Afre gets major capital boost

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AFRICA First Renaissance Corporation Ltd (Afre) and its subsidiaries are getting a major capital boost after it emerged this week the group will press ahead to raise US$8,6 million by way of a renounceable rights offer to shareholders.

Report by Clive Mphambela

Details availed to businessdigest show that Afre will be raising a total of US$8,6 million  through the issuance of approximately 163 million additional shares to existing shareholders on the basis of three new shares for four shares already held, at a price of 5,3 US cents per share.

The new shares will rank equal to existing shares.
In an exclusive interview with businessdigest this week, Afre CEO Douglas Hoto said all the necessary preparatory work for the launch of the rights offer had been completed and the company would now be floating it to shareholders.

“We expect the group to be able to move forward unhindered by the legacy issues after the rights offer which we anticipate will be successful. The balance sheet will be clean and all the legacy issues will be put behind us,” Hoto said.

He said the rights offer was being undertaken to address minimum capital and solvency requirements of Afre Corporation’s insurance businesses. The proceeds of the offer would be used to purchase investments that meet liquidity and solvency requirements and for settlement of amounts owed to policyholders.

According to Hoto, of the amount raised, the Zimbabwean operations would get the lion’s share, whilst US$2 million would be allocated for the capitalisation of First Mutual Reinsurance  (FMRE) Property and Casualty Botswana.

FMRE Life and Health is to be allocated US$1,5 million whilst FMRE Property and Casualty Zimbabwe will receive US$1,6 million. A total US$1,650 million would be taken up by the capitalisation of Tristar Insurance.

“All companies already meet both the current and proposed minimum capital requirements, except FMRE Botswana.

A significant amount will be set aside for the Botswana business as it has been at the centre of our regional expansion. So it is a deliberate strategy to allocate more money to it. It receives business from the rest of Africa. Also, the regulators there are a bit ahead of ours here and they have said they will be increasing the minimum capital requirements for insurance business in Botswana to P10 million, which is about US$1,6 million,” Hoto said.

“After the US$2 million injection, the capitalisation of that business will be close to US$3 million, which is about twice the minimum required by the regulators for that business. This will put us in a strong competitive position in that market,” Hoto pointed out.

He said US$1,355 million would be allocated to FML to replace policy holder assets that were allegedly misappropriated by the former executive chairman, Patterson Fungayi  Timba.

“The company must make good to its policy holders. The question is that the exposure of the policyholders was just over US$4 million, the balance is being generated internally and by the end of the year, there will be no money owed to policyholders,” Hoto said.

The Afre CEO said operating companies and subsidiaries would be in a stronger position to meet and surpass the proposed new minimum capitalisation requirements proposed by the Insurance and Pensions Commission (Ipec)which are due in 2014 year end.

Afre would therefore be at least a full year ahead of time in terms of compliance. This should give the group  an advantage in terms of marketing its business, according to Hoto.

Ipec recently issued directives to life assurance houses to increase their minimum capital from US$500 000 to US$3 million, non-life insurance companies from US$300 000 to US$2 million, and both life and non-life reinsurance companies from US$400 000 to US$3 million, among others.

“Whilst we would not want to get ahead of our shareholders, we believe we have the support of most of our shareholder base. A major shareholder, National Social Security Authority, has already signed an underwriting agreement to support the issue. Should the other shareholders not follow their rights, Nssa will take up any shares not taken up by existing shareholders,” Hoto outlined.

Currently, the major shareholder in Afre, Nssa, holds a direct and indirect shareholding totalling approximately 51,3% of the issued shares of the company.  In the event that the remaining shareholders, who hold 48,7% of the issued shares, do not follow their rights under the proposed rights offer, Nssa as the underwriter will take up the shares. Should the proposed transaction result in Nssa’s shareholding exceeding the ZSE Listing Requirements threshold, Nssa has undertaken to submit to the ZSE and Securities and Exchanges Commission of Zimbabwe (SECZ) an acceptable programme of reduction in shareholding to the required levels.

The offer is however subject to approval by members of Afre Corporation at an Extraordinary General meeting scheduled for Friday, October 26 2012.Afre will also seek the Zimbabwe Stock Exchange’s Listings Committee’s approval for the listing of the new ordinary shares. The underwriting agreement entered into between Nssa and Afre Corporation should remain in full force and not be terminated.

Although Afre has a majority shareholder in the form of Nssa, which  represents the generality of the working population in Zimbabwe, the financial services conglomerate has a huge shareholder base totalling more than 69 000 different shareholders.

“We are cognisant of the fact that most of these shareholders cannot form consortia to represent them on the Afre board, hence as part of restructuring the Afre board we are increasing the number of independent non-executive directors to address this important issue,” Hoto disclosed.

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