‘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.
Business
LLR transforms from Company to Group reporting
Botswana Stock Exchange listed diversified real estate company, Letlole La Rona Limited (“LLR” or “the Company” or “the Group”), posted its first set of group financial statements which comprise the Company and Group consolidated accounts, which show strong financial performance for the six months ended 31 December 2023, with improvements across all key metrics.
The Company commenced the financial year with the appointment of a Deputy Chairperson, Mr Mooketsi Maphane, in order to bolster its governance and enhance leadership continuity through the development of a Board and Executive Management Succession Plan.
At operational level, LLR increased its shareholding in Railpark Mall from 32.79% to 57.79% and proudly took over the management of this prime asset.
The CEO of LLR, Ms Kamogelo Mowaneng commented “During the period under review, our portfolio continued to perform strongly, with improvements across all key metrics as a result of our ongoing focus on portfolio growth and optimisation.
“We are pleased to report a successful first half of the 2024 financial year, where we managed to not only grow the portfolio through strategic acquisitions and value accretive refurbishments but also recycled capital through the disposal of Moedi House as well as the ongoing sale of section titles at Red Square Apartments. The acquisition of an additional 25% stake in JTTM Properties significantly uplifted the value of our investment portfolio to P2.0 billion at a Group level. Our investment portfolio was further differentiated by the quality of our tenant base, as demonstrated by above market occupancy levels of 99.15% and strong collections of above 100% for the period”.
The growth in contractual revenue of 9% from the prior year’s P48.0 million to the current year P52.2 million, increased income from Railpark Mall, coupled with high collection rates, has enabled the company to declare a distribution of 9.11 thebe per linked unit, which is in line with the prior year.
In line with its strategic pillars of ‘Streamlined and Expanded Botswana Portfolio’ as well as ‘Quality African Assets’, the Group continuously monitors the performance of its investments to ensure that they meet the targeted returns.
“The Group continues to explore yield accretive opportunities for balance sheet growth and funding options that can be deployed to finance that growth” further commented the CEO of LLR Ms Kamogelo Mowaneng.
Ms Mowaneng further thanked the Group’s stakeholders for their continued support and stated that they look forward to unlocking further value in the Group.
Business
Botswana’s Electricity Generation Dips 26.4%
The Botswana Power Corporation (BPC) has reported a significant decrease in electricity generation for the fourth quarter of 2023, with output plummeting by 26.4%. This decline is primarily attributed to operational difficulties at the Morupule B power plant, as per the latest Botswana Index of Electricity Generation (IEG) released recently.
Local electricity production saw a drastic reduction, falling from 889,535 MWH in the third quarter of 2023 to 654,312 MWH in the period under review. This substantial decrease is largely due to the operational challenges at the Morupule B power plant. Consequently, the need for imported electricity surged by 35.6% (136,243 MWH) from 382,426 MWH in the third quarter to 518,669 MWH in the fourth quarter. This increase was necessitated by the need to compensate for the shortfall in locally generated electricity.
Zambia Electricity Supply Corporation Limited (ZESCO) was the principal supplier of imported electricity, accounting for 43.1% of total electricity imports during the fourth quarter of 2023. Eskom followed with 21.8%, while the remaining 12.1, 10.3, 8.6, and 4.2% were sourced from Electricidade de Mozambique (EDM), Southern African Power Pool (SAPP), Nampower, and Cross-border electricity markets, respectively. Cross-border electricity markets involve the supply of electricity to towns and villages along the border from neighboring countries such as Namibia and Zambia.
Distributed electricity exhibited a decrease of 7.8% (98,980 MWH), dropping from 1,271,961 MWH in the third quarter of 2023 to 1,172,981 MWH in the review quarter.
Electricity generated locally contributed 55.8% to the electricity distributed during the fourth quarter of 2023, a decrease from the 74.5% contribution in the same quarter of the previous year. This signifies a decrease of 18.7 percentage points. The quarter-on-quarter comparison shows that the contribution of locally generated electricity to the distributed electricity fell by 14.2 percentage points, from 69.9% in the third quarter of 2023 to 55.8% in the fourth quarter. The Morupule A and B power stations accounted for 90.4% of the electricity generated during the fourth quarter of 2023, while Matshelagabedi and Orapa emergency power plants contributed the remaining 5.9 and 3.7% respectively.
The year-on-year analysis reveals some improvement in local electricity generation. The year-on-year perspective shows that the amount of distributed electricity increased by 8.2% (88,781 MWH), from 1,084,200 MWH in the fourth quarter of 2022 to 1,172,981 MWH in the current quarter. The trend of the Index of Electricity Generation from the first quarter of 2013 to the fourth quarter of 2023 indicates an improvement in local electricity generation, despite fluctuations.
The year-on-year analysis also reveals a downward trend in the physical volume of imported electricity. The trend in the physical volume of imported electricity from the first quarter of 2013 to the fourth quarter of 2023 shows a downward trend, indicating the country’s continued effort to generate adequate electricity to meet domestic demand, has led to the decreased reliance on electricity imports.
In response to the need to increase local generation and reduce power imports, the government has initiated a new National Energy Policy. This policy is aimed at guiding the management and development of Botswana’s energy sector and encouraging investment in new and renewable energy. In the policy document, Minister of Mineral Resources, Green Technology and Energy Security Lefoko Moagi stated that the policy aims to transform Botswana from being a net energy importer to a self-sufficient nation with surplus energy for export into the region. Moagi expressed confidence that Botswana has the potential to achieve self-sufficiency in electric power supply, given the country’s readily available energy resources such as coal and renewable sources.
Business
MMG acquires Khoemacau in a transaction valued at P23Bn
MMG Limited, the Hong Kong-based mining company specializing in base metals, has successfully concluded the acquisition of Khoemacau Copper Mine, a state-of-the-art, world-class copper asset nestled in the northwest of Botswana.
On Monday, MMG announced that the acquisition of Khoemacau Mine in Botswana was finalized on 22nd March 2024. “This acquisition enriches the company’s portfolio with a top-tier, transformative growth project and signifies a monumental milestone in the Company’s journey,” MMG communicated in an official statement published on the Hong Kong Stock Exchange.
Upon completion of the acquisition, MMG remitted to the Sellers an Aggregate Consideration of approximately US$1,734,657,000 (over P23 billion), a sum subject to potential adjustments post-Completion.
In addition to the Aggregate Consideration, MMG, in accordance with the Agreement, advanced an aggregate amount of approximately US$348,580,000 (over P4.5 billion) as the Aggregate Debt Settlement Amount, to settle certain debt balances of the Target Group (Cuprous Capital/Khoemacau).
On November 21, 2023, Khoemacau announced that the shareholders of its parent company [Cuprous Capital] had agreed to sell 100% of their interests to MMG Limited.
MMG is a global resources company that mines, explores, and develops copper and other base metals projects on four continents. The company is headquartered in Melbourne, Australia, and has a significant shareholder, China Minmetals Corporation, which is China’s largest metals and minerals group owned by the Government of the People’s Republic of China.
On December 22, 2023, Khoemacau Copper Mining (Pty) Ltd received the approval from the Minister of Minerals and Energy of Botswana regarding the transfer of a controlling interest in the Project Licenses and Prospecting Licenses associated with the Khoemacau Copper Mine, a result of the Acquisition.
The Botswana Competition & Consumer Authority (CCA) on January 29, 2024, notified the market that it had given its approval for the takeover of Khoemacau Copper Mining by MMG Limited.
On January 29, 2024, the CCA issued a merger decision to the market, stating that after conducting all necessary assessments, it was ready to proceed.
The Competition Authority affirmed that the structure of the relevant market would not significantly change upon implementation of the proposed merger as the proposed transaction is not likely to result in a substantial lessening of competition, nor endanger the continuity of service in the market of mining of copper and silver ores and the production, and sale or supply of copper concentrate in Botswana.
Furthermore, the CCA stated that the proposed merger would not have any negative impact on public interest matters in Botswana as per the provisions of section 52(2) of the Competition Act 2018.
Earlier this month, Minister of Minerals & Energy, Lefoko Maxwell Moagi, informed parliament that his Ministry was endorsing the Khoemacau acquisition by MMG Limited. He noted that not only was the company acquiring the existing operation but also committing to an expansion program that would cost over $700 million to double production, create more jobs for Batswana, and increase taxes and royalties paid to the Government.