RTG risks losing Bulawayo Hotel

Chris Muronzi

RAINBOW Tourism Group (RTG) risks losing its Bulawayo Rainbow Hotel after CBZ Bank Ltd sent a letter of demand over a US$2,5 million facility which matured end of last month.
People close to the development told businessdigest this week that CBZ could be forced to foreclose the property, which the hotel group put up for sale last year, to retire US$9 million short-term debts, after RTG failed to repay the facility when it matured end of January.

According to sources, RTG accessed a US$5 million National Social Security (NSSA) facility, disbursed via CBZ, split into two tranches; an annual and a six-month facility.

When the-six month facility matured, RTG did not honour the terms, forcing CBZ to send a letter of demand.

The sources added that CBZ could foreclose the property, which was placed as security for the US$5 million facility.

RTG CEO Chipo Mtasa said her company was in discussions with CBZ Bank for a US$2,5 million facility backed by NSSA, which matured in January.

“I am in discussions with CBZ for a US$2,5 million facility which matured on January 31. The facility was backed by NSSA,” Mtasa said.

She denied CBZ Bank had foreclosed the property.

Foreclosure is a legal process where a lender attempts to recover the balance of a loan from a borrower who has stopped making payments to the lender by forcing the sale of the asset used as collateral for the loan.

Efforts to reach CBZ Bank Ltd MD John Mangudya were in vain as his mobile phone was switched off.

It emerged in December that RTG had put its Bulawayo Rainbow Hotel up for sale to deal with a short-term debt.

RTG had lined up a buyer believed to be NSSA for the same property located in the country’s second largest city, amid pressure to retire a debt from the proceeds of the sale.

Several listed companies are reeling from short-term debts and resultant high finance costs that are hitting the bottom line. Other companies have been forced to dispose of assets to fund working capital requirements and retire expensive debt.

RTG in September announced that it was close to recovering its US$5,1 million trapped in ReNaissance Merchant Bank, which is under curatorship, to complete the refurbishment of Rainbow Towers.

The group reported an operating profit of US$1,2 million, compared to a loss of US$40 000 last year, but this was all wiped out by finance costs.
RTG said it was on target to achieve full year revenue of around US$30 million. The company reported a bottom line of US$1,1 million, compared to US$112 000 from last year.

Management said city hotels continued to be the group’s cash-cow, contributing 74% of revenue. City hotels also contributed the same percentage last year. Resorts and lodges are said to have contributed the least to the group.

RTG said the cost of borrowing on short-term money had been reduced to 23% from 36% and had since come down to 17,7%. Long-term funds were on 7% from 14% and the effective combined cost was 15,3% compared with 21,1%.

The recent reduction in short-term borrowings had reduced the effective rate to 12,3% and if RTG were able to get more funds of a tenure of 180-365 days at around 15%, the effective rate would come down to 11%.

Management said it would also focus on reducing costs by lowering staff overheads to around 31% from 34% and the cost of sales to 12% from 14% currently.