Choppies is running at a high speed in a race against time to avoid the risk of being delisted from the Botswana Stock Exchange Limited (BSEL) end of this month.
Release of financials remains a thorn for Choppies as many believe the retail giant is a sinking ship following explosive speculations on its financial operations, delay of financial results and a fight for shares at Choppies Zimbabwe. Earlier this week, BSEL warned Choppies to release audited financial statements for the ended June 2018 or face strict repercussions. According to a statement released by BSEL, Choppies is in contravention with the BSEL Listing Requirements and “is under threat of suspension and possible termination.”
In an interview with BusinessPost this week, Choppies CEO Ramachandran Ottapathu promised that they will release the results before the stipulated time and that the retailer will not be delisted. Motswedi Securities Head of Research Garry Juma said in an interview that he personally does not think Choppies will risk being delisted. He was confident that before the end of October, Choppies would have listed.
Choppies failure to release financial results saw the local grocer being suspended from the BSEL on 21 September resulting in its share price dropping drastically from P1.25 to 40 thebe. The suspension of Choppies took six days, and prompted a lot of activity in the JSE where its value fell by 85 percent. After the fall, the price rebounded by 22 thebe in the BSEL to trade at 62 thebe.
According to Motswedi Securities recent Weekly Financial Markets Highlights, it will take time for the retailer to recover from its crash. “…the likelihood of the stock recovering all of the losses , of which currently stand at -74.4%, in the remaining three months are very slim, considering that they have already notified the public that they expected a profit after tax decline of 20% or more in a trading statement on the 21st of September,” said Motswedi Securities.
Motswedi Securities has also observed that investor confidence in the stock has waned considerably and without any further clarification on the company’s situation, a lot of uncertainty may cloud the performance of the stock. Choppies is estimated to have lost about P1.7 billion in value following the drop in share price. Ottapathu has relieved that on paper in the past weeks Choppies would have lost almost quarter of a billion but “everything is going well operationally despite all the speculations.”
Ottapathu believes the Choppies fall in value is due to delay of financial statements which created a lot of perception and speculation in the market. A change of auditors from KPMG to PricewaterhouseCoopers (PwC) is blamed in delay of financial results and Choppies recently released a statement saying:
“The Board of Directors of Choppies Enterprises Limited advises that they have instructed management to perform more detailed procedures on verification and valuation of inventory in conjunction with the new external auditor PricewaterhouseCoopers (PwC), appointed on 31 January 2018. This process will only be completed by 30 April 2018 and hence creates uncertainty regarding the impact of any potential adjustments, if any, on the results.”
Choppies share price over-punished and the JSE effect
Market researcher Juma is of the view that the Chopppies price was “over-punished” because of Zimbabwe shareholder fight and the delay of financial results. He believes that Choppies should have made a quick statement of clarification on any issue which threatens to mar its reputation or lessen investor confidence. According to him, clarity should have been made on delay of financial results and the Zimbabwe shareholder war.
Juma also stated that the Choppies share price fall in BSEL was because of the influence from the big market that is the Johannesburg Stock Exchange (JSE). Juma said Choppies fall in value was a trend set in South Africa where investors were having fears over the Zimbabwe shareholding saga and delay of financial results, the retailer was following suit of what is happening in the JSE.
Juma explained that JSE is a huge market which can influence market trends of smaller markets like the BSEL. The researcher explained the sensitivity of the South African economy which can be ‘touched by anything’ as the South African Rand also thrives in “free floating exchange rate.” He was explaining a scenario of if JSE catches flu, BSEL would catch flu too.
Choppies, Shoprite scramble for Africa
Choppies, built from humble beginnings from a hilly beef town of Lobatse, grew in leaps and bounds and became a force to be recon with for years. In 2012 Choppies listed on BSEL with market capitalization of P2.4 billion and three years later it got its secondary listing on JSE and listed about 277-million ordinary shares at R4.90 per share. After JSE listing Choppies embarked on a crusade of taking over Africa retail markets and market its presence in neighboring countries like South Africa.
But there was another bull on the kraal in Shoprite, a big player for decades, to compete with Choppies. Market observers believe Choppies has failed in the South Africa market and according to Juma, the South African retailer remains with an upper hand over the local grocer. As Choppies’ rise almost diminished the presence of Shoprite in Botswana, the case is vice versa at South Africa and Juma believes this market dynamics will take a long time to change.
Just days after the last month’s decline in Choppies market value, a South African analyst predicted in the Business Day that the fall in the local retail price could make it a target for the likes of Shoprite while Choppies was still under pressure. The analyst sees Choppies as a “small player in a big pond. Also, this publication has recently intercepted information that Shoprite may be planning to “take Choppies out of the game” by a hostile takeover following the local retailer’s market misfortunes. Information from the JSE suggests that Shoprite may be involved in “fronting for Choppies shares.” Ottapathu was not aware of such move by Shoprite and the South African retailer did not respond to our questions on the issue before press time.
However some market enthusiasts are doubtful that Shoprite sees Choppies as a rival, but it is “just an irritant.” According to observers, it is unlikely that there was anyone buying a lot of Choppies shares without buying during the past couple of days as this may be a possibility for a hostile takeover to happen.
Juma also does not buy the logic that Choppies may be up for a hostile takeover, putting his confidence on two major shareholders Ottapathu and Farouk Ismail, saying they will not let that happen so easy. He said “not now, not anytime soon.” Juma reminded how the two men build Choppies from humble beginnings to a retailer giant it is today.
Adamant and unmoved by the recent market misfortunes that happened for Choppies, Ottapathu told BusinessPost that a hostile takeover by anyone whether bigger than Choppies or small, is impossible. Ottapathu was unfazed saying business will go on like normal and financial results will soon be released in few days. Shoprite refused to comment allegation of its attempted hostile take-over of Choppies but said: “Regrettably we cannot comment on any public speculation.”
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
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”