THE high costs of borrowing are forcing Zimbabwean companies, especially listed firms, to turn to rights offers for cheap funds for recapitalisation.
ustify>Finance costs have increased drastically after interest rates were raised by the central bank from around 115% to the current 185%.
The winding down of the Productive Sector Facility, which offered a cheap source of finance for many ailing companies, has worsened the situation.
Rainbow Tourism Group’s $80 billion rights issue to recapitalise and fund other operational costs is likely to be the largest in the history of the Zimbabwe Stock Exchange.
The proposed issue, if successful, will enable the hotel group to restructure the balance sheet after its earnings were hit by the current downturn in the tourism sector.
The group posted an operational loss of $252 million.
Cairns Holdings Ltd, an offshoot of de-merged Astra Holdings Ltd, is also on the market to raise over $30 billion for recapitalisation.
The company said the funds would be directed towards rehabilitating an old plant and equipment, with the remainder being used for working capital purposes.
Group chief executive Philip Chigumira said about $10,1 billion of the money would be used to upgrade its production line with the installation of packaging equipment.
Apex Corporation on Monday entered the market looking for over $15,7 billion from its existing shareholders.
The company said the funds would be used to retire its existing debt, while also providing additional working capital for the group.
The company is issuing an additional 209 million shares to existing shareholders on a ratio of four ordinary shares per every five shares held. The rights offer has a subscription price of $75 per share.
On successful conclusion of the process, Apex hopes to use $10 billion to settle current debts, which industry sources said were linked to the central bank’s productive sector facility.
The company said it would use over $4 billion for working capital purposes, while $1,6 billion will be gobbled by expenses for the rights issue.
Analysts however warned that despite rights offers providing cheap finance, they often undermined shareholders’ interest in companies.
“It’s really an issue of sourcing cheap finance and many companies have found rights issues as the likely alternative considering the current levels of interest rates. However, rights offers have consequences of diluting the interest of shareholders,” one analyst said.
Economist John Robertson said the continued distortion of interest rates by the central bank and government was likely to cause … among companies battling to settle their debt in time before the rates are raised.
“If funds raised through rights issues are properly administered they can prove beneficial to shareholders. However, the continued distortion by the government of interest rates is proving a challenge to many companies who are battling to recapitalise their operations,” Robertson said.
In a test case, ZHL Holdings Ltd was dragged to court by its controlling shareholder, Mutumwa Mawere, after it embarked on a controversial $60 billion rights issue.