RTG in crucial shareholders meeting

RTG in crucial shareholders meeting
RTG chief executive officer, Tendai Madzivanyika

RTG chief executive officer, Tendai Madzivanyika

ZIMBABWE’S second largest hotel and leisure group, Rainbow Tourism Group (RTG)’s will next week seek shareholder approval for a $22,5 million capital raise to enable the company to pay off its expensive debt.
The move will enable management to focus on “long-term strategic needs of the business instead of concentrating on its short-term survival”, according to a notice to shareholders.
It said an extraordinary general meeting (EGM) will be held on Wednesday next week.
Once RTG secures the shareholders approval, it intends to raise about $5,8 million through a rights issue and about $16,7 million through debentures.
The Zimbabwe Stock Exchange hospitality concern requires about $16,4 million to settle loans from the National Social Security Authority (NSSA), which is the largest shareholder in the group with a 60 percent stake.
British investor, Nicholas van Hoogstraten, is the second largest shareholder with 33 percent.
NSSA loans of $10 million and $3,6 million fell due on December 31, 2015 and December 31, 2016 respectively, and the compulsory pension fund has since obtained a High Court judgement for the $10 million loan plus interest related to the facility. The judgement authorises NSSA to sell off RTG’s Bulawayo Rainbow Hotel, which was used to secure the debt.
RTG controls several other hotels including the five star Rainbow Towers (formerly Sheraton Hotel and Conference Centre), A ‘Zambezi River Lodge, Victoria Falls Rainbow Hotel, the New Ambassador Hotel and the Kadoma Ranch Hotel. Apart from the NSSA debt, RTG owes banks about $1,6 million and trade and other payables about $3,8 million.
“The board of directors is proposing that subject to certain conditions precedent, your company engages in a capital raise of $22,5 million by way of a rights offer of ordinary shares and linked debentures,” RTG said.
“The (proposed) rights offer will raise an aggregate amount of $5 812 500. All shareholders will be entitled to follow their rights and contribute the capital required pro-rata to their existing shareholding in RTG. If a shareholder decides not to follow their rights, the rights offer shall be renounceable in terms of the Zimbabwe Stock Exchange listing requirements.
“The debentures shall be linked to the rights offer shares at a ratio of 2,871 debentures for every rights offer share in order to raise a total of $16 687 500. The issue price shall be $0,93 per debenture with a coupon rate of six percent per annum payable bi-annually.
“The capital injection of $22,5 million will ensure that the company will be able to restructure its debts through the $16 687 500 in form of debentures. The equity injection through the rights offer will also ensure that the overall liabilities of the company will be reduced to the extent of $5 812 500 rights offer proceeds.”
If the EGM rejects the proposed capital raising initiative, RTG will be unable to retire the NSSA loan and other expensive debt, meaning that the company will continue to be burdened by high finance charges, which are currently pegged at 12 percent per annum as opposed to six percent per annum under the proposed transaction.
The restructuring of the company’s outstanding debts will see the group reduce its gearing ratio, which has remained high over the past six years.
Napoleon Mtukwa, the group’s finance director, last year told The Financial Gazette that the company was targeting to reduce its gearing ratio to 35 percent from 68 percent.
The gearing ratio peaked at 75 percent in 2012 but retreated to 66 percent and 65 percent in 2013 and 2014 respectively, before increasing to 66 percent in 2015 and further up to 68 percent in 2016.
The proposed capital raise to be tabled next week will be fully underwritten by NSSA, a key shareholder. This means NSSA’s shareholding in RTG could rise beyond the current 60 percent in the event that other shareholders fail to follow their rights. KPMG Zimbabwe Chartered Accountants will be the lead financial advisors while EY Zimbabwe and Mawere Sibanda Commercial Lawyers will be independent financial advisors and legal advisors respectively.
FBC Securities will be sponsoring brokers while First Transfer Secretaries and Grant Thornton will be debenture trustees and transfer secretaries and reporting accountants respectively.

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