TROUBLED hospitality group, the Rainbow Tourism Group (RTG), has tabled a US$25 million cash call as it seeks to stabilise its balance sheet after paying US$11,3 million to regional lenders in the past four years.
The capital raise could be behind RTG's late publication of financials for the year to December 31, 2016.
These were only released a fortnight ago, well over a month after the expiry of the Zimbabwe Stock Exchange's (ZSE) March 31 deadline.
The results were far from pleasing as RTG's after-tax loss for the period widened to US$4,7 million from US$29 304 in the prior year.
Revenue declined by 11 percent to US$24 million, from US$26,9 million during the prior comparative period.
The Financial Gazette's Companies & Markets can reveal that the leisure group is planning to hold an extraordinary general meeting (EGM) on June 2, 2017.
At the EGM, shareholders would be asked to inject fresh capital through the issuance of debentures at a price of US1,2 cents.
The intention is to raise US$25 million.
About 2 083 333 333 debenture shares would be issued, attracting a five percent interest rate, with a two-year moratorium on repayment over 15 years.
Chartered accounting firm, KPMG are the advisors to the transaction.
The group would offer four of its hotels as guarantees to shareholders, after which the debenture would be listed on the ZSE on June 28.
A timetable to this effect has been presented by KPMG to at least two of RTG's major shareholders.
The hotels offered as guarantees include the five-star Rainbow Towers, A'Zambezi River Lodge, Victoria Falls Rainbow, and Bulawayo Rainbow.
Proceeds would be deployed towards settling a US$13,6 million loan from RTG's major shareholder, the National Social Security Authority (NSSA).
Part of the proceeds would be used to restructure expensive loans to the tune of US$16 million, and paying off US$815 000 commitments to trade creditors.
About US$6 million would be channelled towards the refurbishment of the flagship Rainbow Towers in Harare, to give it the stamina required to confront intensifying competition.
A further US$1,5 million would be channeled into the expansion of A'Zambezi in Victoria Falls.
If the resolutions proposed at the EGM are approved, RTG's authorised share capital will increase by at least 1 453 828 876 shares from 2 500 000 000 to at least 3 953 828 876.
RTG insiders this week said major shareholders, including NSSA, Nicholas van Hoogstraten's Hamilton and First Mutual Limited have entered into an underwriting agreement with the group.
RTG operates a string of what were once top class hotels in the country but these have been affected by lack of capital to rebuild them into world class outfits capable of matching the expectations of an increasingly demanding clientele.
These are Rainbow Towers, New Ambassador Hotel, Kadoma Hotel and Conference Centre, Bulawayo Rainbow, Victoria Falls Rainbow and A'Zambezi.
RTG chief executive officer, Tendai Madziwanyika, told analysts recently that the group was faced with the need to increase room capacity at some of its hotel properties.
For instance, A'Zambezi would need 32 additional rooms from the current 87.
He hinted that the company was proposing to reduce its working capital gap through payment of statutory obligations, which are overdue.
Some of them are already attracting late payment interest and penalties.
"The convertible debenture at issuance will be regarded as a cash settlement instrument. The interest and capital repayment on the debenture will require significant cash reserves," he said.
"Though forecast to be available, this could constrain the company's ability in investing in new projects, fund ongoing business activities, retire or service outstanding debt and pay dividends. The conversion option, if exercised, would give the company the flexibility to deploy its cash resources to fund future growth," read part of the term sheet.
RTG was sitting on huge debts, including a US$3,8 million loan from PTA Bank and a US$7,5 million injection from the Africa Export and Import Bank.
The group has since settled the debts to the two lenders.
A slide in tourist arrivals, prolonged shareholder fights and government interference have been at the heart of RTG's problems.
There have been significant management changes at RTG since it was transformed from the Zimbabwe Tourism Development Corporation to RTG in 1992.
Samukange was the CEO at the time, before he was replaced by Herbert Nkala, who left the group in 2005, after which accountant Chipo Mtasa shot to the helm.
After Mtasa left in 2011, Madziwanyika assumed the hot seat in November 2012.