RioZim rescue plan under threat

extraordinary general meeting next week to seek approval for its rights issue, private placement and convertible debenture.
RioZim would raise US$5 million through issuance of 10 million rights issue shares at US50c and another US$5 million through private placement of about 13 million shares to Global Emerging Markets.
An additional US$45 million would be raised via convertible debt to GEM Raintree.
The convertible debentures would be drawn over the next five years to finance existing operations, settle debts and for recapitalisation.
GME Raintree, which will underwrite the rights issue, is based in Mauritius.
In a letter to Zimbabwe Stock Exchange chairperson Mrs Eve Gadzikwa, the market regulator said it was not happy with certain contents of the circular detailing RioZim recapitalisation.
Mrs Gadzikwa could not be reached for comment at the time of going to press yesterday.
The Securities Commission is arguing that the circular was based on a comparison of unaudited and audited results, which may cause a challenge in relying on unaudited financials that can change after being audited. It also raised concern over the use of Deloitte, “an unlicensed financial advisor”.
SEC is further arguing that the circular to shareholders did not provide enough background on GME, Raintree and GME Raintree.
If the concerns raised were not addressed, the EGM would not proceed.
“Please note that the issues must be addressed before the company’s EGM of March 21 2012. Failure to do so will result in cancellation in the recapitalisation exercise,” read part of the letter from SEC chief executive Mr Tafadzwa Chinamo yesterday.
The letter was copied to ZSE chief executive Mr Emmanuel Munyukwi, ZSE board member Mr s Vimbai Nyemba, Mr H. J. Aschmann of Fourth Dimension Investments and to Mr T. Mudede of Deloitte.
RioZim managing director Mr Josh Sachikonye said they had engaged the regulator and were hoping “the problem will be sorted out”.
Some of the concerns raised include illustration on the dilution of the shareholding structure, particularly assuming the full conversion of the debenture.
“There is inadequate disclosure on the debenture. The convertible debenture on its own would need its own circular than just a term sheet.”
SEC has also queried the “limited dilution” aspect of the transaction as GEM “can easily own 56 percent through converting debt and the private placement”. 
On debt retirement, SEC demanded disclosures on the RioZim debt maturity profile.
This would help investors to make assessment on which debt might need early retirement or there could be need for all funds raised to be channelled towards debt repayment, which could leave the company with no working capital, a position which led the firm into crisis. SEC also wants RioZim to provide information on the impact of the fresh capital injection. This includes its output projections in the next five years.
It noted that the ZSE Committee permitted RioZim to proceed with the deal and has requested for “a copy of the letter from the committee and minutes of the Listing Committee that granted this permission”.