Meltdown forces firms into rights issues

Eric Chiriga

THE deteriorating economy, particularly the soaring cost of borrowing, saw numerous listed firms resorting to rights issues to raise capital.



Helvetica, sans-serif”>Rainbow Tourism Group (RTG) went into the market to raise $80 billion through a renounceable rights issue. The hotel group proposed to use the funds for refurbishment of its hotel premises around the country, regional investments, working capital financing and IT upgrade.


According to the results of the rights issue, existing RTG shareholders took up 42% of the more than 1,2 billion shares on offer.


The rights issue resulted in Accor Afrique, once the largest shareholder in RTG with 34,2%, having its shareholding diluted to only 9%.


Laaico, a Libyan-based investment company, which previously held 13,84% in RTG, had its shareholding diluted to below 4%.


Pharmaceuticals company, Caps Holdings Ltd, recently launched a $77 billion rights offer seeking funds to refurbish the manufacturing facilities of its joint venture subsidiary, Caps Shreya, and upgrade its IT infrastructure.


Out of the $77 billion rights offer proceeds, Caps intended to spend $66 billion on the refurbishment, $7 billion on IT upgrade and $4 billion to cover the expenses of the rights offer.


General Beltings also launched a $55 billion renounceable rights offer, which closed with 96% of the total ordinary shares on offer being taken up.


According to the offer results, out of 346 904 738 ordinary shares worth $55,5 billion that were available, 332 713 790 shares worth $53,23 billion were taken up. The rights issue was in the ratio of 11 new rights offer shares for every five ordinary shares already held.


General Beltings also proposed a $55 billion rights issue to raise funds for recapitalisation of its merged operations with Cernol Chemicals (Pvt) Ltd and to pay off SMM debts.


Insurance giant, Zimre Holdings Ltd, also earlier this year issued a $60 billion renounceable rights offer to shareholders.


Part of the funds was channelled towards the recapitalisation of its struggling South African subsidiary, Southern Union Reinsurance.


The rights offer resulted in businessman Mutumwa Mawere, who had a 43% controlling stake in ZHL, losing the company.


NMB Ltd also launched its rights issue, anticipating to raise a $64 billion. The bank said the funds were to be used to meet the central bank’s minimum capital adequacy ratio for commercial banks.


NMB offered 426 million shares of which 417 million (97,73%) were taken up.


The year 2005 also witnessed a few acquisitions and mergers.


Zimnat Insurance Company, a subsidiary of TA holdings, acquired AIG Insurance through a share transfer. The company acquired the entire issued share capital of AIG, being 10 million ordinary shares of $1 each and in turn issue 1,1 billion ordinary shares in the company (Zimnat) to TA Holdings, the majority shareholder in AIG.


Zimnat shareholders approved the transaction at an extraordinary general meeting (EGM) held on June 28.


Zimnat proposed that the balance of the authorised but unissued shares, after the merger, be placed under the control of the directors for an indefinite period.


The company also proposed to amend its Articles to increase the authorised share capital from $18 million divided into 1,8 billion ordinary shares of $0,01 each, to $30 million divided into three billion ordinary shares of one cent each.


Zimnat is understood to have structured the deal in a way that will allow it access to the management of the company and at the same time access to AIG’s clients and markets. Zimnat’s merger with AIG came after the company acquired a controlling interest in another short-term insurance company, Lion of Zimbabwe Insurance Company, to form Zimnat Lion Company.


General Beltings merged with Cernol.


According to the terms and conditions of the merger, General Beltings issued 68 847 894 fully paid-up ordinary shares to the shareholders of Cernol.


In exchange, General Beltings would acquire the entire issued share capital of Cernol, thereby achieving total ownership of Cernol, including its immoveable properties.


Delta Corporation Ltd recently diverted from its core business of beverage manufacturing and distribution by acquiring Ariston, a horticulture concern.


Delta made a 272 billion takeover bid of the produce and flower exporter. It made a cash scrip offer to Ariston shareholders of 9,3 of its shares for every 100 shares they held in Ariston or a cash payment of $70 070 for each 100 shares.


Phoenix Consolidated Industries Ltd also acquired two subsidiaries that were being sold to them by Apex Corporation of Zimbabwe Ltd.


Apex was disposing of two of its subsidiaries, Bardwell Printers and RCP Belmont Printers to Phoenix for $6,7 billion.


The transaction was of a direct acquisition of all the assets and assumed liabilities of Bardwell and RCP at a total purchase consideration of $6 783 650 000. The purchase consideration was settled partly by settlement of debt due from Apex and partly in cash.


Both Bardwell and RCP will become divisions of Phoenix and will be included in the company’s forthcoming financial results for the year ended October 31.


Phoenix took over the management control of Bardwell and RCP in April.


Apex Holdings Ltd owns 51% of Phoenix and is a wholly-owned subsidiary of Apex. On the other hand, Apex Pension Fund owns 8,29% of Phoenix.


There were also some failed attempts to go for a right issue. Hwange Colliery’s intended $2 trillion rights issue failed to take off the ground. The rights issue was abandoned after the company’s largest shareholder, Nicholas van Hoogstraten refused to exercise his rights.


Van Hoogstraten said the rights issue was irrelevant as there were several other avenues of raising the money.


“A rights issue should always be the last course of action by a company wishing to raise additional capital. At 100 billion, the costs of the issue are too high,” the British investor, argued.


The offer proceeds were meant to finance Hwange’s capital projects such as expanding its huge open cast and underground mining operations.

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