RAINBOW Tourism Group (RTG) says it has restructured up to 36% of its debentures from 70%, at a time the company was heavily indebted. The 36% translates to RTGS$16 million from RTGS$25 million.
RTG says it is now in a sound position.
A debenture is a long-term security yielding a fixed rate of interest, issued by a company and secured against assets.
RTG CE Tendai Madzivanyika told businessdigest on the sidelines of the company’s annual general meeting that RTG had completed its balance sheet restructuring and was now in a firm position to service its obligations.
With a solid balance sheet now in place and a healthy working capital position, the company has entered its growth phase with its main objective being the delivery of value to shareholders.
“The conclusion of the balance sheet restructuring means a lot to us as it puts as on a better footing. When we started we were over borrowed. We had had a gearing ratio of about 70% so whatever the money we were using, about 70% of it was borrowed and a lot of it was at a high rate of 24%. We also had working capital gaps of about RTGS$26 million,” he said.
With such a working capital gap, he said the company had to finance itself through borrowing.
“Most companies have a high return of 10-12 % which is a good return but how do you pay back an interest rate of 24%? We really had to go through aggressive restructuring. Today we are now talking of a gearing ratio of about 36%. Zero percent gearing is not an option either. It is as bad as a 70% because you should be able to invest in a project that gives you better return on the cost of the money,” he said.
Madzivanyika said the RTGS$16 million in form of debentures to shareholders is at an interest rate of rate of 6%, which he said was good as RTG was writing business at much higher returns than 6%.
“We have managed to keep up with our debenture covenants. We are able to service our debts. Our balance sheet is now strong enough to be able to do that. Our liquidity ratios are great with current ratios at 1,39%, which is up from 0,28% last year and on asset test ratio of 1,59%,” he said.
The debenture was structured between February and March last year.
Last year RTG invested RTGS$1,8 million in the refurbishment of the Bulawayo hotel.
The company says it has no foreign currency, with all its obligations being in local currency.
In the five months to May 2019, the company’s revenue grew 131% to RTGS$25,6 million from RTGS$11,1 million, spurred by an increase in foreign currency business received across the company’s hotels.