HomeNewsRainbow seeks $4,5m

Rainbow seeks $4,5m

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RAINBOW Tourism Group (RTG) directors are seeking shareholder approval to raise $4,5 million through a rights offer to recapitalise the hotel at the company’s extra-ordinary general meeting (EGM) set for later this month.

Report by Mernat Mafirakurewa Acting Business Editor

The EGM will be held on December 24.

Under the proposed rights offer, 225 million new ordinary shares will be issued.

The National Social Security Authority (NSSA) would underwrite the rights offer which will cost $252 000 and is expected to take up unsubscribed shares, or shares not renounced in favour of another party to the rights offer.

“In the absence of recapitalisation post-dollarisation of the economy, RTG management had to resort to expensive short-term loans borrowed from local banks to finance critical capital requirements and working capital,” RTG said in a circular to shareholders.

“The proposed recapitalisation through a rights offer of approximately $4,5 million is designed to address the group’s working capital requirements by retiring part of the $12,6 million short-term expensive loans and the balance shall be restructured through a $10 million secured from a local lender under favourable borrowing terms.”

As at June 30, RTG’s borrowings amounted to $23,9 million with the PTA bank and Afrexibank owed a combined $11,3 million.
Local institutions were owed $12,6 million.

“The directors are of the opinion that RTG is now in a constrained position in as far as servicing its debt is concerned. However, upon successful implementation of this rights offer, the company shall be in a better position to service its financial obligations as and when they fall due,” the circular read in part.

RTG said the recapitalisation would aid in freeing up working capital that was being channelled towards interest payment.
It said failure to implement the rights offer would make it impossible for the company to retire short-term debt and would continue to be burdened by high finance charges.

“In the event that the proposed rights offer is not implemented; the company’s earnings will be subdued as a result of working capital constraints and relations with creditors will further deteriorate which may result in possible litigation,” the circular read.

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