BSE further revises equity brokerage commission
Following the successful demutualisation of Botswana Stock Exchange to a company held by shares BSEL limited has been introducing a number of changes within its stock trading operations , of which many automatically comes with a demutualised stock market.
In April 2016 while still a mutual organization under the Ministry of Finance the BSE amended the equity brokerage commission to introduce a floor of 0.60 percent. However, the introduction of the floor has experienced several challenges since inception, receiving backlash from asset managers also viewed as impediment to potential investors, especially foreign asset managers.
Now that BSE is a demutualised institution on transition to becoming a globally competitive stock trading platform that attracts universal multinational fortune 500 companies and international investors further review on the equity brokerage commission has been ongoing. After several consultations with asset managers BSE reiterates that the 2016 revised brokerage commission that is currently in effect has challenges and limitations that impedes smooth running of an evolving demutualised stock market.
A statement released by BSE this week said introducing the floor effectively raised the cost of trading and presented an opportunity for brokers to undercut one another in a bid to win trades. “It also has the potential to result in low trading activity in dual listed stocks as asset managers circumvent the BSE to trade the stocks in stock exchange where brokerage is comparatively lower.” reiterated BSE.
The stock market also said concerns underscored with the current brokerage commission are that benchmarking exercise which was undertaken to review the brokerage commission relied on information provided by an interested party, a broker, and the exercise could not have provided an independent and objective analysis for the BSE to make a well informed decision. In addition BSE observed that the information presented by the broker was not complete and comprehensive.
“From that end, the benchmarking exercise selected higher ends ceilings of the brokerage commissions to give an impression that brokerage commission in Botswana is very low compared to the chosen markets to support the introduction of the floor,” BSE statement said.
Since the brokerage commission was revised effective April 2016 BSE trading turnover levels declined in 2016 and 2017, and still remained very low in 2018 compared to corresponding periods prior implementation of the floor.
Further analysis indicated that if the impact of the trades in New African Properties (NAP) which accounted for 18.0 percent and 18.4 percent of turnover in 2016 and 2017 respectively is removed, trading levels for 2016 and 2017 would have lagged those for 2013, 2014 and 2015. On the back of reduced trading levels, particularly in 2018, it is generally believed that this is attributable to the introduction of the floor. Stakeholders have since expressed to the Exchange that the floor could be revised or removed with expectations of revival in trading activity.
“In part, their concerns are attributed to the pressure that the brokers are experiencing on their revenues as a result of subdued trading activity,” says BSEL. The Exchange further lamented that the introduction of the floor came with negative skewness to overall turnover distributions increased the variance and the deviation of daily average turnover and reduced the stability of turnover. A brief overview of BSE trading figures indicates that conventionally, high value trades attract lower commission compared to low value trades.
Historically, asset managers have been paying brokerage averaging 0.36 percent on the basis of the size of the trades. It therefore could have been expected that introducing a floor that elevated the fees almost twice on average and by as much as six times what was paid for high value trades would result in a reduced propensity to trade in order to minimize the transaction costs incurred by the funds. In bookovers, where the effort to facilitate the trades is correspondingly lower, asset managers have paid an average rate of 0.30 percent.
An introduction of the floor of 0.60 percent effectively doubles the rate and doubling the rate would have been expected to curtail trading. To further support the review and possible scrapping out of the floor BSE say in a liberal market and a free market economy, fees have to be driven by competition on the basis of the quality of service and effort and have to be commensurate with the level of services provided.
“In our case, the brokerage commission was not justified by any improvement in value added services, such as increased coverage of stocks or increased cost of execution that warrants passing the costs to the end investors. Therefore, this was mechanically engineered and this is against the order of free market economy,” lamented BSE. In most markets, brokerage commission is on a sliding scale. The scales are such that brokerage declines as the value of the transaction increases.
In a few markets, brokerage is negotiable within certain 3 ranges and in some market it is flat. Further, we have noted that the BSE’s ceiling of 1.85 percent is one of the highest in comparative markets. Currently BSE is engaging stakeholders including the Public for ideas and views exchanges towards the possible removal of the floor.The Exchanges says in the interest of promoting the ideals of a liberal market, stimulating competitiveness and trading activity it recommends the removal of the floor of 0.60 percent such that brokerage is negotiable up to 1.85 percent as was the case prior to April 2016.
“We base this on the fact that asset managers are capable of paying any fees and brokers are free to charge any fees, so without imposing mechanisms in the form of the floor, it is ideal to allow the broker and the asset manager to negotiate any rate,” indicated the statement.
According to BSE the removal of the floor would positively impact overall transaction costs of the funds and stimulate trading activity also taking into account that increased trading activity directly contributes to more income for brokers.
“This will avoid situations where brokers are undercutting one another to cannibalise trades , also this will minimize situations where asset managers could potentially seek rebates for the trades they avail to the brokers with lesser broker effort,” observes BSE. The review and possible removal of the 0.6 percent floor is viewed by BSE as a great opportunity to attract more foreign asset managers who currently view the BSE as expensive.
The latest FTSE classification published in September 2018, the BSE is rated as having relatively unreasonable and uncompetitive transaction costs and BSE says this rating was a result of the introduction of the floor. In paper titled, “What attracts international investors to emerging markets?” the World Federation of Exchanges (WFE) found that reducing trading fees is associated with an increase in foreign trading activity. BSE says revision and possible removal of this charges would make the BSE more competitive relative to other markets.
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Grit divests from Letlole La Rona
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.
Stargems Group establishes Training Center in BW
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.