adminvexatious debt and seeks to recapitalise operations.
The locally listed resource firm is heavily borrowed and this is threatening the going concern status of the group.
However, just like any other company operating in this dollarised economy, solutions are in sight to solve the company’s precarious financial problems.
Last week shareholders of the company met at an extraordinary general meeting to chart the way forward based on what the directors had proposed.
Shareholders totally rejected the proposed US$59 million rights issue and the US$29 million debt equity swap deal for the reasons best known to them.
Of the US$59 million RioZim wanted to raise, US$29 million would go towards clearing debt, US$11,6 million to working capital, US$13,6 million to capital projects while US$13 million would recapitalise operations.
About US$13,96 million had been earmarked for Renco, US$4,22 million for Empress Nickel Refinery and US$4,87 million was needed for Cam & Motor Mine.
Post the recapitalisation, US$28 million would be left in more attractively priced debt.
As I tried to read into the RioZim story, I consulted with colleagues in the market and I was convinced that this was the only chance for the shareholders to save the company by passing the resolutions.
As it is now, the company is now more exposed to the financial institutions.
Total debt currently amounted to US$57 million with the principal at US$30,15 million and interest of US$26,85 million.
At the end of full year to December 2010, total borrowings amounted to US$49 million, with the principal at US$34 million and interest of US$15 million.
In 2009 it amounted to US$26,5 million and was split US$22 million and US$4,5 million.
Analysts said shareholders had the opportunity to save the company at the EGM and by rejecting the proposed resolutions banks are more likely to press for liquidation to recover their money.
Some of the banks which advanced loans to RioZim include BancABC, Kingdom Bank, Metropolitan Bank, Trust Bank, Tetrad, ZB Bank, Ecobank, the Infrastructure Development Bank, Imara Corporate Finance, Renaissance Bank and the Afreximbank.
RioZim said the four resolutions were not carried and therefore the proposed solution to the company’s financial problems, as originally outlined, cannot go forward.
This means that the company is no longer going for a rights issue at a time when the mining giant requires funding to capacitate its gold mines.
How long will the company survive without fresh capital. This poses a great threat to shareholders.
Banks certainly are going to press for their money and already there has been talk that some shareholders are making inquiries for the company to be placed under judicial management.
Could this be the best way to solve the RioZim financial problems?
Someone anticipated that once banks press for their money it means the company is going for liquidation.
Liquidation is supposed to be the last resort that should be avoided because in that case creditors would be paid first and then the shareholders.
It is a bitter pill when shareholders lose out. Already shareholders have lost significant amounts of money since the beginning of the year.
In January this year RioZim’s share price was trading at US190c and yesterday it closed at US32c. From a shareholders’ perspective passing the resolutions seemed to the best way to preserve value.
Some sections of the media said shareholders wanted to boot out management. Could this be the solution?
I am not disputing that management could have made the situation worse but there is a danger of dealing with the wrong symptoms.
However, following rejection of the proposed solutions, the company said the directors had already initiated consultations with shareholders to find a positive way forward, which will solve short-term financial issues and devise a roadmap for the long-term survival of the company.
One wonders what the directors would have agreed with the shareholders because what is urgently required is immediate capital injection.
Management went on to say that with the support and involvement of major shareholders the directors are revisiting the transaction and expect to produce a revised solution in the very near future.
Yes, this could be one of the best ways to solve the issue as it was indicated that some of the major shareholders were not happy with the conversion ratios used in the transaction and if these issues are dealt with, the company would be revived.
For a couple of weeks the resources index was at its lowest ebb since 2009 and this is the reason why problems at RioZim have to be resolved as the counter contributed to the onslaught.
It is the duty of shareholders to bring back normalcy at the mining giant, why? Because the company plays a crucial role in this economy from minerals to power generation.
Shareholders should not be selfish and those with vendettas should set them aside and bring back the glory that was associated with RioZim – one of the biggest mining companies in the country.
Online Reporter