AICO set to float US$40m rights offer

AICO Africa Ltd will soon float a US$40 million rights issue to recapitalise Olivine Industries, some of its subsidiary and retire a mounting debt. A well-placed market source told businessdigest this week that AICO management is planning a rights issue to recapitalise Olivine Industries, a company it acquired in 2007 from Heinz Corporation, an American entity.

 

The bulk of the funds, according to the source, would be reinvested into Olivine Industries, which is yet to reach full capacity, while the remaining funds would be put into other subsdiaries.

But AICO Ltd CEO Pat Davenish had not yet responded to questions sent to him by businessdigest last week. A reminder on Wednesday had also not yielded a response as his personal assistant claimed he was in marathon meetings.

AICO Africa Ltd last year said it was pursuing funding options for its cotton and fast moving consumer goods (FMCG) businesses the company warned would make losses in the full year to March 2011.

In a statement attached to its interim financial results to September 2010, AICO said it was “actively pursuing various fund raising options for the group”.
A number of companies have come to the market to raise capital after the adoption of multi currencies. Hyper-inflation and years of economic decline saw businesses failing to reinvest.

OK Zimbabwe, NMB, MedTech, Art Corporation, Nicoz Diamond, African Sun, Fidelity, CFX Financial Services, and FBC Holdings are some of the companies that have raised capital in the past two years.

But most rights issues got varying support from shareholders with Medtech being the latest undersubscribed with only 16% of the pharmaceutical company’s shareholders following their rights.

A rights issue is when current shareholders are offered a “right” to purchase additional new shares in the company at a discount to the market price on a stated future date, an appealing way of raising cash in Zimbabwe as financial institutions grapple with liquidity constraints and punitive interest rates.
Last year the lowest  subscribed rights issue was ART Holdings offer  that saw only 21,9% of shareholders supporting the capital raising exercise.

Sales volumes for the half year to September 2010 within the FMCG unit were 98% above the comparable period the previous year, albeit off a low base. The unit’s performance had, however, been constrained by liquidity problems.

“It is imperative that funding issues in this business are resolved in order to return to profitability,” said AICO last year.

The cotton subsidiary had witnessed a high intake of cotton seed in the previous season to 111-075 tonnes from a previous year intake of 98-091 tonnes.

However, high interest rates arising mostly from short-term debt had resulted in the business performing below expectation.
The group last year reported a more orderly procurement of the cotton crop due to new regulations but there were concerns over failure by the industry to reign in one or two unlicenced operators.

New regulations governing the purchase of cotton criminalise side-marketing, which had become rampant in the cotton farming sector and had greatly prejudiced AICO’s cotton unit, Cottco, which has traditionally funded cotton farmers under contract farming arrangements.

Discussions are under way and agreement is imminent on how to handle similar situations going forward, the company said.

Seed production at its listed subsidiary, Seed Co, was satisfactory, with all business units meeting or exceeding targets, the company said late last year.
Maize seed production went up 83% while overall seed production grew 35% over the prior comparable period. –– Staff Writer.