RAINBOW Tourism Group Limited has raised US$4,5 million through a renounceable rights offer to its existing shareholders. The total uptake for the rights offer was 28,10 percent, which compares well with other rights offers recently made in the market. The underwriter will take up the balance of unsubscribed shares.
The rights offer was approved by shareholders at a meeting on December 27, as the hospitality group moved to retire short-term expensive loans which stood at US$12,6 million as at June 30 2012.
The US$4,5 million will be channelled towards the reduction of this short-term debt. Apart from the US$4,5 million the group also secured a US$10 million medium-term loan at a rate of 10 percent, bringing the total raised so far to US$14,5 million.
As a result, RTG has managed to reduce its average cost of debt from 23 percent to 10 percent.
High interest costs had been eroding the group's profitability whose interest rates on short-term borrowing stood at 23 percent in June 2012 up from 18 percent during the same period last year.
RTG believes that the recapitalisation will free up working capital, currently being channelled towards interest payment in order to finance generation of more revenue for the group.
"The reduction of the high interest expense will significantly improve the group's financial position going forward.
"RTG is positive that by reconfiguring its business processes, the business will in a space of two years reverse the losses it has accumulated since dollarisation," said the company in a statement.
RTG has been on a major drive to refurbish its hotels in order to stay ahead of the pack.
The refurbishment, which started at A'Zambezi in 2010, has since spread to Rainbow Towers, Kadoma Hotel and Conference Centre and Bulawayo Rainbow Hotel, among others.
RTG also owns the Victoria Falls Rainbow and the New Ambassador hotels.
The refurbishment, which began last year and would be carried out countrywide, was made possible through a US$7,5 million loan from Afreximbank.