RAINBOW Tourism Group [RTG] shareholders meet tomorrow to approve a US$4,5 million recapitalisation exercise as the hospitality group moves to retire short term expensive loans.
REPORT BY NDAMU SANDU
The recapitalisation exercise to be undertaken through the issuance of new shares to existing shareholders [rights offer] will see the National Social Security Authority [NSSA] underwriting the transaction.
NSSA controls over 50% shareholding in the hospitality group.
Funds from the rights offer, in addition to the medium-term loan obtained from Capital Bank, would be used to clear short-term expensive loans that stand at US$12,6 million.
Short-term debts have been an albatross on the hospitality group and since dollarisation, the group total interest cost has climbed to well over US$5 million.
Interest rates on short-term borrowing stood at 23,3% in June up from 17,8% in the same period last year.
RTG believes that the recapitalisation would free up working capital, currently being channelled towards interest payment in order to finance generation of more revenue for the company.
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The meeting to approve the recapitalisation of the hospitality group would be preceded by an Annual General Meeting of shareholders meant to approve the financial statements, directors’ fees and note the resignation and appointment of new directors on the board.
The meeting is the first since the acrimonious meeting in June last year when Nicholas van Hoogstraten’s nominees failed to garner enough votes to sit on the board, triggering a war of words between directors.
A new board chaired by Joseph Kanyekanye was appointed in July incorporating representatives of van Hoogstraten.
The hospitality group wants to steer from the red and hopes to reach profitability by year-end 2013.
In the half year ended June 30 2012, RTG widened its losses to US$3,2 million from US$1 million in the same period last year, weighed down by finance costs.
“We are developing a turnaround strategy that we will fully implement in order to realise this stated position,” group CEO Tendai Madziwanyika said last month.
“We believe that if we aggressively drive revenues, push down costs and reconfigure our business processes, this business will in a space of two years reverse the losses it has accumulated since dollarisation.”
