RTG scrambles to avert collapse


RTG board chairman John Chikura

BELEAGUERED hospitality concern, Rainbow Tourism Group (RTG), is scrambling to avert demise after its current liabilities more than doubled during the half-year to June 30, 2015, against the backdrop of shrinkage in current assets.
Current liabilities swelled to nearly US$29 million during the reporting period, from US$13 million during the comparable period the previous year.
This was against a low current assets portfolio of US$9 499 109 during the half year reporting period, from US$12 483 031 during the prior comparable period, translating into a huge negative working capital of US$19 484 322 during the half year to June 30, 2015.
The situation inevitably portends disaster for the group, whose other debt amounting to US$10 million is due at the end of the current financial year to the National Social Security Authority (NSSA), which is under scrutiny after the auditor-general criticised its perpetual support to the hotel and leisure group even against the backdrop of RTG’s failure to service debts.
The RTG board said it was in negotiations with NSSA “to structure the facility before end of year 2015”.
Inevitably, this will place NSSA in an invidious position, considering that it has come under pressure for poor investment decisions in at least two other struggling listed firms in which it has lost millions of dollars.
The compulsory pension fund, often criticised for alleged recklessness in the management of millions of dollars in public funds, was this year warned by the auditor-general that it risked losing money lent to RTG in the likely event that the company failed to repay its debts.
Now, it would appear the auditor-general’s counsel was prophetic.
RTG also has borrowings amounting to US$4 million which are also due this financial year, and has a bank overdraft funded to the tune of US$1,4 million.


RTG CEO Tendai Madziwanyika

It also has to pay US$12,9 million to its creditors during the current financial year. The company has, however, been up to date with its tax obligations.
Despite the dire financial situation, directors said their assessment of the group’s going concern status was positive.
During the reporting period, the group suffered an eight percent slump in revenue to US$12,4 million. This was against US$13,5 million achieved during the comparable period the previous year.
It registered a US$1,9 million loss during the reporting period, from a marginal profit-after-tax of US$0,1 million the previous comparable period.
Board chairman, John Chikura, said revenue performance had been negatively affected by low conferencing activity in the first four months of the year.
A decrease in foreign business, which he said was mainly driven by South African visitors, had been witnessed during the reporting period. This was mainly due to the weakening of the South African rand, which made Zimbabwe a very expensive destination for South African visitors.
Zimbabwe is using a hard currency regime after ditching its defenceless currency in 2009. Although the hard currency regime is composed of multiple foreign currencies, it is dominated by the greenback, with which companies and national budgets are structured.
“The group’s revenue per available room (RevPAR) decreased by six percent to US$30, from US$32 recorded during the same period last year. The drop in the group’s RevPAR was due to rate softening and lower occupancies during the period compared to the corresponding period last year,” said Chikura.
He said the group would continue to pursue a pricing model aimed at promoting domestic tourism in order to boost activity at all its hotels.
“The group launched a series of promotions including new weekender rates, RTG online auctions, and the Rainbow delight menu. These programmes are meant to minimise the impact of liquidity challenges in the domestic market,” said Chikura.
Realistically, there may be very little prospect for domestic tourism; the economy is in ruin, with a liquidity crunch having resulted in massive company closures during the past few years.
This, in turn, has led to job losses, with unofficial estimates saying unemployment is now at over 90 percent.
A number of people have resorted to the informal sector, which is now also struggling. Others have fled to neighbouring countries.
Essentially, the odds for a turnaround are stacked against RTG, and NSSA will inevitably have to ponder over this situation in light of the criticism from the auditor-general, who highlighted that a US$4,4 million loan advanced in 2013 was issued without RTG offering security.
The US$4,4 million loan was meant to enable RTG to occupy the Rainbow Beitbridge Hotel, which was constructed by NSSA.
NSSA had during the previous year extended US$10 million to the group for recapitalisation.
That debt was meant to be repaid within one year, but the group failed to do so.
The provision of the contract clearly stated that in case of default, the US$10 million plus interest, which had touched US$1,3 million during the first half of the year, and any charges would become immediately due and payable by RTG.
The auditor-general however, noted that RTG had made a new commitment to clear the outstanding interest obligations by June 30, 2015, but had by the time of her audit in April 2015 not paid anything towards settling this debt.
Chikaura said he was confident of a recovery during the second half of the current financial year, which he said normally contributes 60 percent of the group’s annual revenue.
“We anticipate better performing foreign arrivals and an upsurge in conferencing activities which will be buoyed by the upcoming international conference being hosted by the Ministry of Health and Child Care in the last quarter of the year. This conference is set to attract over 700 delegates into the country,” Chikaura said.
Hoping they do not sleep over at rival hotels in town!