Source: NSSA in fresh RTG bailout | The Financial Gazette December 22, 2016
THE National Social Security Authority (NSSA) is planning to give a fresh US$14 million loan to the Rainbow Tourism Group (RTG), as it battles to stabilise the country’s second largest hotel chain, which is already battling to service another US$13,6 million injection extended by the pay-as-you-go pension scheme in 2010.
This is despite concerns from the auditor-general last year over NSSA’s release of cash to the hotel and leisure group in 2012 even when it had become clear that the Zimbabwe Stock Exchange (ZSE)-listed concern was struggling to service debts due to a dire working capital crisis.
NSSA, which controls 40 percent shareholding in the Zimbabwe Stock Exchange (ZSE)-listed leisure chain, is the largest shareholder in the group that has been battling to offset huge legacy debts inherited by the current Tendai Madziwanyika-led executive, which came into office in November 2012.
But the pension fund, whose investments over the years have attracted criticism from both pensioners and the auditor-general, will have to convince the second largest shareholder, Nicholas van Hoogstraten, whose stock in the group is estimated at 36 percent, about the merits of the fresh transaction.
RTG two weeks ago issued a cautionary statement to shareholders which sources said was related to the NSSA injection. The cautionary was in compliance with ZSE listing rules.
“The directors of Rainbow Tourism Group Limited wish to advise all shareholders and the investing public that the company is engaged in discussions that involve a potential transaction that may have a material impact on the value of the company’s shares,” said RTG company secretary, Napoleon Mtukwa, in the cautionary statement published on December 5.
“The transaction involves the restructuring of the company’s debt. Further details of the transaction will be provided once discussions have been finalised,” Mtukwa added.
The Financial Gazette’s Companies & Markets (C&M) can exclusively report that the move by NSSA to bail out RTG had been on the table for some time.
But there was bickering behind the scenes, with van Hoogstraten quizzing other shareholders over the wisdom of RTG acquiring fresh loans when the company has been in default on its current debt repayment obligations to NSSA since January.
The major shareholder’s proposals are expected to go to an extraordinary general meeting (EGM), possibly in the first quarter of 2017. But there are already fears disagreements may scuttle any moves by NSSA, unless the group finds common ground with other shareholders in the coming weeks.
People aware of the proposal said NSSA, which feels RTG has no capacity to service the current loan, intends to convert its combined debt to the hotel chain into a long term loan and offer a fresh US$14 million debt at an interest rate of six percent over seven years.
There will be a one-year grace period.
NSSA has set conditions for other shareholders before releasing the cash, which is vital for giving RTG management breathing space.
C&M understands that NSSA has said since it would now be “carrying other shareholders”, it wants their approval to convert the loan.
RTG management and other shareholders have approved this, except van Hoogstraten.
It was not clear if van Hoogstraten had come up with an alternative arrangement.
But at an emotive annual general meeting (AGM) in June, he opposed the decision to restructure the loan, arguing that the initial funds were not used for their intended purpose.
At the AGM, van Hoogstraten opposed adoption of the group’s 2015 annual report, saying the restructured loan had not been accounted for correctly. Van Hoogstraten argued that the company should have held an EGM to approve the restructuring.
He said the restructuring had been approved by interested parties, referring to NSSA-appointed directors who sit on the RTG board.
The businessman also opposed the audit fees and reappointment of Grant Thornton as auditors of the group for the year.
But as the parties hurtle towards an EGM, NSSA is said to have issued summons to RTG over the outstanding loan.
“We have issued summons because we are now saying enough is enough,” NSSA chairman, Robin Vela, told C&M recently.
“We have issued summons against RTG for the US$10 million that is in default. It has been in default since January. We offered van Hoogstraten and the board for the reconstitution of that loan. So we said they owe us US$3,6 million in terms of the hotel and they owe us US$10 million, let’s say US$14 million in total. We said to them, ‘You cannot afford to pay these loans.
“We are going to put these loans together as one. We offer you a new US$14 million loan, over seven years, six percent interest rate, one year grace period,” Vela said.