Old Mutual Zimbabwe Limited has proposed a balance sheet restructuring to clear a US$84,3 million foreign-currency legacy debt linked to the group’s 2012 indigenisation transaction and the central bank’s blocked funds framework.
According to an abridged circular issued to shareholders, OMZIL intends to issue 84 315 136 non-convertible, redeemable and non-cumulative preference shares valued at US$84 315 million to creditors within the Old Mutual group in full and final settlement of the outstanding obligations.
The proposed transaction, which requires shareholder approval at an Extraordinary General Meeting (EGM), is part of efforts to strengthen the insurer’s capital structure, reduce solvency risks and resolve liabilities that have weighed on the company for years.
“The proposed transaction will settle the OMZIL legacy debt in full and permanently,” the company said in the circular.
OMZIL stated that the legacy debt comprises US$50 million owed to Old Mutual Financial Limited arising from guarantees issued during the group’s 2012 indigenisation transaction, US$32,06 million owed to Old Mutual Zimbabwe Holdings Limited in unpaid dividends and US$2,25 million owed to Old Mutual Africa Holdings Proprietary Limited for in-service fees.
The situation became more complex following Zimbabwe’s reintroduction of the local currency in February 2019 at a declared exchange rate of US$1:ZWL1.
This resulted in foreign exchange bank balances being automatically converted into local currency while external obligations remained denominated in foreign currency.
OMZIL subsequently registered the debt with the Reserve Bank of Zimbabwe (RBZ) under the blocked funds settlement framework in 2020 and deposited ZWL84 million as required under the arrangement.
In 2021, the Government gazetted Finance Act No. 7 of 2021, which contained provisions for the assumption of blocked funds liabilities by the State.
However, OMZIL said the debt has neither been repatriated nor settled under the framework and therefore remains payable to the Old Mutual creditors.
“Since then, (the debt) has neither been repatriated nor settled by OMZIL or by the RBZ/Government of Zimbabwe in terms of the blocked funds framework and therefore remains owing to the OM Creditors,” the company said.
The insurer noted that the unresolved liabilities exposed the business to significant exchange rate risks arising from the mismatch between local currency assets and foreign currency liabilities.
It also created potential insolvency concerns because the debt is technically payable on demand.
To address the issue, OMZIL and the creditors agreed to capitalise the debt through the issuance of preference shares rather than through an immediate cash settlement.
“The issue of the OMZIL C Preference Shares to the OM Creditors in full, final and complete settlement of the OMZIL legacy debt will eliminate the negative impact of the debt on OMZIL’s solvency and remove the currency mismatch by creating an equity instrument,” the company said.
The company added that the structure would allow the redemption of the preference shares at OMZIL’s sole discretion and in line with its financial capacity over time, thereby avoiding immediate liquidity pressure on the group.
Under the proposed structure, the preference shares will carry a variable coupon dividend linked to OMZIL’s distributable profits and will rank ahead of ordinary shareholders in terms of dividend payments and capital distribution in the event of winding up.
The shares will not carry general voting rights except in matters directly affecting preference shareholders.
OMZIL said the instrument would preserve shareholder value while improving financial flexibility and strengthening capital adequacy.
“The transaction will improve OMZIL’s solvency and capital adequacy over time,” the circular stated.
Financial information contained in the circular shows that OMZIL’s total equity would increase from US$303,8 million before the conversion to US$388,2 million after the transaction, while preference share capital would rise to US$84,3 million.
At the same time, total liabilities would decline sharply from US$99,3 million to US$15,5 million following the extinguishment of the debt.
The company said there would be no change in control or voting rights of ordinary shareholders as a result of the transaction.
“There will be no change to the number of authorised or issued ordinary shares in OMZIL’s share capital,” it said.
OMZIL also indicated that the preference shares could later be listed on the Victoria Falls Stock Exchange (VFEX) or another approved securities exchange, subject to regulatory approvals and market conditions.
The insurer said the transaction qualifies as a related-party transaction because the creditors are members of the Old Mutual group and associated companies.
The circular warned shareholders of several risks associated with the transaction, including continued macroeconomic and foreign currency volatility, reduced cash flow available to ordinary shareholders due to dividend prioritisation for preference shareholders, and uncertainty surrounding the blocked funds framework.
However, OMZIL said the restructuring would place the business on a firmer financial footing and support long-term sustainability.
“The proposal preserves shareholder value and improves OMZIL’s capital structure without immediate cash outflow or liquidity burden on OMZIL,” the company said.-herald
