Real estate development and management company, Letlole La Rona, has managed to dispose four hotels under its portfolio to Cresta Marakanelo Limited as part of its diversification strategy, the Botswana Stock Exchange-listed company has announced.
Letlole Ra Rona, a subsidiary of Botswana Development Corporation Limited (BDC) said the four hotels it disposed were; Bosele Hotel, President Hotel, Cresta Lodge and Thapama Lodge, leaving it with 13 industrial properties under its portfolio; as well as Moedi House, a commercial property, Shoppers, a retail property and Red Square, a residential property. However, Letlole Ra Rona chairperson, Boitumelo Mogopa said the sale of the four hospitality properties led to a book loss for the company of P27 million. But, the sell, she said, was in line with the blue-chip company’s diversification strategy of divesting from the hospitality sector, which led to the disposal of all its hotel interests through a sale to a sitting tenant – Cresta Marakanelo.
“Letlole Ra Rona’s deliberate strategic shift to sale of the four hotels led to a book loss of P27m on this disposal while there were two additions of properties in Gaborone’s key industrial nodes at the business consolidated its lead in this sought-after sector of the market,” the chairperson said. She said the disposal of the hotels had reduced Letlole Ra Rona’s risk profile, removed exposure to a single tenant who occupied a third of its portfolio while at the same time unlocking capital to carry out its restructuring and growth path.
“The sale of the hospitality assets has seen the investment properties’ value decline from P970m to P780m. However, the company maintains a very healthy pipeline locally and regionally and shall be deploying the sale proceeds during the course of the coming financial year,” said Mogopa. She said her company was enthusiastic about the opportunities available in Botswana and beyond the country’s borders.
“It remains focused on its vision of becoming the premier real estate company with a significant presence in selected regional markets and a well-diversified portfolio underpinned by high occupancies and quality tenant covenant. With its current healthy pipeline and property management expertise, the company is in a prime position to deliver this strategy. “Going forward, the company will be looking to grow its distribution pay-out at a rate comfortably higher than Botswana’s inflation,” said Mogopa, adding Letlole Ra Rona’s strong performance above expectation continued despite the current subdued economic environment.
“A well-diversified, growing portfolio has secured the business’ cash generation ability against macro headwinds with the company consistently delivering solid financial and operational results. In addition, a well-structured balance sheet and funding strategy has afforded Letlole Ra Rona flexibility to swiftly seize opportunities as they arise. “Testimony to this is the fact that over, the two years, Letlole Ra Rona has been involved in four of the five largest property transactions in Botswana. As a result, operating property increased 22 percent net cash while operating activities grew by 16 percent. With tighter working capital, management and improved cash collections resulted in core cash resources ending the year at P44.6m, significantly higher than the P34.5m at the end of the previous financial year,” said Mogopa.
She said the total revenue for the company for the year-ending 30 June 2019 reflected a 28 percent growth from the prior year figure of P82m. “The increase was underpinned by a full year contribution of Watershed Mall (now accounting circa 12 percent of total revenues). This asset came into the portfolio at the tail-end of the 2018 financial year. Annual rental escalations averaging 7.5 percent underscore the quality of portfolio which was enhanced by the purchase of newly developed, fully tenanted warehouses in Gaborone’s Block 3,” said Mogopa. Letlole Ra Rona is owned in majority by the government investment arm, BDC with a stake of 65.8 percent followed by Botswana Public Officers Pension Fund (BPOPF) with a 6.71 percent shareholding.
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”