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Edcon Botswana expected to catch SA financial flu

Edcon, Southern Africa’s biggest non-food retailing group which sells textiles and footwear and owns Jet Stores, Jetmart, CNA, Edgars and Ackerman is suffering from something akin to a metaphorical financial influenza-it is literally begging lenders, landlords and creditors to go easy on it as it currently debt trapped.

Information reaching BusinessPost is that the metaphorical flu may infect the Botswana stores as the South African economy has an inextricable link to that this country, therefore if South Africa catches flu Botswana sneezes. Last year data revealed that South African economy entered recession in the second quarter of 2018 for the first time since the global recession of 2009 and this could be one of the major factors of Edcon’s financial woes.

Pundits and observers on the other hand believe Edcon business of selling goods on credit appears not sustainable as people tend not to pay in the midst of economic recession which has rendered many to be unable to afford the cost of living. Edcon has 30 stores in Botswana employing approximately 300 people and these jobs and shops are expected to shrink according to experts. Edcon has been in business for nearly 90 years and operate in stores across South Africa, Namibia, Botswana, Lesotho, Swaziland, Mozambique, Ghana, Zimbabwe and Zambia.

Four principal brands: Edgars, Jet, CNA and thank U. According to Edcon latest financial results, the group has 187 stores outside of South Africa. The financial results states that, sales from stores outside South Africa contributed 12.2 percent (9.1 percent excluding Zimbabwe) of retail sales for fiscal 2018, down from 11.9 percent (9.4 percent excluding Zimbabwe) during the prior period. Following media reports that Edcon is failing to pay rent on many South African malls, this week the group has devised a plan to fight its impending financial woes.

Edcon financial woes is expected to lead into loss of 140 000 jobs at South Africa. Last year the group closed many stores in Botswana avoiding what was termed retail cannibalization-one of the contributors to the company’s financial blow. Retail cannibalisation occurs when a company’s new stores steal customers from existing stores in a development that has got the eventual reduction of overall sales even though sales in the new stores generally do well.

South Africa’s biggest non-food retailer recent financial woes are due to weak consumer spending and economic growth in South Africa. Edcon was taken over by banks and bondholders in 2016 to avoid nose-diving. Edcon shops of Jet sells quality value fashion, home and beauty merchandise targeted at lower to middle-income customers- these are the hardest hit by South African recession.

 Edgars on the other hand is expected to salvage a lot of business because it targets middle to upper-income customers who control the economy, but this type of consumers takes a lower share of the South African population. Now Edcon plans on “recapitalisation programme”to reduce their financial woes. Edcon Spokesperson Michael Rubenstein would not comment on how the recent developments are exactly going to affect Edcon business in Botswana.

This week Rubenstein passed a recent statement from Edcon CEO Grant Pattison to BusinessPost and the spokesperson said the announcement applies to all Edcon businesses, even those in Botswana. This suggests that the financial woes at South Africa also affects Edcon local businesses. "The restructuring and recapitalisation of Edcon has passed its next hurdle with the Edcon Board having recently approved the structure of the proposed recapitalisation plan, and in response lenders have extended waivers to allow time for implementation. 

This will allow sufficient time for the number of necessary due diligence and governance processes to be completed. At this stage, we can’t release any additional detail as we remain subject to Confidentiality Agreements. The Board fully appreciates the support that is being received from all Group stakeholders and the commitment that has been shown for the viability of the business.  We will make further announcements in due course,” said Pattison’s recent statement.

Pattison’s recent statement comes after last year December Edcon press statement where the company confirmed that it is in discussions with numerous stakeholders with regard to the Group’s continued recapitalisation programme. Pattison commented, “Edcon’s balance sheet recovery programme has been underway for some time as we continue to focus on completing a recapitalisation of Edcon.

Part of the process is the continuing discussions with various stakeholders: which include lenders, landlords, potential new investors, and others, as we explore and discuss various options.” Edcon want malls to reduce rent and lenders to go easy on it. South Africa’s Sunday Times reported that on 7 December Edcon had sent out a letter to its 31 biggest landlords asking for a two-year 41 percent "rent holiday" in exchange for a five percent stake in the business in a bid to stave off liquidation and the loss of up to 140 000 jobs.

A report by the Sunday Times newspaper stated that Edcon had sent out a letter to its 31 biggest landlords asking for a two-year 41 percent "rent holiday" in exchange for a five percent stake in the business in a bid to stave off liquidation and the loss of up to 140 000 jobs
Edcon is facing collapse or possible liquidation according to South African experts. According to Sunday Times who had seen a letter from Edcon to landlords, the group is desperate to an extend that it is planning to offera 5 percent stake in the business in exchange for a two-year agreement on rentals.

According to the South African Sunday publication, Edcon is doing all these to secure P1.6 billion in emergency funding from banks and the Public Investment Corp. According to latest financials, Edcon’s total net third party debt as at 30 June 2018 was P6 billion. According to Edcon, another element of the programme to ensure successful recapitalisation of the balance sheet has been to lower store costs, which were well-controlled for the three-month period ended 30 June 2018 increasing by only 0.6 percent to P1.4 billion. Financial results for the thirteen weeks ended 30 June 2018 the Edcon Group reported retail sales of P4 billion for the quarter, at a gross profit margin of 38.9 percent.

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Grit divests from Letlole La Rona

22nd March 2023

Grit Services Limited, a member of the pan African real estate group, London Stock Exchange listed Grit Real Estate Income Group is divesting from Letlole La Rona Limited (LLR), a local real estate company established by government investment arm Botswana Development Corporation over a decade ago.

The Board of Directors of Letlole La Rona Limited this week announced in a statement to Unitholders that Grit Services Limited (‘Grit’) has informed them of its intention to exit its investment in the company.

Grit has been a material shareholder in LLR since 2019. On 07 March 2023, Grit sold 6 421 000 linked units, representing 2.29% of the Company’s total securities in issue, at a market value of BWP 22 537 710.

This trade follows previous sales of 6.79% in December 2022, as communicated to Unitholders on 10 January 2023, as well as a further sale of 4.78% (representing 13 347 068 linked units) on 24 February 2023 to various shareholders.

In aggregate, Grit has sold 13.9% shareholding in the Letlole La Rona between December 2022 and March 2023, resulting in current shareholding of 11.25% in the Company.

Letlole La Rona said in the statement that the exit process will take place in an orderly manner so as to maintain stability of the Company’s share price.

The statement explained that Grit’s sale of its entire shareholding in LLR is in line with its decision to exit investments where it does not have majority control, or where it has significant exposure to currencies other than US dollar, Euro or hard-currency-pegged revenue streams.

“Grit has announced similar decisions pertaining to certain of its hospitality assets in Mauritius recently. The Company would like to advise Unitholders that it remains focused on long-term value delivery to all stakeholders” LLR said

In July last year as part of their Go-to-Africa strategy Letlole La Rona acquired an initial 30% equity stake in Orbit Africa Logistics, with an option to increase this investment to 50%. OAL is a special purpose vehicle incorporated in Mauritius, owning an industrial asset in a prime industrial node in Nairobi, Kenya.

The co-investment was done alongside a wholly owned subsidiary of London listed Grit. The Orbit facility is situated on a prime industrial site on Mombasa Road, the principal route south of Nairobi center, serving the main industrial node, the port of Mombasa and the industrial town of Athi River and is strategically located 11 kilometers south of the international airport and 9.6 kilometers from the Inland Container Depot.

Grit shareholding in Letlole La Rona was seen as strategic for LLR, for the company to leverage on Grit’s already existing continental presence and expand its wings beyond Botswana borders as already delivered by Kenya transaction.

Media reports have however suggested that LLR and Grit have since late last year had fundamental disagreements on how to go about the Go-to-Africa strategy amongst other things, fuelled by alleged Botswana government interference on the affairs of LLR.

Government through LLR founding shareholder – Botswana Development Corporation has a controlling stake of around 40 percent in the company. Government is the sole shareholder of Botswana Development Corporation.

Letlole La Rona recently released their financial results for the six months ended December 2022, revenue increased by 4% to P50.2 million from P48.4 million in the prior comparative six months, whilst operating profit was up 8% to P36.5 million. Profit before tax of P49.7 million was reported, an increase of 8% on the prior comparative six months.

“We are encouraged by the strong results, notwithstanding a challenging economic environment. Our performance was mainly underpinned by annual lease escalations, our quality tenant base and below average market vacancy levels, especially in our warehouse portfolio,” Kamogelo Mowaneng, Letlole La Rona Chief Executive Officer commented.

LLR reported a weighted average lease expiry period of 3.3 years and escalation rates averaging 6.8% per annum for the period ended 31 December 2022.Its investment portfolio value increased by 14% year-on-year to close the period at P1.4 billion, mainly driven by the acquisition of a 30% stake in OAL in July 2022.

The Company also recorded a significant increase in other income, predominantly due to foreign exchange gains on the OAL shareholder loan. “We continue to explore pipeline opportunities locally, and regionally in line with our Go-to-Africa strategy and our interest remains on value-accretive investments,” Mowaneng said.

An interim distribution of 9.11 thebe per linked unit was declared on the 6th of February 2023 for the half-year period to 31 December 2022, comprising of a dividend of 0.05 thebe and debenture interest of 9.06 thebe per linked unit which will be paid to linked unit holders registered in the books of the Company at the close of business on 24 February 2023.

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Stargems Group establishes Training Center in BW

20th March 2023

Internationally-acclaimed diamond manufacturing company StarGems Group has established the Stargems Diamond Training Center which will be providing specialized training in diamond manufacturing and evaluation.

The Stargems Diamond Training Institute is located at the Stargems Group Botswana Unit in Gaborone.

“In accordance with the National Human Resource Development Strategy (NHRDS) which holds the principle that through education and skills development as well as the strategic alignment between national ambitions and individual capabilities, Botswana will become a prosperous, productive and innovative nation due to the quality and efficacy of its citizenry. The Training Centre will provide a range of modules in theory and in practice; from rough diamond evaluation to diamond grading and polishing for Batswana, at no cost for eight weeks. The internationally- recognized certificate offered in partnership with Harry Oppenheimer Diamond Training School presents invaluable opportunities for Batswana to access in the diamond industry locally and internationally. The initiative is an extension of our Corporate Social Investment to the community in which we operate,” said Vishal Shah, Stargems Group Managing Director, during the launch of the Stargems Diamond Training Center.

In order to participate in this rare opportunity, interested candidates are invited to submit a police clearance certificate and a BGCSE certificate only to the Stargems offices.  Students who excel in these programs will have the chance to be onboarded by the Stargems Group. This serves as motivation for them to go through this training with a high level of seriousness.

“Community empowerment is one of our CSR principles. We believe that businesses can only thrive when their communities are well taken of. We are hoping that our presence will be impactful to various communities and economies. In the six countries that we are operating in, we have contributed through dedicating 10% of our revenues during COVID-19 to facilitate education, donating to hospitals and also to NGOs committed to supporting women and children living with HIV. One key issue that we are targeting in Botswana is the rate of unemployment amongst the youth. We are looking forward to working closely with the government and other relevant authorities to curb unemployment,” said Shah.

Currently, Stargems Group has employed 117 Batswana and they are looking forward to growing the numbers to 500 as the company grows. Majority of the employees will be graduates from the Stargems Diamond Training Center. This initiation has been received with open arms by the general public and stakeholders. During the launch, the Minister of Minerals and Energy,  Honorable Lefoko Moagi, stated that the ministry fully endorses Stargems Diamond Training and will work closely with the Group to support and grow the initiative.

“As a ministry, we see this as an game changer that is aligned with one of the United Nations’ Six Priority Sustainable Development Goals, which is to Advance Opportunity and Impact for Diversity, Equity, and Inclusion (DEI). What Stargems Group is launching today will have a huge impact on the creation of employment in Botswana. An economy’s productivity rises as the number of educated workers increases as its skilled workmanship increases. It is not a secret that low skills perpetuate poverty and widen the inequality gap, therefore the development of skills has the potential to contribute significantly to structural transformation and economic growth by enhancing employability and helping the country become more competitive. We are grateful to see the emergence of industry players such as Stargems Group who have strived to create such opportunities that mitigate the negative effects of COVID-19 on the economy,” said the Minister of Minerals and Energy.

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Food import bill slightly declines

20th March 2023

The latest figures released by Statistics Botswana this week shows that food import bill for Botswana slightly declined from around P1.1 billion in November 2022 to around P981 million in December during the same year.

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