Good afternoon. Shareholders in Cahora Bassa Hydroelectric (HCB) and insurance company Emose will be anxious to know more about the government’s plan to use them to buy 91% of the share capital of struggling state-owned airline LAM, as reported this week. The state-owned rail and ports operator CFM is also to buy shares, but unlike CFM, HCB and Emose are partly privatised, with minority stakes traded on the Mozambique Stock Exchange.
According to the statement from the Council of Ministers on Tuesday, the transaction is expected to raise about $130m which can then be used to invest in the airline. Zitamar understands that, in order to improve LAM’s profitability, the government intends to take on some of LAM’s old liabilities, like debts to banks and suppliers, before the sale.
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No doubt an injection of cash would help to address some of LAM’s many problems. The airline has long been a byword for unreliability, and the cash-strapped government does not have that kind of money available to invest. In some ways, using these three companies — the only state-controlled firms that manage to be profitable — makes sense in that it takes advantage of their stronger balance sheets, which they could borrow against in order to buy the stakes.
But those private shareholders will surely have many questions about this deal. For a start, why is 91% of LAM worth $130m when the business as a whole loses money, and how did the government arrive at that figure? No doubt the airline has some valuable assets, but they are unlikely to be worth that much. Its aircraft are leased or rented. Simply removing some of LAM’s debts will not deal with the fact that it operates at a loss.
