A successful rights offer concluded this week paves the way for a US$5 million convertible loan, which leaves the retail chain US$20 million richer.
At US$20 million, OK Zimbabwe, spurned by South Africa’s Shoprite last year, is now able to recapitalise its operations which have been affected by high inflation, price controls and a general economic decline.
The cash-rich South African retail which ditched OK Zimbabwe last year was dangling R167 million (US$22,9 million), and the conditions for the capital injections were never made public.
Shoprite then appeared the sole solution to OK Zimbabwe’s bid to recapitalise as there was virtually no activity on the money market.
Management at OK must be kicking themselves, wondering why they never went for the rights offer in the first place, where shareholders are allowed to buy additional shares from the company.
OK Zimbabwe opened the rights offer on March 26 and 70,4% of the 250 375 139 shares were taken up at US$0,06 per share.
This was underwritten by a Mauritius-based investment vehicle which was formed by Investec Africa Frontier Private Equity Fund.
The additional shares will be listed on the Zimbabwe Stock Exchange on Tuesday.
OK Zimbabwe’s success can be attributed to its cash-rich shareholders — the top three are Old Mutual Life Assuarance, Old Mutual Zimbabwe and the National Social Security Authority owning a 38,71 stake as of March 26.
Investec Africa which had no stake before the rights issue now owns 7,47% in OK Zimbabwe, the fifth largest shareholder, though the transaction has had no significant impact on all the other shareholders.
This new stake is the result of the US$5 million convertible loan it has made available to OK Zimbabwe.
A significant part of the funds raised through the rights issue, US$8,129 million, would be used to wipe out OK Zimbabwe expensive short-term debt, a sign that the company has been using expensive borrowing to build up stocks.
Understandably, upgrading of the retail procurement and distribution function would be allocated the second largest chunk of US$5 million.
OK Zimbabwe is anticipating growth in the country’s economy and it wants to capitalise by increasing its branch network and refurbishing existing stores at a cost of just above US$5 million.
Traditional retail giants have been facing massive competition from smaller operators as well as the informal market. This reached a crisis point in 2008 when almost all shops were empty but the informal market was thriving.
OK Zimbabwe showed that its fortunes are changing when it launched the Grand Challenge last week after two years’ absence. The Challenge is the retail giant’s flagship promotion that runs throughout winter.