Botswana’s home grown loan stock company, Letlole la Rona (LLR) continues to grow and make strides in one of their priority sectors – the retail space property market.
The Botswana Stock Exchange (BSE) listed company is acquiring Water Shed Piazza, a shopping mall in Mahalapye from Jus Posh Investments. The process is nearing completion, Letlole La Rona shared in a circular dated 22 January 2018. The purpose of the Circular which was issued in compliance with Section 9.25 of the BSE Listing requirements explains to the shareholders of Letlole la Rona and all affected parties the full details of this Acquisition Transaction.
Letlole La Rona entered into an agreement with Jus Posh Investments (Proprietary) Limited to acquire Lot 29052, Mahalapye from the former, an occurrence that was announced by the LLR on the late last year ,7th December. “The acquisition of the Property includes all land, buildings and improvements comprising of mainly a fully developed retail center known as Watershed Piazza,” reads the statement.
Letlole La Rona which is owned by several investment entities including Botswana Development Corporation (BDC) and First National Bank (FNBB) owns a number of properties in Botswana, with investment highly skewed in favor of industrial property, followed by hotel space, commercial office space, retail and residential space. The circular explains that for the purposes of expanding its market capitalization, the BSE listed company identified Water Shed Piazza which consists of mainly the retail space.
According to Letlole La Rona, Watershed Piazza is a potentially favorable investment opportunity to grow its property portfolio and to enhance returns on the Company’s equity. “This retail property will enhance LLR’s property value and diversify the portfolio in line with the strategic objectives of the Company. It also provides geographical spread opportunities,” observes the statement.
The transaction is expected to be completed around March 2018 upon certain regulatory approvals as well as other customary conditions precedent, which include Letlole La Rona conducting a due diligence on the property, and being satisfied with the outcome thereof as well as other approvals from relevant authorities like Botswana Stock Exchange & Competition Authority. The circular reveals that a total sum of BWP 149,000,000.00 is considered to be paid to Jus Posh Investment a company whole owned Property business man Seloma Tiro.
Letlole La Rona says the transaction worth was determined based on a negotiated sale price which was guided by an independent valuation undertaken by Jus Posh and another independent valuation undertaken by LLR. The company also shared that this BWP 149,000,000.00 presents 22% of value of the total net assets of LLR as of 30 July 2017. LLR says the transaction will be wholly funded by debt, hence a significant increase in finance costs.
Recently Letlole La Rona acquired Red Square, a residential property sitting on a 1.84 hectare piece of land in a gated estate located at the Corner of Nyerere Drive and Nelson Mandela Drive in Extension 11 Gaborone. LLR boast of the fact that the property is situated at the heart of the City and in one of the most sought after locations in Central Gaborone. Its proximity to major businesses in Gaborone, including financial institutions, parastatals, Government Ministries, the High Court, the Industrial Court, and SADC Head Office makes it a prime location for individuals with business interests around the city centre and the new CBD.
The property was acquired at the sum of P42 million and has helped in diversifying LLRL's property portfolio, propping up exposure to residential property from naught to 6%. The company also closed a deal on one-third stake in a well located and thriving shopping centre in Francistown valued at approximately P105 million. The property is located close to the Central Business District and benefits a lot from foot traffic needing access to the taxi rank. The retail centre is poised for growth, with rental for the anchor tenant having recently increased. This brings to two, the total number of strategic acquisitions by LLR in a space of five months.
Letlole La Rona Limited is a variable rate loan stock company incorporated in July 2010 and listed on Botswana Stock Exchange on the 15th of June 2011 at a price of P1.50 per share and a market capitalization of P420 million. Latest financial figures from the company indicates that for the 2016/17 trading year the company‘s property portfolio grew by 10% compared to the previous year, P710.1 million to P778 million. Letlole La Rona recorded a profit before tax of P88.9 million and distributed dividends of P37.5 million for that financial year. From the P420 million market capitalization at initial listing the company‘s market capitalization stands at P652.4 million, as of the latest financial result.
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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”