Investors in Botswana Stock Exchange Listed and the country’s leading hospitality group Cresta Marakanelo Hotels have given a green light to a move that seeks to acquire four properties currently housing their hotels from Letlole La Rona (LLR) and one from Botswana Hotel Development Corporation, a subsidy of government wholly owned Botswana Development Corporation (BDC).
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 .The leases are held on a fixed rental deal with an annual compounded escalation. At the Extraordinary General Meeting held on Thursday 14th February 2019, attending shareholders of Cresta wholly voted in favor of the proposed transactions.
Cresta reported on Wednesday February 20th that the meeting was duly convened and met the quorum requirements in terms of the Company’s Constitution and the BSE Listings Requirements. Shareholders holding a total of 98,808,924 shares were represented at the EGM either in person or by proxy, representing 75.6 percent of the shares eligible to vote at the meeting and 53.4 percent of the total issued share capital.
All attending shareholders wholly voted in one voice to approve that Cresta enter into the Transaction in terms of which it will acquire Tribal Lot 141, Maun which houses Cresta’s North East flagship offering Riley’s Hotel, from Botswana Hotel Development Corporation (BHDC), a subsidiary of Botswana Development Corporation Limited (BDC).
The EDM also voted as a whole to approve that Cresta enter into the Transaction in terms of which it will acquire Plot 50719 Gaborone which hosts , Cresta Lodge and Plot 6384 Francistown of Cresta Thapama as well as Plot 1169 Gaborone which houses Cresta ‘s monumental hospitality outfit , President Hotel in Gaborone Main Mall, all from which will be acquired from Letlole La Rona Limited
Shareholders further okayed another move that will see Cresta acquire a portion of Plot 276 Selebi Phikwe which currently houses Cresta Bosele Hotel , also from the BSE listed property group Letlole la Rona Limited. The announcement by Cresta follows another announcement by Letlole la Rona last week which concedes to the proposed deal.
In a statement released on the 15th February LLR revealed that its Extraordinary General Meeting of unit holders held on Tuesday February 12th approved a move to dispose the four commercial immovable hotel properties. 44 Unit holders were represented, either in person or by proxy, mirroring a total 269, 948, 596 linked units which represented 96.415 percent of the securities of the company. Unit holders who held 84 470 , 785 linked units , 30.7 percent of the total securities in issue cast a voted of which 37 voted in favor of the resolution.
The three companies taking part in this transaction, are considered related parties as Botswana Development Corporation wholly owns Botswana Hotels Development Corporation holds 65.79 percent of Letlole La Rona, while the latter owns 27 percent of Cresta Marakanelo Hotels. At the LLR meeting Botswana Development Corporation which holds an aggregate of 184, 199, 963 units was not excluded from voting.
The BSE listed Cresta Marakanelo Group has been receiving increased competition from new market entrants has been registering declining sets of results in cash flows and revenue base also for during the year 2017 and 2018 H1. This also was explained by Cresta as attributable to reduced government spending during the said trading period emanating from sluggish economic growth. Following subdued performance on overall in 2017 trading year the Group started the year 2018 on a slow note, unaudited financial results for the first six month of the year mirrored contracted set of figures with total assets and equity gown down the cliff by 3 percent.
According to the financial results for the six month ended June 2018 Cresta ended the half year on cash resources of P45.3 million compared to P51.0 million gathered in the corresponding 2017 period. Cresta Marakanelo Limited which operates in excess of 10 hotel and lodges registered another depressed performance in Cash flows, during in 2018 H1; operating activities collected P20.2 million, a significant decline when compared to P25.7 million realized at the end of first half year 2017.
The hotel properties transaction which is estimated at over P230 million for LLR held units is viewed as a major deal that will further dispatch Cresta into a leading role in the country’s hospitality industry as it will reduce operational expenses incurred by rental payments thus maximizing profits and expanding shareholder value.
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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”