Market sources told businessdigest that in the event that OK fulfills the terms of the convertible loan notes, the move would result in a dilution of 7% on conversion after the rights offer.
A convertible loan entitles the lender (or the holder of loan debenture) to convert the loan to common or preferred stock (ordinary or preference shares) at a specified conversion rate and within a specified timeframe. The loan will bear an interest rate of 12,5% per annum payable semi-annually.
Investec is also underwriter of the rights issue.
Should all shareholders follow their rights, the shareholding structure will not change but current liquidity problems on the market are not going to play in favour of smaller shareholders in the company. Analysts say smaller shareholders will be diluted. This, they say will see Investec emerge with even more shareholding after picking up unsubscribed shares.
About 78% of OK Zimbabwe’s total issued share capital is in the hands of institutional shareholders who have deeper pockets.
For Old Mutual and National Social Security Authority, local authorities and the Mining Industry Pension Fund, following their rights will not be an uphill task.
OK announced plans to raise US$20 million last month. A US$15 million rights issue at a price of US$0,6 cents per ordinary share and additional 250 275 133 million ordinary shares will be issued on the basis of 3,42 new ordinary shares and a US$5 million convertible loan.
OK Zimbabwe says the recapitalisation proceeds will be directed towards working capital growth and cutting short-term debt and strategic expansion of the retail network
The sources say that OK hopes to claw back market share and “compete effectively” in a trading environment where new and smaller retailers have carved a sizeable piece of the market. The retailer reckons fresh capital will increase trade capacity.