HomeBusiness DigestRights Issues: the Haves and Have Nots

Moyo, Mpofu in stormy succession row

ZANU PF last year stopped a rights issue in a company it has significant shareholding in. The party’s argument was simple — the rights issue had come at the least appropriate time.

This would have seen the ZSE-listed company raising capital and diluting Zimbabwe’s oldest political party’s shareholding in the company.

But unlike Zanu PF, the rest of cash-strapped shareholders in Zimbabwe Stock Exchange (ZSE)-listed companies will be wishing they were a lot of things –– Zanu PF itself or at least had Zanu PF on its shareholders register.

That way, shareholders would also stop rights issues when they come at the inconvenient times. But then business should not stop on such a pretext.

According to analysts, shareholders would have to invest in business again this year. Market sources say Starafrica Corporation will soon be sending circulars to shareholders advising them to part with cash to raise capital.

Already, key shareholders are said to have thrown their support behind such a move. But analysts say the dollarisation of the economy might not play in favour of the smaller shareholders given low disposable incomes.

This, analysts say will see smaller shareholders failing to follow their rights and being diluted.

Starafrica is said to be seeking around US$20 million. About US$10 million is going to come directly from current shareholders. The balance, sources, say will be raised via a private placement.

For NSSA, African Banking Corporation and other institutional shareholders on Starafrica’s top 20 shareholders’ register, following rights will be a walk in the park. For others, it will be an uphill task.

Starafrica Corporation CEO Pattison Sithole refused to comment saying: “It’s still premature to comment”.
Even if both groups of shareholders successfully subscribe for shares, an even greater problem has emerged in the market, at least judging by African Sun’s rights offer.

After agreeing to underwrite African Sun’s rights offer, Zimbabwe Allied Banking Group (ZABG), was found wanting. About 61% followed their rights, leaving shares worth US$3,9 million unsubscribed to. Under normal circumstances, it was not going to be a problem. But by mid-January this year, the underwriter had failed at what he does best –– underwriting.

Underwriters are supposed to mop up loose shares in rights issue. Given a situation where a bank fails to raise funds for shares, will capital-raising succeed in a dry market? An underwriter is a company or individual which guarantees to buy a proportion of any unsold shares when a new issue is offered for sale to the public or to existing shareholders.

Analysts believe the liquidity situation has not changed compared to last year when government introduced multi-currency system.

Rights issues are not a new phenomenon for local companies.

Before the adoption of multi-currencies at the height of an economic crisis, shareholders had got accustomed to parting with cash twice a year.

And it did not seem to bother many anymore in those days. Back then, although inflation was skyrocketing, those with access to the greenback or some form of foreign exchange had no trouble with right issues.

But the situation has changed; it is now back to basics for many with little-to-no avenues to cash in the foreign exchange trade. Essentially, a rights issue involves issuing additional shares to existing shareholders as a means of raising capital at par with initial shareholding.

Chris Muronzi

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