Botswana’s home grown billion pula property group, Turnstar Holdings has posted significant decline in profits after tax. According to the Botswana Stock Exchange listed property outfit annual report released this week, the Group recorded profits after tax of 73,193,705 during the 12 months period ended January 2018 compared to 237,724,816 during the period ended January 2017.
Turnstar Managing Director, Gulaam Husain Abdoola highlighted that during the period under review the US Dollar significantly depreciated against the Botswana Pula. “This has adversely affected the Group results for the year ended 31 January 2018,” he said. Abdoola also observed that the translation loss reported for the year ended 31st January 2018, occurred when translating the US Dollar denominated investments and other financial assets of the Group’s Tanzanian subsidiary, Mlimani Holdings Ltd to Botswana Currency.
“The subsidiary reports in US Dollar currency; whilst the Group’s functional currency is Botswana Pula.” Approximately 43% of the Group’s total rental income is in US Dollars. During the period under review Tunstar reported full year distribution of 18t per linked unit. The Group distributed P103 m for the year, despite the challenges experienced, however this was low compared to P114.4m distributed last year, “The Net Asset value per linked unit is strong at P 2.73 per linked unit,” underscored the MD.
Furthermore the group has recorded a 1.5% share price appreciation and 5% income return from distributions, a total return to investors of 6.5% for the 2018 financial year. The Turnstar MD also observed that the Botswana regulatory challenges on the side of their clients affected their cash flow negatively, “As reported last year, we assumed that the trading license issue in Botswana had been resolved. It seems that was not the case as it continued into this year. These issues delayed the leasing of the new wing of Game City.
We could no longer hold the stores for the tenants who had signed pre leases but could not obtain their Trading Licenses.” The MD further added that this resulted in Turnstar having to lease the stores to new tenants and the latter were afforded a period of beneficial occupation before paying rent. In turn, rental revenues for the affected stores were only received during the last few months of the financial year under review. However the MD noted that by the end of January 2018 the company had achieved an approximate 97% tenancy ratio in our Botswana properties.
In Tanzania, the delay in the completion of construction resulted in a delay in the leasing of the new developments. The current downturn in the economy has affected the Mlimani Commercial Office and Conference Centre revenues. The shifting of the country’s capital to Dodoma caused a surplus of office space in Dar es Salaam. “This has adversely affected the occupancy of the commercial office blocks at Mlimani City. However on a positive note, the retail shopping mall, including the new wing, is fully tenanted and operating at full capacity by end of year under review.”
Amid operating challenges, Tunstar still remains the largest amongst Botswana listed Companies in terms of asset value. According to Grant Thornton, Turnstar financial auditors, the Group footprint in Africa and the Dubai region exposes the Turnstar to foreign exchange risks arising from various currency exposures, primarily with respect to the US dollar. “Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities and net investments in foreign operations,” noted the auditor.
The Group owns subsidiary companies which hold investment properties in Tanzania and Dubai and is accordingly exposed to foreign exchange risk in respect of financial assets and liabilities that are not in the Group's functional currency which is the Botswana Pula. Grant Thornton also highlighted that during the period under review the group has not hedged the foreign exchange fluctuations arising from net investments in foreign operations.
If as at January 31 2018, the currency had strengthened by 10% against the US dollar with all other variables holding constant, pre-tax profit for the year would have been P 28 380 819 higher mainly as a result of foreign exchange gains on translation of US dollar denominated financial assets and borrowings.
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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”