Offshore loans and Equity — Exchange Control Registration Part 2

The RBZ offers separate guidelines for pricing of external loans in cases where the external lender is also a shareholder of the local entity and/or where the local entity will use the funds to finance tobacco farming.

Circumstances may arise where a local entity require additional funding and the foreign shareholder is able to avail such funding in form of debt to maintain the existing ownership structure and/or avoid dilution of shareholding.

The pricing model for such loans is as given below:

Foreign Equity Registration

Besides debt, funds may be raised locally and from outside the country in form of equity (shares).

Equity from foreign partners or held by foreigners should be registered with RBZ’s Exchange Control Unit.

The procedure for registration of equity finance is followed when external debt is being converted to equity.

The need for external debt conversion into equity may arise when the foreign entity wants to increase its stake and/or in line with changes to legislative provisions for sectors where foreign shareholding was previously capped.

The application for registration is made through your Authorised Dealer (Bank) which then

submits the application to the RBZ’s External Loans and Exchange Control Review Committee (ELECRC).

The minimum information requirements are: –

λ Detailed write up on the proposal – equity finance and/or debt conversion to equity

λ Latest audited financial statements for the local entity;

λ Demonstration of whether the shares/equity are being bought at par or at a premium;

λ Indication of how the shares will be financed;

λ Justification for the dilution, i.e. will the dilution proposal rescue local operations and/or jobs;

λ Pre and post transaction shareholding structure;

λ Profile of the foreign investor;

λ Board resolution sanctioning the dilution (where applicable);

λ Draft Agreement on the transaction;

λ Prior Exchange Control approvals if debt is being converted to equity

Registration approval/Rejection

RBZ communicates the approval or rejection of the offshore loan and equity registrations through your bank.

In cases of rejection, reasons are given which may allow for review and re-submission to align to laws, regulations and guidelines in place at the time.

Approvals may also come with conditions such as making drawdowns within a stipulated period and/or sharing records of drawdowns with regards to loans in line with projected cashflows.

An approved application will be assigned an approval number which may be used to lodge transactions related to the offshore loan and/or equity instrument which involve the RBZ, especially when payments are being made into the country or outside the country in fulfilment of agreed obligations.

Benefits for registering foreign loans and equity

Registration of foreign loans and equity benefits the country, local and foreign investors alike.

The country can plan and manage the balance of payments, in particular the current and capital accounts.

The local and foreign investors are also assured of easy of remittances for:

λ Interest on loans;

λ principal loan repayments to lenders;

λ dividends to foreign shareholders and;

λ capital recoupment upon disinvestment, winding up and/or liquidation.

Supporting documents which may include audited financial statements, minutes of meetings declaring dividends and reports from responsible authority in cases of liquidation should be filed to support the payment requests.

Overall, offshore loans and equity registrations are key to the development of the country’s gross domestic product (GDP), survival and expansion of local industries in sectors which require huge capital outlay such as mining, infrastructure development, information and communication technology.

Organisations may seek professional advice and assistance to ensure that requirements for registration of external loans and foreign held equity are met.

Fungai Chimwamurombe is a registered legal practitioner and Senior Partner at Zenas Legal Practice and can be contacted for feedback at fungai@ zenaslegalpractice.com and WhatsApp 0772 997 889. Bhekimpilo Mangena is a Business Consultant at Zenas Consulting (Pvt) Ltd and can be contacted on

0712500490.