Botswana’s largest hotel chain group Cresta Marakanelo Limited board of directors, according to its latest financial results, has recently decided not to declare an interim dividend for the 2019 financial year in order “to fund the refurbishments currently underway and new projects in the pipeline.”
This is after Cresta made a huge move of metamorphosing from the hospitability business to a property sector, a move which has cost the company more than quarter of a billion Pula. Cresta, has been operating hotels around the country, but it is now owning the property which these hotels were renting. This means Cresta is now a landlord for its Cresta hotels.
In June this year, Cresta acquired hotels the President Hotel, Cresta Lodge, both in Gaborone, Thapama Hotel in Francistown and Cresta Bosele in Selebi-Phikwe from its former landlord Letlole La Rona. Cresta also acquired Cresta Maun (formerly Riley’s Hotel) from Botswana Hotel Development Corporation, a subsidy of government wholly owned Botswana Development Corporation (BDC). To get these hotels Cresta went on related party transaction. The BDC holds a 27 percent stake in Cresta and has 66 percent equity in Letlole La Rona.
Other shareholders of Cresta are; Cresta Holdings which holds 24 percent of shares, Botswana Insurance Company Limited with 13 percent, LHG Malata Holdings Limited has 8 percent, while Motor Vehicle Accident Fund holds 5 percent stake. Cresta has been operating the hotels on lease agreements with the property owners. The current tenancy of the properties is provided for by a 10 year lease agreement which expires at the end of June next year. However in June this year, Cresta acquired these properties worth P251 million, fully debt funded by Barclays Bank loan facility, according to the company’s Half Year Financial Results released last week.
Its interim condensed consolidated financial statements for the six months which ended 30th June 2019, achieved a revenue growth of 13 percent and a significant growth in profit compared to the same period last year. This is credited to the newest addition to the Cresta’s portfolio of Cresta Maun hotel, as it is said to have achieved revenue growth and had a positive contribution to the cash generated by the Group.
However, the glitter that shines in Cresta revenues were dimmed partially by a decline in cash resources from P45.3 million last year to P29.9 million this year, this is according to Cresta’s latest released HY financial results. According to the once big hospitality company which dived into an opportunity on the property sector, this decline in cash and cash equivalents was as a result of VAT paid for the properties acquired, which in this case would be the hotels. According to Cresta the VAT refund was received in August 2019.
As Cresta board has resolved to withhold harvest, its eye has been on investment according to the company. “The net cash utilised in investing activities increased to P263.4 million, from P20.8million in the prior year, as a result of the acquisition of the hotel properties, as well as refurbishment projects undertaken in the Group. With regards to financing activities, P251 million was utilised from the Barclays Bank loan facility during the period, to fund the hotel property acquisitions,” the company said in its Half Year results.
The acquiring of new hotels increased Cresta asset base, as total assets increased by 154 percent compared to the financial year which ended 31st December 2018. As much as a gain in assets was due to hotel properties acquired, the recognition of Right-of-Use assets for the first time in the current financial period also contributed to the increase. While the Barclays Bank loan funded the acquisition, there was a realized increase in equity of 28 percent.
Cresta also believes the centralised procurement and cost containment initiatives in the hotels resulted in improved margins and higher profitability. “The Group will continue to focus on improving margins, as well as product improvement across all hotels. Additional resources will also be directed to various marketing initiatives in order to increase occupancies across the portfolio. The Group continues to explore local and regional growth opportunities in order to diversify its portfolio and increase shareholder value,” said a financial statement signed by Cresta board chair Moathodi Lekaukau and MD Mokwena Morulane.
Cresta on the crest of markets
Recent market analysis have shown an improvement on Cresta’s share price just after the release of its financial results. Just in the same week Cresta was the biggest gainer of the week, ticking up by 6 thebe to close at 129 thebe. This is the same time when ETF NewGold was the sole loser, shedding 930 thebe to close at 15140 thebe. The Domestic Index gained 0.06 percent to close the week at 7433.00 points while the FCI was flat, closing at 1564.55 points.
On the week that ended on 6 September 2019, Cresta was at 123 thebe. Cresta share price increased by 6 thebe, a 4.88 percent change. The week where the Cresta share price shook slightly it had a volume of 1500 securities which were traded and the bid ended at 130 thebe. This week Cresta’s market capitalization was at P238.18 million while 184,634,944 shares have been offered for the public for trading.
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”