OK Zimbabwe ignores the notorious Indigenisation Act

By TAPIWA MAKORE

Published: March 18, 2010



Despite the provisions of the notorious Indigenization and Empowerment Act, one of the country’s biggest retail chains, OK Zimbabwe, has invited in an international investment partner to raise more than US$20 million to recapitalise the group in a bid to save itself from competition in the retail sector.
The move by Investec Africa Frontier Private Equity Fund (IAFPEF), a fund managed by Invest Asset Management, an investment arm of the Johannesburg and London Stock Exchange-listed Investec Group, to invest in OK is likely to attract the attention of ZANU-PF given their recently gazetted indigenisation regulations which criminalizes the foreign majority shareholding in local investments.

The Investec Group has assets worth more than US$64 billion and its investment arm has investments of US$1 billion on the African continent outside South Africa.

OK Zimbabwe directors warned that unless shareholders approved proposals by the board to raise US$15 million through a rights offer and an additional US$5 million from a convertible loan at an extraordinary general meeting on 25 March, the group would continue to lose market share to new and traditional competition as well as fail to win back its lost market share.

Since the introduction of the multi-currency system after a decade of soaring inflation, the retail sector has been characterized by extensive competition especially from new players that came on board just recently, posing a stiff challenge to established chains.

OK Zimbabwe said it had identified the Mauritius-based Investec Africa Frontier Private Equity Fund as its equity partner.

Shareholders would be asked to buy additional shares at a price of US$0,06 through a rights offer underwritten by IAFPEF.

The fund will extend a loan of US$5 million which can be converted into shares after three years.

IAFPEF will be allowed to nominate two directors into the OK Zimbabwe board, one of them an independent, to bring the total number of non-executive directors to six.

The money according to OK Zimbabwe will be used to, pay off its existing short-term debt, which was deemed expensive, refurbish stores and expand the store network as well as invest in information technology among other things.

“The challenges of the past decade, in particular the last two years leading to the adoption of the multi-currency system, severely depleted the capital base of the company.

“For the past few years, the company has not been able to sufficiently invest in its store network or plant and equipment.

The advent of the multi-currency trading environment saw the company successfully restoring operations in its stores during the first quarter of 2009.

However, a number of new competitors have entered the retail market while some of the company’s traditional competitors are actively seeking to increase their market share,” the company said in a statement to shareholders.

It said the company decided on IAFPEF because other means of raising capital would take a long time.

OK Zimbabwe posted a profit after tax of about US$2,8 million in the year ending December 2009.

The company is one of the few ones left in the country after most of the international companies fled the country during the ZANU-PF rule which saw businesses close due to hyper-inflation as a result of the then administration’s corrupt activities among other governance ills.