcher’s hope that by reading this work, such students will focus more on their area of

The research can also be used by other companies faced by recapitalisation challenges. For
example companies like Dorowa Minerals Ltd which is currently facing recapitalisation
challenges can use the findings from this research to effectively implement strategies to address

1.6 Assumptions

 The sample size to be chosen will be a representative of all ZISCO employees and adequate
enough to deduce more accurate findings and conclusions.
 The company is yet to find solution to its recapitalisation challenges.
 Limitations to be encountered will not highly affect the viability of the research
 All employees are literate that they can read and understand the questions.
 The business environment in which the researcher operated remains constant.
 All respondents will provide true or correct information.

1.7 Delimitations
The research is going to look at recapitalisation challenges for a manufacturing firm. The study to be
undertaken will cover the period from year 2001 to date. The research will be carried out in Redcliff
at ZISCO in January 2010. Both management and frontline employees are going to be interviewed.
The departments that will be interviewed include the marketing, production, human resources and
finance department.

1.8 Limitations
Most ZISCO management were ever busy that some delegated the answering of questionnaires to
junior staff. This limited the accuracy of findings. To minimise this I gave them ample time to
answer the questionnaires.

Some management were unwilling to disclose internal and sensitive information. To obtain enough
information I specified to them that the data collected was purely for academic use not for other

Since this was my first time to carry out such a research, I face problems in gathering and analysing
data due to lack of experience. To minimise the effects of this I intensively refer to research
textbooks and seek assistance of the supervisor and colleagues who have done this before. I also
ensured that I reserved much time for this project in order to meet the deadline for submission.

MSU library and internet facilities were not provided to students during the vacation. I was forced to
opt for internet café and town libraries which are very costly and it limited the amount and quality of
information I used on this research. Also typing and printing services were very costly. To minimise
effects of these I seek assistance from relatives and friends with free access to these services.

1.9 Definition of terms

 Recapitalisation- minimum capital requirements and solvency capital requirements.

 Strategy- a course of action including specification of resources required to achieve specific


 Toll Manufacturing- when a company provides raw materials to the other company to
produce on its behalf on a certain charge/toll.


This chapter looked at the background of problem, statement of the problem, significance of the
study and objectives. It revealed that the research will look at recapitalisation challenges of an
organization in the steel manufacturing industry and strategies to overcome. It also looked at the
assumption on which the study was carried upon. It was also the purpose of this chapter to outline
the limitations and delimitations of the study. Literature review then follows in the next chapter.


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