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Business Reporter
HOTEL group African Sun Limited has reduced its short-term debt by more than 30 percent following the disposal of some shares in property firm, Dawn Properties. As at 31 March, ASL’s short-term debt stood at $12,39 million. In August ASL announced that it was selling 294 million of its 701 million shares in Dawn Properties to Lengrah Investments for a cash consideration of more than $4,33 million.
In a circular to shareholders yesterday detailing the transaction, ASL said proceeds from the sale of the shares were used to reduce the company’s short-term debt.
It said due to lack of capital markets in the country, the company was forced to rely on expensive short-term finance which attracted high interest charges.
In the six months to 31 March, the company had paid more than $1,5million in finance charges.
“Because of the liquidity challenges that have been prevalent in the Zimbabwean economy since dollarisation, the cost of borrowing has generally been high and this has increased pressure on margins being earned across all businesses. Through the reduction of debt and subsequent restructuring of the balance sheet, the company expects to reduce its costs of borrowing going forward,” said the circular.
ASL said the reduction of the short-term debt would see finance costs going down by $70 000 a month.
It also said that the acrimonious relations between ASL and Dawn Properties that prompted the purchase of the shares last year had improved and continued holding of a majority stake in the property company was no longer necessary.
“Conditions which previously led to deterioration in working relations between African Sun and Dawn Properties have since improved. It is the board’s considered view that the strategies, which included investment in Dawn Properties linked units, that had been implemented to protect African Sun over its leases are now not critical,” said the circular.
ASL acquired a majority stake in Dawn Properties last year after squabbles over tenancy issues between ASL and Dawn. ASL leases most of its hotel properties from the Zimbabwe Stock Exchange listed Dawn which was demerged from ASL, then known as Zimbabwe Sun Limited.
Meanwhile, African Sun says it expects volumes at its hotels to increase following the United Nations World Tourism Organisation general assembly co-hosted by Zimbabwe and Zambia which will enhance the country’s tourism visibility and the resumption of flights to Bulawayo and Victoria Falls by Air Zimbabwe.
“World travel is expected to continue growing in 2013 averaging three to four percent. Growth will predominantly be driven by Asian Pacific and African markets. However, inbound travel from our major source markets has been strong compared to prior year, with foreign arrivals surging by 13,75 percent dominated by the Americas which registered the highest increase of 42 percent.”
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