‘Cash drought’ dogs firms

systems that were necessary for a competitive economy.
All key sectors in general performed dismally because of the poor economic outlook that ensued due to inflation and other chronic economic ills that were connected to inflation such as acute shortage of foreign exchange, loss of real demand, unemployment and balance of payment problems.
In 2008 the average capacity utilisation was down to 10 percent. Early 2009, the country suspended the use of the Zimbabwean dollar for stronger and stable currencies, which include the widely used US dollar, South African rand and Botswana pula.
However, the adoption of multiple currencies while good for the economy, has brought about a new menace in Zimbabwe in the form of “drought” of cash.
Zimbabwe is a cash-strapped economy. This has affected the recapitalisation of most companies including those listed on the stock exchange. A recent study by a local research firm has shown that most companies on the ZSE are undercapitalised and require at least US$1 billion to recapitalise and operate at optimal levels. It said raising fresh equity remains essential for ZSE-listed companies at the height of the current liquidity constraints.
Since dollarisation, about 15 percent of the ZSE-listed companies embarked on rights issues, with a few being successful due to lack of meaningful funding.
In the first half of 2012, there were a significant number of corporate restructuring and capital-raising efforts, while foreign-owned firms restructured in line with the indigenisation.
Below is a detailed analysis done by Invictus Securities on capital-raising initiatives and restructuring that were done by some of the companies listed in the Zimbabwe Stock Exchange this year.
RioZim
The diversified resource firm completed a private placement of ordinary shares of US$6,6 million to Raintree Investments, a rights offer of US$5 million and issue of convertible debentures to GEM Raintree in March this year. The drawdown of the convertible debentures was to provide the company with access to a further US$45 million over a period of five years for its future funding requirements.
RioZim will now focus on debt restructuring and a strategic review of its assets.
Prior to this cash injection, RioZim had been struggling repay its debts mostly to local financial institutions. The group is now expected to create divisions called Rio Gold, which will own Renco, Cam & Motor Mines, and all other group gold assets.
Rio Base Metals, which will own Empress Nickel Refinery and all related base metal assets; Rio Diamonds, which will own Murowa and all other related diamond assets; and Rio Energy that will own Sengwa Colliery assets.
Zimplow Limited
Zimplow successfully completed the acquisition of a 57 percent stake in Tractive Power Holdings, which was previously owned by the Reserve Bank of Zimbabwe. It acquired 88 526 968 Tractive Power Holdings shares at US$0,11. Subsequently Zimplow floated a rights offer to raise approximately US$11,2 million for the purchase of the Tractive Power stake.
It is envisaged that the acquisition will allow the company to diversify its operations and incomes. In the short term, it is expected that TPH’s cash-generating operations will make a sizeable contribution to the financial performance of Zimplow, thus providing the much-needed diversification and smoothening of earnings.
Exposure to TPH will therefore offer an avenue for product and market diversification within the agricultural and mining sectors, which are expected to be at the centre of Zimbabwe’s economic resurgence.
Furthermore, the TPH investment also offers Zimplow the potential to listed on the stock exchange.
ABC Holdings
The bank floated a US$$50 million rights issue, fully underwritten by its majority shareholder, the African Development Corporation.
The funds from the capital raising are expected to recapitalise the group’s Botswana, Zimbabwe and Zambia operations.
The capital raising put all the subsidiaries, which trade as BancABC, either in the top tier or upper second tier of banks in the various countries in which the group operates.
The capital levels for the various banking subsidiaries would increase to US$53 million for BancABC Botswana, BancABC Zimbabwe US$52 million, BancABC Mozambique US$32 million, BancABC Zambia US$26 million and BancABC Tanzania US$20 million, making the respective operations fully compliant with the regulatory capital requirements.
TN Financial Holdings
TN Bank received a cash injection of US$20 million from new shareholders Econet Wireless Zimbabwe, paving way for a demerger of the bank from the group to create TN Bank and Lifestyle Holdings Limited.
TN Bank had a core capital of US$13 million as at December 31, 2011, which was slightly above the Reserve Bank’s requirement of US$12,5 million. The injection of additional core capital of US$20 million into TN Bank increased the core capital of TN Bank to levels above US$32,5 million, thus repositioning TN Bank among the top five largest banks in Zimbabwe by core capital.
In addition to TN Bank Ltd’s alignment with TN Harlequin Luxaire Ltd, much brighter growth prospects exist from an alignment of TN Bank Ltd with Econet, the largest mobile phone company in Zimbabwe that boasts approximately six million subscribers.
The successful partnership between Econet and TN Bank on the EcoCash product can be replicated in micro and consumer lending initiatives, airtime financing, cellphone financing, some savings products and various other initiatives that are to the mutual benefit of both TN Bank Ltd and Econet.
Bindura Nickel Corporation
Shareholders approved of a capital-raising project through a rights issue (US$21 million) and private placement (US$13 million) Mwana Africa, which holds a 52,9 percent stake in the mining concern, is set to underwrite the issue. In parallel to the rights issue process, BNC management has engaged with creditors and staff on settlement proposals for the amounts owing to them. Creditors have largely accepted the proposals and the BNC board has extended the rights offer closing date to August 31 2012, which was initially scheduled for July 31 2012.
Production at the mines stopped over the last few years at the height of the country’s economic and political problems, but management considers that conditions are now right for a restart of operations.
Ariston Holdings
South Africa’s Afrifresh bought about 42 percent of Ariston Holdings from Emvest and this was followed US$8 million rights offers that was underwritten by the new investors.
After the capital-raising initiative, Afrifresh saw its shareholding increasing after snapping up unsubscribe shares. After the US$8 million capital injection, the company intends to retire the US$3 million debt, US$2 million for mechanisation programme to cut on high fixed cost and another US$3 million to be invested in fresh vegetable division Favco.
Hwange Colliery
The company was on the verge of securing a US$175 million loan from Development Bank of Southern African but the initiative hit a brick wall due to what the management attributed to as “continuous shifting” of the goalposts by the South Africa regional financier.
Hwange, with a strong resource base, requires funds to replace the old equipment. Following the collapse of the DBSA, the company now pursuing a US$50 million loan from PTA Bank.
As long as the current liquidity conditions continue to prevail, it will be hard for many companies to raise capital for recapitalisation.
Under a dollarised economy, the source of money is through exports, foreign direct investment and transfers from the Diaspora.
Zimbabwe’s trade balance had been always negative, with the 2011 deficit registering a staggering US$5 billion.
FDIs, on the other hand, amounted to US$150 million in 2011 while neighbouring countries such as Mozambique received FDI in the region of US$2 billion per year.
Zimbabwe’s major sources of foreign exchange have not been performing well.
This exacerbates the liquidity situation which results in the high cost of financing that goes into the industry with some as high as 40 percent per annum.