TRUST HOLDINGS is on the verge of concluding a placement with a South African firm MOGS to raise US$20 million to comply with minimum capital requirements and enhance liquidity in its banking unit. According to THL’s investment proposal to shareholders, the financial services group would convene an extraordinary general meeting to consider the two recapitalisation options available. Directors preferred a private placement to a rights offer. This is because the capital injection by a new investor was considered most feasible as current shareholders appear constrained to support a rights issue.
THL group chief executive Mr William Nyemba said while several regulatory approvals were required for the transaction to sail through, the group has already secured endorsement from 60 percent of key shareholders.
“There are several regulatory approvals required before the extraordinary general meeting and the eventual capital injection. The new investor offered to inject equity which will result in a significant stake well above the indigenisation percentage thresholds for foreign investors,” he said.
THL is now waiting for this crucial approval from the Ministry of Indigenisation and once the regulatory approval has been obtained the share placement could be concluded by end of next month.
Mr Nyemba added that THL was only waiting for approval from the Ministry of Youth Development, Indigenisation and Empowerment as they have already secured the other approvals from regulatory authorities. The South African firm is an investment vehicle of the Bafokeng Nation, which holds significant interests in SA’s major mining and financial services companies such as RMB and Implats.
MOGS has offered to invest US$20 million in Trust Bank in exchange for a 100 percent shareholding in the bank and reduce it in line with indigenisation laws over five years. The indigenisation law requires foreign- owned companies to hold a maximum of 49 percent stake in local firms with indigenous Zimbabweans holding the balance.
Failure to inject capital fresh for the bank in the short term would have dire consequences for the bank and the group. Operation was capitalised to the tune of US$16,5 million after reopening in 2010. Trust Bank was among the casualties of the 2003-2004 banking sector
with December 2012 target (US$25m) and June 2013 target (US$50m) and urgently needs to capitalise for compliance as well as liquidity purposes.
According to documents in our possession of Herald Business MOGS will offer current institutional shareholders to take up shares offering staff through an Employee Share Ownership Scheme.
MOGS will ensure bank regulatory capital compliance, improve bank liquidity, give shareholders premium for their shares plus US$6 million net assets against US$1,4 million market value.
With a THL market capitalisation of US$1,44 million shareholders will get a 344 percent premium at an implied valuation of US1,67c per share if they take assets for their shares in the bank.
THL directors also believe that the capital injection and shareholding acquisition by MOGS will give the group an opportunity to unlock value through assets released to current shareholders.
The share placement is subject to regulatory approval from the Reserve Bank of Zimbabwe, Zimbabwe Stock Exchange and Ministry of Youth Development, Indigenisation and Empowerment.
The core capital of Trust Bank after capital injection will increase to US$24,1 million from US$4,1 million. MOGS will be responsible for ensuring profitability and future capitalisation of bank.
Property assets to be transferred have a combined value in Trust Bank books of US$6 million comprising US$2, 4 million for Transtobac and US$4 million for the Newlands Bypass.
THL believes that due to the current market conditions the assets are undervalued. Various options can be explored to unlock or derive value from the assets including.
The financial services group may also consider liquidating when conditions improve to obtain better valuation, development of properties and leveraging properties to secure funding for other projects.
THL once engaged Norwegian equity investor, Norfund for funding but the deal fell through with the investor eventually settling for Trust Bank’s fellow financial services provider NMBZ.