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former Red Star stockholders losing a significant 67 percent of their investments, after their integration into the conglomerate.
Shareholders could be cursing the day Starafrica approved the buyout of minority shareholders in the troubled wholesale company as they have suffered significant loss of value from Starafrica shares they received in exchange for their Redstar shares.
Red Star shareholders went into Starafrica using a conversion price of US6c compared with the prevailing US1,90c.
At the beginning of the year, Starafrica was valued at about US$13 million, as it was trading at about US7c on the Zimbabwe Stock Exchange.
As of yesterday, the diversified conglomerate was trading at US1,90c, losing US0,10c – translating to a market capitalisation of US$3,9 million on 192 726 185 issued shares.
Under the agreement, every 100 Red Star shares shareholders got one new Starafrica share. Those who opted for cash received US0,07c for every one Red Star share. The new shares were listed on the ZSE on December 20 last year, the same day Red Star’s listing was suspended.
Starafrica, as the major shareholders, were forced to take this route after adverse trading conditions pushed Red Star into the red.
Market analysts say the loss in value could not be attributed to the acquisition of the then loss-making Red Star, citing further corporate problems at Starafrica.
Starafrica has also failed to return to profitability despite completing a successful recapitalisation exercise last year. The group was on the market to raise US$20 million through a rights issue offer and a private placement of convertible debentures to ABC Holdings Limited.
Its rights issue closed with a 29,1 percent subscription level – representing a substantial dilution of minority shareholders.
Post-dollarisation, Red Star failed to raise US$15 million to restock the group with a view to raising capacity utilisation from an average of 33 percent to about 70 percent.
Apparently, the sugar wholesale business remained attractive considering that Red Star managed to rake in US$54 million in revenue in the full year to March, but this was achieved on the back of US$48 million cost of sales.
The company had also suffered from increased competition in the retail sector. Throughout 2009/2010 Red Star tried to maintain its extensive branch network and distribution capacity. But overheads had a significant impact on profitability and cash flow. High levels of accumulated debt have also resulted in critical cash flow problems.
Starafrica unbundled Red Star as a separate entity and subsequently listed the division on the stock exchange in 2006 in an effort to unlock shareholder value. But viability constraints and onerous liabilities seem to have cut short its autonomy.
Meanwhile, stocks on the ZSE opened the week lower at 159,91 after shedding 0,25 percent. TA led the shakers, dropping a cent to US12c. Aico Africa retreated US0,50c to close at US17,50c while Art slipped US0,28c to US1,40c. Padenga traded at US4,90c after US0,09c loss.
Gulliver and ZPI were both down US0,05c, to close at US0,10c and US0,95c respectively.
But the losses were partially offset by gains in Econet, which rose by a cent to US481c, TPH gained US0,80c to US9,50c while Zimplow advanced US0,21c to US7,51c.
NicozDiamond pushed up US0,20c to US2c, African Sun and Innscor both added US0,10c to close at US2,30c and US62c.
The resources index lost a significant 4,13 percent to close at 206,72 points as Falgold was down US1,50c at US5c, Bindura lost US0,40c to close at US9c while Riozim was offered lower at US140c. Coalminers Hwange were unchanged at previous trading levels.