Auditor unhappy with NSSA, RTG deals
TWO transactions involving a total of US$14,4 million between the National Social Security Authority (NSSA) and the leisure chain, Rainbow Tourism Group (RTG), have raised questions from the country’s comptroller and auditor general.
The auditor general, Mildred Chiri, has queried why NSSA continued to release millions in loans to the listed hotel chain between November 2012 and 2013, even as it became clear it was struggling to service debts following a dire working capital crisis triggered by a slump in arrivals in Zimbabwe and the generally difficult economic crisis, which has affected revenues.
NSSA is a critical shareholder in RTG and, given criticism of investments it lost in several listed businesses, is apparently interested in the turn-around — spearheaded by the chief executive officer, Tendai Madziwanyika — of the hotel and leisure firm.
Madziwanyika has been making tough decisions as he battles to steer the group, which was technically insolvent when he took over a few years ago, back to profit.
He had told this newspaper, a year into his job, in an interview: “This thing (RTG) could have been wound up if one creditor (had) applied for liquidation. You just needed one creditor to make noise, everyone else would have made noise and pressed for liquidation and we would have been mince meat.”
It’s those legacy issues that have affected RTG, which still has millions from the PTA Bank locked in a collapsed bank. RTG is trying to sort them out with funding from NSSA.
One of the transactions, a US$4,4 million loan advanced during 2013, was issued without the RTG offering security.
Chiri said NSSA, the compulsory pension fund which holds millions of dollars in public funds, risked losing money should the leisure giant fail to repay.
RTG, the second largest hotel chain in terms of market share in Zimbabwe after African Sun Limited, controls about nine hotels including the five star Rainbow Towers in Harare, with two others in Zambia and Mozambique.
The US$4,4 million was for the recapitalisation of Rainbow Beitbridge Hotel, which is run by RTG and was constructed by NSSA.
In 2012, NSSA, the major shareholder in RTG, advanced US$10 million to the group for recapitalisation.
RTG undertook to repay the principal debt within one year.
But the group, then battling to overcome a liquidity crisis, failed to service the debt, resulting in accumulated arrears of US$1,3 million at the end of last year, according to Chiri.
“RTG was advanced a loan of US$10 million in November 2012 for it to recapitalise its operations,” Chiri said in a NSSA report for the year to December 31, 2014.
“The principal amount was to be repaid within one year whilst the interest component would be calculated at 10 percent of the principal amount and payable on a monthly basis. As at December 31, 2014, RTG had outstanding interest amounting to US$1,3 million. From the records availed for my inspection, I noted that the company last paid interest in August 2014. The provision of the contract clearly stipulates that in cases of default, the disbursed amounts plus interest and any charges shall become immediately due and payable by RTG. I was advised that RTG had made a new commitment to clear the outstanding interest obligations by June 30, 2015. However, at the time of my audit in April 2015, RTG had not paid anything towards settling this debt. During 2013, a further US$4,4 million was advanced to RTG for capitalisation of Beitbridge Hotel. This US$4,4 million was not secured despite indications that RTG was experiencing difficulties in servicing an earlier loan that was rescheduled,” she said.
NSSA and RTG had then tried two options to deal with the problem, with the first being the release of the exclusive A’Zambezi River Lodge, a waterfront property on the banks of the Zambezi River in Victoria Falls, as security for the US$4,4 million loan.
A’Zambezi was recently given a facelift in a project valued at about US$3,2 million.
But then, RTG had already used the property to secure another offshore loan, which complicated the transaction.
“Please note that the board had given management the nod to advance US$4,4 million to RTG before release of the security, that is A’Zambezi Hotel due to some challenges which were associated with the release of the security,” NSSA said in response to Chiri’s questions.
“The security was already attached to another DFI as first mortgage bond therefore it was a process to rewind the deal. However, the board authorised management to proceed to release the loan on condition that a follow up to regularise the situation will be done.”
The report says another option was for RTG to borrow another loan from PTA bank, the Pan African lender that offers cheaper interest rates, in order to repay NSSA.
“We are happy to advise that PTA Bank has now agreed that RTG can proceed to register a mortgage bond in favour of NSSA on A’Zambezi Hotel to securitise the loan. The process of unlocking the security was delayed due to controls beyond RTG and NSSA,” said NSSA.
The authority said it felt compelled to support RTG as the major shareholder in the hotel chain, adding that there was risk that without giving the group support, NSSA would lose rental income.