Show me the money! The case of Zimbabwean Companies in their quest to recapitalise

Many Zimbabwean companies have been focusing on recapitalising their businesses and also restructuring their balance sheets in the recent past.

Companies have have had two main options i.e. equity or debt. Debt has been expensive to raise and with the liquidity challenges in the local market, many banks have not been able to provide longterm debt with a more acceptable maturity profile. Equity capitalisation has been the preferred route by many companies which include Nicoz Diamond, OK Zimbabwe, Star Africa Corporation and Art Corporation. Where debt capitalisation has been pursued, this has been utilising external funds from banks such as Banc ABC with strong balance sheets and South African financial institutions such as Investec.

Recent rights issues on the market have however reflected the liquidity constraints with the Star Africa Corporation recent rights issue subcribed to less than 30 percent showing that most shareholders could not follow their rights given the low liquidity leaving financial institutions to take the residual equity as underwriters. However OK Zimbabwe was subscribed to 70.4% by local shareholders with 29.6% taken by underwriter Investec of South Africa as per results published in the Herald Newspaper dated 14 April 2010.

Art Corporation has CBZ Bank and Interfin as the 2 underwriters of its right issue aimed at liquidating part of its short term debt by USD3.9m, reduce interest expense and bolster its working capital position. A total of USD4.67m is targeted to be raised by 30 April 2010 when the rights offer period comes to a close.
It remains to be seen how such equity will be offloaded since financial institutions are supposed to dispose of the equity holding after some time unless such an investment has been approved by the central bank.

Its most likely that the strategy is to kickstart production and at the back of improved profitability allow local shareholders to buy back the shareholding from underwriters and restore their diluted control.

It is no easy road for any local shareholder and one could say the coming of the indegenisation and empowerment act has not helped much either with so much hesitation by foreign investors to put their dollar in Zimbabwe given the peceived sovereign risk profile of the country.

Dony Mazingaizo has an interest in Financial Management and IFRS