Debt restructuring deals accounted for 80% of the US$65 million aggregate capital raised on the Zimbabwe Stock Exchange (ZSE) as listed companies embarked on a flurry of capital raising initiatives to ease their debt burden, businessdigest has learnt.
Yesteryear high interest rates are choking most listed firms with some making frantic efforts to restructure short term debt to long term.
Debt has continued to stiffle several companies such as resources group RioZim currently engaged in negotiations to reschedule its US$45 million debt. The company is being squeezed by expensive short-term debt but was working on an arrangement to reschedule the debt into long term.
In October, Fidelity Life Assurance shareholders approved a resolution to aquire 81% of Langford Estate from agro-industrial concern CFI Holdings in a land for debt swap which resulted in Fidelity assuming CFI’s US$18 million debt on restructured terms.
ZSE CEO Alban Chirume said quoted companies have raised US$65 million since the start of the year through various capital raising initiatives as at this week from US$37,1 million registered last year, reflecting an appetite for capital to improve operating efficiencies.
“The ZSE approved circulars for companies to either raise capital or restructure debt valued at approximately US$65 million worth of capital up to December 16 2015 (US$37,1 million in 2014) subject to shareholder approval,” said Chirume.
“Of this, companies raised US$10 million (US$23 million in 2014) of capital through Rights Issues on the ZSE. Debt restructuring deals amounted to US$52 million with the rest being fresh capital raised through an IPO which will close in early January 2016.”
A method used by companies with outstanding debt obligations to alter the terms of the debt agreements in order to achieve some advantage.
Companies use debt restructuring to avoid default on existing debt or to take advantage of a lower interest rate.
He said going forward, the debt market provided a cost effective platform for private and public sector borrowing.
An IMF research paper has shown that for emerging markets raising finance through equities has dropped from 1,7% of GDP (2008) to 0,5% of GDP (2014) whereas debt market capital raising has more than tripled from 0,8% to 3,3% over the same period.
“We believe that the debt market is critical, especially for government to meet its goals within the ZimAsset policy framework which, inter alia, include raising finance in a transparent and cost-efficient manner,” said Chirume.
“In the same manner, corporates are also seeking to raise capital through debt instruments as it has become increasingly difficult to use the equity route in a depressed market.
“We continue to hope that all stakeholders will work together to facilitate the establishment of this market in the first quarter of 2016. We do stress that the ZSE on its own cannot achieve this.”