Harare — STARAFRICA Corporation shareholders have agreed to raise US$10 million through a rights offer to refurbish and capitalise its sugar refineries and an additional US$10 million through private placement of convertible debentures to restructure the group's debt.

Group chairman Mr Oliver Chidawu said US$4 million will be directed towards refurbishment of refineries and US$6 million would be for working capital, such as purchase of raw material.

He said Starafrica experienced significant operational challenges, particularly the sugar refineries.

"Sugar refineries' operations were adversely affected by funding constraints as a result of a breakdown in the working capital cycle.

"Raw material constraints meant that sugar refineries could not operate at optimum efficiency and excessive downtime at the sugar refineries, as a result of limited capital investment," said Mr Chidawu.

He added that following the capital injection, production is expected to increase to an average of 70 percent. The convertible debentures will save the company US$1 million interest per annum.

The 92 595 290 ordinary shares in the issued share capital of Starafrica will be listed on the Zimbabwe Stock Exchange on April 1 this year at a subscription price of US$0.108.

OK Zimbabwe Limited will also be coming onto the market to raise US$10 million through a rights issue.

Nicoz Diamond, African Sun, Fidelity Life and CFX are some of the companies which were on the market last year to raise funds. African Sun received the highest subscription of 67,9 percent.

The market is short of cash and indications are that most shareholders will not be able to follow their rights.

One analyst said it seems unreasonable to subscribe to the rights offer as the current market price is currently below the US7c it is currently trading at.

"As such, we believe voting in favor of this much necessary move is as good as allowing them to be diluted at a premium to the underwriter.

"We would not disallow that as the group is desperate for additional capital to take it back to the top of the sugar supply chain," said the analyst.

Shareholders also agreed to change their authorised share capital denomination from 500 million ordinary shares at ZW$0,00005 each to 500 million ordinary shares of US$0,0001 each.

Starafrica's authorised share capital increases from US$50 000 (500 million ordinary shares at US$0,0001 each) to $80,000-00 (800 million ordinary shares at US$0,0001 each).

The private placement of convertible debentures to ABC Holdings will be for a 60 months tenure and the coupon would be 12 percent per annum for the first 24 months and 15 percent for the remaining 36 months, interest being payable quarterly.

Under the arrangement, the convertible debentures can be converted to ordinary shares of Starafrica at a price of 14c per share within the first 24 months from the date of subscription.

Convertible debentures are redeemable for cash by Starafrica within the last 36 months, if not converted within the first 24 months and they will be freely traded on the secondary market and are not secured.

However, with the current state of the economy, where most companies are still trying to recapitalise to take advantage of the gaps in the market or at least be regionally competitive, many will look attractive unless their three-year operational and financing plans have solid foundations.