British tycoon and Rainbow Tourism Group (RTG)'s single largest shareholder, Nicholas van Hoogstraten, did not back the Zimbabwe Stock Exchange (ZSE)-listed hospitality group's recent cash call, in which the National Social Security Authority (NSSA) is expected to consolidate its shareholding.
RTG embarked on a rights issue to raise US$4,5 million in December 2012 which was significantly undersubscribed.
Van Hoogstraten, who has fought several battles with the group's former board and management, said he wanted a forensic audit undertaken and criminal proceedings brought against the former board and senior management if they were found guilty.
But he is not in the mood to contest the recent cash raising initiative as he appears to be happy with the trajectory NSSA has taken in running the affairs of RTG.
Responding to questions from The Financial Gazette's Companies & Markets (C&M), van Hoogstraten, who has a 36 percent shareholding in RTG, said he would participate in any of RTG's capital raising initiatives if the dispute over a 2005 rights issue, in which he alleges to have been prejudiced by the then board and management, is resolved.
"Yes (I did not participate in the rights issue) because the issue of my underwriting of the previous rights issue (where I was defrauded) has still not been resolved by the High Court," he told C&M.
RTG requires US$15 million to recapitalise and retire short-term debt. It plans to raise US$4,5 million through a rights issue and about US$10 million through the sale of the Bulawayo Rainbow Hotel to NSSA.
Van Hoogstraten said he did not approve the rights issue to retire short term expensive loans which were at US$12,6 million as at June 2012.
"I did not (approve the rights issue). The US$20 million short term debt arose due to the fraudulent actions of the former . . .sponsored management," he alleges.
"A forensic audit needs to be undertaken and criminal proceedings brought against the former board and senior management. Apart from these issues the company is fundamentally sound and was debt free at the commencement of dollarisation," he said.
C&M understands that Proctor & Associates Fraud & Risk Advisory Group who were engaged to audit RTG are concluding their findings.
Van Hoogstraten said RTG's outlook was "positive" if the issue of the 2005 rights issues was resolved and a forensic audit undertaken.
Van Hoogstraten is on record saying Zimbabwe's second largest hospitality group's fortunes hit a tailspin in 2005 after management and directors conspired to block an opportunity for him to increase his stake in the group under a then ZW$80 billion cash call.
Van Hoogstraten was the lead underwriter of the 2005 rights issue. He alleges that he was the only underwriter to provide upfront cash for his shares but despite this, management and directors defrauded him of a 19 percent shareholding.
He has challenged the alleged "mugging", with the case still pending at the High Court.
He says recent development at RTG had vindicated him.
"All I have been saying for the past three years has been proved correct," said Van Hoogstraten.
Under the US$4,5 million rights issue, NSSA could increase its stake in RTG after it snapped up over 70 percent of the new ordinary shares issued during the cash call.
NSSA, as the underwriter of the US$4,5 million rights issue, took up the shares after the offer was undersubscribed. From C1
Of the 225 million shares that were issued, only 63,2 million, representing 28,10 percent, were subscribed for.
By July 2012, NSSA held a 27,4 percent stake in RTG and could increase its shareholding to 34 percent through the unsubscribed shares.
In a notice last week, RTG directors said proceeds from the rights offer would be channelled towards the recapitalisation of the hotel group.
In its pre-rights offer circular to shareholders, RTG said 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.
"The proposed recapitalisation through a rights offer of approximately US$4,5 million is designed to address the group's working capital requirements by retiring part of the US$12,6 million short-term expensive loans and the balance shall be restructured through a US$10 million loan secured from a local lender under favourable borrowing terms," reads the circular in part.
Last year, RTG said it would retrench 20 percent of its staff at a cost of about US$800 000 as it moves to contain costs and realign its operations to become profitable.
Van Hoogstraten holds more than 493 million shares in RTG, representing 34 percent of the total issued share capital of the company through Banhams Investments, Messina Investments and Willoughby Finance.
RTG, a former 100 percent government-owned company, has gone through major changes in shareholding over the past 14 years, beginning with privatisation and listing on the ZSE in November 1999.
At that stage, the major shareholders were Accor Afrique, a French hospitality group which held a 35 percent stake; government through the Ministry of Mines, Environment and Tourism with a 30 percent stake; the National Investment Trust (10 percent); RTG Employee Share Ownership Scheme (five percent); NSSA (18 percent) and the public (18 percent).
Accor has been significantly diluted over the years as it has not followed its rights in previous cash calls.
In 2002, in an effort to raise finance for the procurement of fuel from Libya, government sold 14 percent of its stake in RTG to the Libya Arab Investment Company (LAAICO), reducing its shareholding to 16 percent.
In 2004, RTG found itself saddled with a heavy foreign currency debt and bleak prospects due to the prevailing business environment.
It went to the shareholders to raise funds through a rights issue. At this point two significant shareholders, Accor (35 percent) and LAAICO (14 percent) were not in a position to support the rights issue.
Government got NSSA to support the rights issue through a warehousing arrangement.
The rights issue brought in a new dominant shareholder, Van Hoogstraten, who since then has been in dispute with the RTG board demanding control of more than the 36 percent he managed to acquire of the RTG shareholding then.
As RTG searched in its shareholder register for shareholders who could provide it with a confirmation in support of its rights issue as part of the underwriting requirement by the bankers, the name Messina Investments cropped up.
The owner of Messina Investments was Van Hoogstraten, with extensive business interests in Zimbabwe and the UK.
He was approached to give his written support for the rights issue whereupon he insisted that he would not do free work for the banks. He said he would support the rights issue to the tune of the then ZW$25 billion out of the ZW$80 billion required.
However, he could only give his support through an underwriting agreement where he could at least earn a fee for his services.
Since the ZW$25 billion was still not enough for the RTG bankers (ZB Bank) to grant the global underwriting, Van Hoogstraten was persuaded to increase his underwriting to US$40 billion.
An agreement was then ceded to CBZ Bank who had by that time agreed to be co-underwriters.
The rights issue circular then had two underwriters, namely CBZ Holdings (which was backed by the Messina Investments agreement) and ZB Bank. The two banks shared the underwriting in equal proportions.
At the close of the rights issue, the shares not taken up were split equally between CBZ Holdings for onward submission to Messina Investments or any other company under Van Hoogstraten, and Zimbank, now called ZB Bank, which was then taken up by Terra Partners through a Barclays Bank nominee vehicle.
This resulted in the following shareholdings structure- Messina and Other Companies (Banhams, Edwards Nominees) (34 percent), Terra Partners (a UK-based investment fund) (28 percent), NSSA (12 percent), Accor Afrique South Africa (10 percent), Ministry of Mines, Environment and Tourism (four percent), LAAICO (four percent), RTG Employee Share Ownership Scheme (two percent) and the public (six percent).
It was the split of the rights issue shares that angered Van Hoogstraten.
He alleged massive fraud by RTG directors and demanded that the board step down en masse.
Since the underwriting agreement entitled both parties to arbitration in the event of a dispute, the matter went for arbitration in 2006 before retired Justice McNally.
The arbitration ruled in favour of the RTG board. In 2007, Van Hoogstraten attended the RTG AGM and demanded a poll vote of all the resolutions including the approval of accounts, appointment of directors and auditors.
Van Hoogstraten lost on this issue with 60 percent vote against his 34 percent.
In 2008, the RTG issued an AGM notice with a special resolution for approval of a share option scheme. Van Hoogstraten was against this motion and wrote to express his disapproval and threatened to sue the company if the scheme was implemented.
The shareholders present voted unanimously in favour of the scheme. However, management has not implemented the scheme as it was hoped that Van Hoogstraten could be positively engaged on the issue.