Staff Writer
Harare: Old Mutual Zimbabwe is seeking shareholder approval for a sweeping balance sheet restructuring that would convert US$84,3 mln in long-standing foreign currency obligations into preference shares, as the insurer moves to resolve liabilities tied to Zimbabwe’s blocked funds regime and a decade-old indigenisation transaction.
The proposed transaction, detailed in a circular to shareholders ahead of a general meeting, would see the group issue 84 315 136 non-convertible, redeemable and non-cumulative preference shares valued at US$84,3 million to companies within the wider Old Mutual group in full settlement of the debt.
The restructuring marks one of the most significant attempts by a Zimbabwean financial services group to address legacy foreign currency obligations that emerged following the country’s currency reforms and exchange control measures.
Old Mutual Zimbabwe said the move would permanently extinguish the debt, strengthen its solvency position and reduce exposure to exchange rate volatility that has weighed on the group’s balance sheet for years.
“The proposed transaction will settle the OMZIL legacy debt in full and permanently,” the company said in the circular.
The insurer said the liabilities originated from three separate obligations within the Old Mutual group structure.
These include US$50 million owed to Old Mutual Financial Limited arising from guarantees issued during the group’s 2012 indigenisation transaction, US$32,06 million in unpaid dividends due to Old Mutual Zimbabwe Holdings Limited, and US$2,25 million in service fees owed to Old Mutual Africa Holdings Proprietary Limited.
It said the debt became increasingly problematic after Zimbabwe reintroduced the local currency in February 2019.
Under the monetary reforms, foreign currency-denominated bank balances were converted into local currency at a legislated exchange rate of US$1:ZWL1, while offshore obligations remained denominated in United States dollars.
Like many corporates with external liabilities, Old Mutual Zimbabwe subsequently registered the obligations with the Reserve Bank of Zimbabwe under the blocked funds settlement framework in 2020 and deposited the required ZWL84 million under the arrangement.
Government later enacted Finance Act No. 7 of 2021, paving the way for the State to assume blocked funds liabilities. However, the insurer said the debt has neither been settled by authorities nor repatriated to the creditors, leaving the obligations outstanding.
“Since then, 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 unresolved liabilities have created significant financial risks for the insurer because the debt remains payable in foreign currency while a large portion of the group’s assets are denominated in local currency.
The mismatch exposed the business to exchange losses and heightened solvency concerns because the obligations were technically repayable on demand.
Under the proposed restructuring, the debt will effectively be converted into equity through the issuance of preference shares rather than being settled through immediate cash payments.
“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 removes the currency mismatch by creating an equity instrument,” the company said.
The preference shares will carry variable coupon dividends linked to distributable profits and will rank ahead of ordinary shares for dividend payments and capital distribution in the event of liquidation. However, the shares will not carry ordinary voting rights except in matters directly affecting preference shareholders.
Old Mutual Zimbabwe said the structure was designed to preserve liquidity by allowing redemption of the preference shares over time at the company’s discretion and subject to its financial capacity.
The insurer added that the transaction would improve capital adequacy and place the business on a stronger long-term financial footing without creating immediate funding pressures.
Financial projections contained in the circular show that total equity would increase from US$303,8 million before the transaction to US$388,2 million after the conversion. Preference share capital would rise to US$84,3 million, while total liabilities would fall sharply from US$99,3 million to US$15,5 million following the extinguishment of the debt.
The company said the transaction would not alter control of the business or dilute existing ordinary shareholders.
“There will be no change to the number of authorised or issued ordinary shares in OMZIL’s share capital,” it said.
Old Mutual Zimbabwe also indicated that the preference shares may in future be listed on the Victoria Falls Stock Exchange or another approved exchange, subject to regulatory approvals and market conditions.
The transaction qualifies as a related-party transaction because the creditors are members of the broader Old Mutual group.
The insurer cautioned shareholders that risks remain, including continued macroeconomic instability, foreign currency volatility and uncertainty around the blocked funds compensation framework. It also warned that preference shareholders would receive dividend priority ahead of ordinary shareholders, potentially reducing distributable earnings available to ordinary investors.
Despite the risks, the group said the restructuring would remove a long-standing financial overhang and improve operational flexibility.
“The proposal preserves shareholder value and improves OMZIL’s capital structure without immediate cash outflow or liquidity burden on OMZIL,” the company said.
