At the extraordinary general meeting scheduled for
The transaction was necessitated by challenges arising from the
TSL is a 62,92 percent shareholder in
The debt comprises
Chemco has struggled to meet its financial obligations due to structural changes in demand from key markets, high overheads and inability to effectively recapitalise the company.
This resulted in the company generating revenues and cash flows insufficient to support operational and financial costs.
As such, TSL has proposed a transaction that will result in the conversion of the shareholders' loan, the bank over draft and trade payable to be assumed by TSL, into shares.
According the circular to shareholders, TSL extended the loan to Chemco at 8 percent per annum and further met various other obligations on behalf of its troubled subsidiary. The
The Chemco shares will be issued to TSL through a private placement while existing Chemco shareholders will get one TSL share for every 1,88 Chemco share already held. After conversion of the shareholder loan into equity, TSL will assume Chemco's
"TSL has business interests other than its holding in Chemco and is a guarantor to the bank overdraft. TSL believes that it is better placed to service these debts, leaving Chemco free to use its cash flows and revenues for other corporate purposes and removing the related security on Chemco's property assets," Chemco said in the circular.
In order to facilitate the debt and trade payables conversion into equity, Chemco will have to increase its ordinary share capital from 20 000 ordinary shares to 31 000 ordinary shares with a nominal value of
The offer price of
The transaction will dilute minority shareholders' interest in the agri-chemical manufacturer by 49,51 percent resulting in TSL increasing its controlling stake in the firm to 81,64 percent. The rationale behind transaction was due to shortcomings in Chemco's current business model that, coupled with high overheads and inability to recapitalise operations, have resulted in the firm posting financial losses in the last three years.
Other reasons behind TSL's offer to Chemco shareholders was limited retail and institutional investor interest in Chemco shares due to lack of liquidity and small market value.
"Consequently, the company's share price has suffered falling from 365 day high of
Further, Chemco contends that based on its market capitalisation the compliance and cost requirements of the ZSE have become too "onerous", prompting the need to delist.
The transaction is subject to approval from Chemco shareholders, ZSE, the
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