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‘Develop Botswana’s capital market’

Botswana has been urged to increase its internal borrowings and further develop its domestic capital market to prepare for rainy days. This was reiterated at the Bond Market Conference hosted by Botswana Bond Market Association in Gaborone recently.

Giving key note address at the conference Dr. Michael Atingi-Ego, Director of Macroeconomic & Financial Management Institute of Eastern & Southern Africa said Botswana has strong macroeconomic environment attributed by low inflation and strong fiscal balances and thus the country should have a strong capital market. Dr Ego noted that the country however currently has a number of issues contributing to lack of liquidity in secondary market. “Botswana needs to develop capital market for future needs when government surpluses decline,” he said.

Ego told the audience that Botswana needs clearly defined and prioritized debt management objectives that balance between sovereign debt, running down banking system balances and bond market development. He noted that developing Secondary markets and corporate bond market was a cumbersome process by nature, that comprised of various challenges and requires planning and various stakeholder commitment to achieve. “Improving liquidity is key and it requires enhancing market infrastructure through legal and regulatory framework, clearing and settlement system,” he said.

He highlighted that capital market development requires proper information dissemination mechanisms to facilitate trading and protect investor interests. “If you are to improve liquidity in the market you will also need coordinated stakeholder approach to identify country specific impediments to reform sequence for bond market development, legal, regulatory, accounting and tax issues,” said Dr Ego.

According to speakers at the conference corporate bond market development depends on company financing patterns and requires well developed yield curve to facilitate the pricing of corporate bonds. Botswana was also advised to work with International Organizations to develop LCBM –CwA, WB and Joint Capital Market Development for country specific intervention on developing liquid, diverse and long-term financing.

African Development Bank was noted as a key stakeholder that Botswana could engage to promote bond market data transparency. The Macroeconomic & Financial Management Institute of Eastern & Southern Africa (MEFMI) Director offered assistance in the areas of organizational framework, debt data management and domestic debt management.

Evolution of Botswana’s Capital Market

Botswana has been internationally recognized among the fastest growing economies in the world. Botswana’s development has been particularly shown through the exponential growth in the Gross Domestic Product (GDP) in the decades following independence, infrastructure development, improved standards of living, and reduction in poverty, and impressive socio-economic performance ratings by multiple international organizations, among other indicators.

While the mining sector has for a long time remained the back bone of the economy, the country has made significant strides in developing its financial services sector and increasing the sector’s contribution to GDP. In the same token, the local capital markets have registered impressive growth over the years and have been an important avenue for capitalizing broad-based economic growth, economic empowerment as well as economic diversification.

According to the research undertaken and published by the Botswana Stock Exchange, and Botswana Bond Market Association the development of the bond market in Botswana Commenced in 1997 with the issuance of a BWP 50 million bond by Botswana Development Corporation (BDC). By 1999, three more bonds were floated on the BSE and these were floated by Botswana Telecommunications Corporation (BTC), Investec South Africa, and Botswana Building Society (BBS).

During these years and leading to 2003 there was no risk-free yield curve, the only reference points were the Bank of Botswana Certificate (BoBC) rate, the Bank rate and the Prime rate. In an effort to increase the competitiveness and lure lenders away from investing in BoBCs on a recurring basis, most bonds at that time were priced with reference to the BoBC rate. Furthermore BSE says there seemed to be no incentive for neither the public sector nor the private sector to consistently issue debt instruments due to consecutive years of fiscal surplus.

The private sector could conveniently borrow needed funds from commercial banks and as a result, the growth of the bond market was slow in the early stages of its establishment. The noticeable growth in the size of the bond market in 2003 was largely attributable to the issuance of the first 3 Government bonds (BW001, BW002 and BW003) under a Note Issuance Program which ran until 2008. The BW001, BW002 and BW003 were 2-year, 5-year and 12-year bonds of BWP 750 million, BWP 850 million and BWP 900 million respectively.

The issuance of these bonds was a momentous step as it triggered a host of other issuances by parastatals, banks and larger corporate bodies. This also broadened the diversity of issuances from the private sector by retail, financial services, and property and banking entities.

African Markets

On the larger Africa space experts at the conference noted that yield curves in African capital markets do not go beyond 5 years for most countries. Albin Kakou, Executive at the African Development Bank noted that there are no Government benchmark-basis for pricing corporate bonds in most African countries.  “African Capital Markets are facing the challenge of shallow and illiquid markets which are made of undeveloped market Infrastructure (CSD’s) as well as irregular benchmark auctions and undiversified investor base,” he said.

Mr Kakou advised that primary dealer’s frameworks be revised. The African based lender says the continent needs to develop a comprehensive data base to provide updated, reliable and complete information on African domestic bond markets. According to Albin Kakou this would help in improving the availability and transparency of African fixed income markets-related data as well as assisting in reconciling and standardizing data produced by several institutions, using different concepts and methods and enhancing the quality of financial statistics on the continent.

Botswana currently has 40 constituent bonds, of which 33 are corporate bonds with 24 fixed being rate bonds. Government has 7 bonds on issue. Total nominal amount of Bonds on issue adds up to over P15 billion. To further develop Botswana‘s capital market this week Botswana Stock Exchange (BSE) CEO, Mr. Thapelo Tsheole, was part of a distinguished panel discussion that deliberated on, 'Building Strong Capital Markets: Focus on Good Governance and Transparency' at the Bloomberg Emerging & Frontier Forum 2019 held at the new Bloomberg Headquarters in London earlier today.

Hosted by multi billionaire and one of the world wealthiest businessman Michael Bloomberg in collaboration with Aberdeen Standard Investments, Fitch Ratings and the Institute of International Finance. This flagship event was able to bring together heads of state, ministers, central bank governors and top executives to share their insights into the opportunities, risks, and growth potential of emerging and frontier markets.

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Business

BTC profits rise to P832million

14th September 2021
BTC MD Masunga

This week, Botswana Telecommunications Corporation Limited (BTCL), the country’s only listed telecoms company, released its annual report for the financial year ended 31st March 2021.

The company, listed on the local bourse in a historic IPO in 2016, has been grappling with the uphill task of transforming from a wholly state-owned organisation to a fully commercial publicly listed entity. This excise has seen some financial years registering a decline in both revenue and profits.

On Tuesday, BTCL reported a significant rise in profits, attributable to a slight pick-up in revenue and serious cost containment measures. The beginning of the fiscal year saw the implementation of the company’s new three-year strategy, which is focused on strengthening the core business, optimising efficiencies and return on assets, and pursuing growth opportunities.

The start of the financial year coincided with the implementation of the national measures to contain the COVID-19 virus, leading to national lockdowns, which placed pressure on the BTCL performance for the first half of the year. “However, we have since seen a decent recovery in our financial performance year-on-year,” said BTCL Managing Director Anthony Masunga

BTCL Group, which comprises among other business segments: mobile, fixed and broadband, has reported revenue of P1.43 billion, which is a 1% increase over the prior year. According to BTCL directors, this increase in revenue was driven by the monetisation of significant investments in fixed and mobile broadband infrastructure in support of high-speed internet service at homes and offices across most parts of the country.

“We delivered a strong double-digit growth in profit after tax of 16% when compared with the prior year, driven by the slight increase in revenue and robust cost reduction strategies that improved EBITDA to P463 million, leading to an increase in cash,” Masunga explained. Cash and cash equivalents significantly increased by 20.4%, from P120 million in the prior year to P364 million at the end of March 2021.

The increase was driven by a positive cash conversion ratio of 52% and favourable working capital resulting from debt collection measures during the year. Masunga explained that the healthy cash balance enabled the BTCL to finance further expansion of its mobile data network and replace traditional copper connections with fibre to better support the needs of its customers.

“The uptake of our data products has been growing steadily, with the improving quality of service leading to increased revenues even as voice revenues declined,” he said. The cost of services and goods sold reduced by 3% from P612 million to P594 million when compared to the previous year, leading to an increase in gross profit for the year by 3%, an increase of P27 million to P832 million, translating to an improvement in gross profit margin from 57% to 58%.

Despite the increase in the top line, which would have led to a rise in the cost base, the Group Continued with its robust cost containment measures, leading to a slight increase in all other operating costs by P3 million. The control of costs led to an overall increase in the earnings before interest, depreciation, taxation and amortisation (EBIDTA) by P55 million, with a margin expansion of 370 basis points compared to the previous year.

The operating margin increased by 2% to 13%, coming from the earnings before interest and tax (EBIT) to P186 million, a P24 million increase compared to the prior-year figure of P163 million.
Net interest increased significantly, driven by the new accounting treatment of the IRU liability. All the above led to an overall increase in the profit before tax of P27 million, which increased to reportable gain to P166 million.

The Group ended the year with a P135 million profit after tax compared to P117 million for the same period last year with a tax expense of P31 million in the current year, which is higher when compared to the P22 million reported in 2020. Therefore, the Group delivered an impressive 16% increase year-on-year with a 9% net profit margin, compared to 8% in the prior year.

BTCL continues to dominate the fixed-line business despite a continued reduction in the demand for fixed lines globally and locally. Trends continue to show an increased shift of consumer preference to mobile communications, a direction according to Anthony Masunga is due to his company’s “increased flexibility, convenience, and innovation.’

BTCL’s mobile phone market also continued to grow during the year, with many consumers owning multiple SIM cards from the three mobile network operators. Smega, BTC’s Mobile Money Services, saw significant growth in subscriptions during the year, and we expect to attract more customers as the Group continues the Visa card rollout.

Masunga boasted that Smega could interact with traditional banking systems, offering more convenience to BTCL customers. “The platform supports greater financial inclusion for the country’s sizeable unbanked population,” he said. BTC Board Chair Lorato Ntakhwana said that in the future, the 51 percent government-owned telecom giant will bank on its new 3-year strategy for growth paths.

She revealed that the new strategy would build on the great foundation set by its predecessor, enabling BTC to reap the full benefits of its digital infrastructure investment to drive the growth of the business.

Ntakhwana explained that the digital transformation of the business underpins the strategy to realise enhanced efficiencies and continue to maximise the utilisation of its technologies. “We remain committed to transforming BTC into a digital services company, leading the Fourth Industrial Revolution to create maximum shareholder value. We see technology and digitisation as a vehicle to the provision of solutions to the nation’s challenges,” she said.

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Business

FNBB’s profit after tax down 2%

14th September 2021
FNBB CEO - Steven Bogatsu

First National Bank Botswana (FNBB) has released its audited summarised consolidated financial statement for the year ended 30 June 2021. According to the statement, the balance sheet reduced by 6% year-on-year primarily due to declining gross advances to customers. Credit risk remained heightened amid the prevalent economic uncertainty of the COVID-19 pandemic.

The bank said it continued to apply a prudent approach to lending to ensure responsible and manageable consumer exposure, which resulted in a decline in gross customer advances by 7% while gross market advances increased by 4%.

Retail advances experienced a sharp decline of 7%, while the Botswana retail market increased by 9%. According to the bank’s financial statement, the decline was driven by competitive pressures, with the market extending loan tenures, resulting in increased market debt. However, the bank maintained its existing affordability criteria and a selective approach to retail exposure.

The corporate segment experienced remarkable growth of 19% year on year. In comparison, the commercial advances portfolio reduced 19% because of a cautious lending risk appetite, a reduction in the Non-Performing Loans (NPL) and the overall lack of growth in the market.

The combined result of FNBB’s commercial and corporate advances was a decline of 7% against the overall comparable decrease of 3% in the market. While actively looking for the opportunities arising out of the anticipated recovery pattern, the bank said it would continue to be cautious in maintaining the quality of its credit book.

NPLs, according to FNBB financial declined by 11% year-on-year from P1.2 billion to P1.09 billion, resulting in a NPL/gross advances ratio of 7.3% as of 30 June 2021. FNBB stressed that reduction in NPL was primarily due to a recoverability assessment of long-outstanding NPL loans resulting in the write-off of irrecoverable loans. The closing provision levels remain appropriate.

The June 2020 deposit portfolio experienced significant growth following the reduced spending commensurate with the lockdown restrictions and deferred capital expenditure cycles by corporates. In the June 2021 results, deposits declined from P23.2bn to P21.4bn (8% decline), driven by an increase in activity following the lifting of COVID-19 restrictions and the normalisation of the market liquidity.

Investment securities declined by 17% year-on-year following the normalisation of market liquidity to pre COVID-19 levels. The decline was driven by the drop in short term assets at the back of the decrease in demand deposits.

FNBB indicated that it had demonstrated a resilient performance amid COVID-19 uncertainty shown by maintaining the profit before tax despite the significant reduction in the Bank Rate. This was underpinned by the normalisation of credit losses and a resilient non-interest revenue (NIR) base. Return on equity of 18.2% (2020: 20.1%) has declined due to the conservative level of capital held over the financial year, as well as the 2% reduction in profit after tax.

The past year has presented itself as a real and severe economic test, and FNBB has shown that its income streams are resilient while a critical focus has been on strengthening the balance sheet. A decrease of 15% in interest income was driven by the reduction in the Bank Rate, the decline in the advances book, and a change in the advances portfolio mix.

This was further driven by the fall in the cash and investment portfolio interest income due to the reduction in risk-free rates and lower yields across investment securities for a portion of the year. Interest expense decreased 22% following an 8% decrease in deposits and the Bank Rate reduction. The deposit mix shifted from overnight deposits to term deposits as clients sought higher yields.

Impairments declined by 43% year-on-year, driven by a 49% reduction in both Stage 1 and 2 impairments, as well as a 40% reduction in Stage 3 impairments. The stage 1 and 2 impairment decline followed a reduction in the gross advances exposure and the normalisation of impairments in June 2021.

The Stage 3 impairments decline, is attributed to a reduction in defaults over the period, with the bank has partnered with clients to help their businesses through the pandemic. The P180m reduction in impairments decreases the credit loss ratio to 1.6% (2020: 2.6%).

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Business

De Beers rough sales up

14th September 2021
rough diamonds

De Beers Group on Wednesday announced the value of rough diamond sales (Global Sightholder Sales and Auctions) for the seventh sales cycle of 2021.

Figures show continued growth in rough sales, bolstered by solid demand for polished goods in the key markets of the United States of America and China. The 2021 cycle seven rough sales clocked a provisional figure of $514 million, a slight increase from $513 million recorded in the previous cycle. The jump, however, is a significant increase when mirrored against the 2020 cycle 7 figure of $334 million.

Owing to the restrictions on the movement of people and products in various jurisdictions around the globe, De Beers Group continued to implement a more flexible approach to rough diamond sales during the seventh sales cycle of 2021, with the Sight event extended beyond its typical week-long duration.

As a result, the provisional rough diamond sales figure quoted for Cycle 7 represents the expected sales value for 23 August to 7 September. It remains subject to adjustment based on final completed sales. Commenting on the sales results Bruce Cleaver, Chief Executive Officer of De Beers Group, said sentiment in the diamond industry’s midstream continues to be positive, as reflected in the company’s sales for Sight 7.

Cleaver explained that demand for rough diamonds results from robust demand for polished diamonds in De Beers’sBeers’s key markets of the US and China. He highlighted that the midstream’s optimism for the remainder of the year was also evident at the recent JCK Las Vegas trade show, which was a success despite being held under challenging circumstances.

“As we now head towards a traditionally slower period for rough diamond sales, we remain cognisant of the risks to economic recovery from the global pandemic,” he said. De Beers impressive rough sales run is against the backdrop of performance come back in the first half of the year.

The revenue for the first six (6) months of 2021 demonstrated resilience and an impressive comeback following a devastating 2020. The more significant part of 2020, in particular, the first half of the year, was characterized by low demand across the entire diamond value chain due to the COVID-19 pandemic.

Countries put measures to curb the spread of the virus that broke out of China in late 2019; this came with travel restrictions that curtailed the movement of goods and people, reducing trade to record low levels. However, this year as crucial markets continue to reopen and exhibit signs of pre-covid demand levels, De Beers total revenue for the first half of 2021 increased significantly to $2.9 billion (Over P32 billion) from $1.2 billion (P13 billion), mirroring a jump of over 141%.

The growth in revenue for the first half of the year was bolstered by continued recovery in global consumer demand for diamonds, as the industry dusts itself from the impact of Covid-19, supported by fiscal stimulus in the US and the roll-out of Covid-19 vaccines. Restrictions on international travel and entertainment over the pandemic resulted in higher discretionary spending on luxury goods, including diamond jewellery.

In the first six months of 2021, the cutting centres achieved strong sales of polished diamonds in response to the ongoing recovery of consumer demand. However, the severe Covid-19 wave in India during April and May reduced capacity to cut and polish operations within the critical Indian midstream sector, further exacerbated by polished diamond grading backlogs in critical markets.

The relative shortage of polished supply contributed to a positive, polished price trend in the first half of 2021. The recovery of demand in all parts of the pipeline enabled rough diamond producers to destock at the start of 2021. This robust demand, combined with supply constraints arising from production challenges, created a favourable dynamic in the first half of 2021 that supported higher rough diamond prices.

At half-year, De Beers rough diamond sales had risen to $2.6 billion from $1.0 billion in the half-year 2020, and this was driven by robust rough diamond demand as the midstream pulled through stocks in response to the recovery in consumer demand, with rough diamond sales volumes significantly higher at 19.2 million carats from 8.5 million carats in the first six (6) months of 2020.

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