THE results of recent rights issues by Cairns Holdings Ltd and Apex Corporation of Zimbabwe Ltd have been described as fair by the market even though they were under-subscri
Cairns got subscriptions of 78,4% while Apex had 84%.
Cairns launched a rights issue to raise $30 billion for recapitalisation. The rights issue was on the basis of one new ordinary share with a nominal value of two cents for every six ordinary shares already held at an issue price of $1 400 per share.
At least 22 547 659 shares ($31 billion) were available under the rights issue and 17 675 590 ($24 billion) were taken up.
Cairns said the funds would be used to finance new projects, replace old plant and equipment and increase the company’s working capital.
On the other hand, Apex, which entered the market looking for over $15,7 billion, managed to raise $13,2 billion.
Cairns emerged from the de-merger of Astra Holdings Ltd.
The total number of shares from Apex available for subscription were 209 526 948 ($15,7 billion) and 176 602 430 ($13,2 billion) were taken up.
Apex said the funds would be used to settle its existing debt, while also providing additional working capital for the company.
Investment analysts said the rights issue results of both companies were fair.
“The results of both companies are quite okay,” Farai Dyirakumunda, an analyst at Interfin, said.
Analysts warn however that although rights issues provide cheap funds, they undermine shareholders interest in companies.
“They have the consequences of diluting the number of shares held by existing shareholders,” one analyst said.
The galloping inflation, which has wreaked havoc in the economy, has forced companies to make rights issues to raise funds to recapitalise their businesses.
Several local companies listed on the Zimbabwe Stock Exchange have of late launched rights issues in a bid to raise cheap funds for recapitalisation.
The Reserve Bank of Zimbabwe (RBZ) recently closed the Productive Sector Facility under which troubled firms could borrow money at low interest rates. RBZ governor Gideon Gono called for the immediate closure of the facility saying companies were abusing the funds.
The costs of borrowing increased drastically after interest rates were raised by the central bank from about 115% to 185%.
Other companies that have turned to rights issues to raise funds for recapitalisation are the Rainbow Tourism Group.
The hotel group intended to raise $80 billion, likely to be the largest in the history of the ZSE.
The funds from the rights issue, if successful, will be used to restructure the group’s balance sheet after its earnings were hit by a serious downturn in the tourism sector.