Letshego Holdings Limited says it will seek shareholders permission to buyback the company’s shares of up to 10 percent in efforts to increase shareholders’ value. On Monday, the leading micro lender released a proposed share buy-back mandate that will see the company retaining or possibly cancelling all of the repurchased shares.
“The Directors of Letshego propose to seek a new Share Buy-back Mandate from the Shareholders to purchase up to a maximum of ten percent (10%) of the stated share capital of the Company by way of on-market Share Buy-back and pursuant to that, retain those shares as Treasury Shares up to five per cent (5%) of the stated share capital of the Company and cancel the rest of the shares and effect a Reduction of Capital on the shares purchased,” the company stated in the document detailing the proposed share buy-back.
The shareholders are expected to approve the proposed share buy-back mandate during the company’s annual general meeting on the 24th of May. Amongst the resolutions to be approved is that the purchase of shares should not exceed ten percent of the stated capital of the company. Moreover, shareholders are requested to approve the special resolution that authorises the company to reduce its stated capital as may be determined by the board of directors from time to time.
With an issued share capital of 2, 144, 045, 143 shares, Letshego proposes purchasing up to ten percent of that, meaning that the company is willing to buy up to a maximum of 214,404, 514 shares. Upon buying the ten percent of stated capital, 107, 202, 257 shares will be reduced from the stated capital, leaving the company with the stated share capital of 2, 036, 842, 886 shares. Alternatively, if the board decides to cancel the whole of the purchased ten percent of the stated share capital, it will mean Letshego will wipe as much as 214, 404, 514 shares, leaving the company with 1,929, 640, 629 shares.
In the proposed share buy-back mandate, Letshego intends to buy the shares from shareholders on the Botswana Stock Exchange (BSE) using one or more duly licensed stockbrokers appointed by the company. The repurchase of the shares will be spread over time, marked by one or several transactions depending on the availability of funds and shareholders who are willing to sell their stake back to the company. Furthermore, while the purchase price of the shares has not been explicitly stated, the company’s directors have revealed that the purchase price will be determined by the Letshego committee mandated for the purposes of effecting the share buy-backs.
The proposed purchases of shares will be effective immediately upon approval of the mandate by shareholders and will continue to be in force until the date of the next annual general meeting is held or required to be held by law. The share buy-backs may be cancelled if shareholders of the company revoke or vary the date on which purchases and acquisitions of shares are carried out to the full extent mandated.
Letshego says it will either tap into its internal cash reserves or source external funds to finance the repurchase of shares. The type of funding will be determined by the funding model which will ensure that the share buy-back mandate does not significantly impact the working capital requirements, financial flexibility or investment ability of Letshego.
The latest proposal by Letshego’s directors for shareholders to approve the share buy-back mandate comes on the heels of another share buy-back program that was initiated and concluded last year. In the previous annual general meeting, shareholders approved the company’s request to repurchase ten percent of shares which constituted a maximum limit of 218, 490, 166 shares and subsequently cancelling the repurchased shares. Pursuant to that mandate, the company only repurchased 52, 782, 546 of those shares, representing 2.41 percent instead of the envisaged 10 percent.
Letshego will be hoping to appeal to shareholders who have become frustrated with the company’s stock price that has been in decline in the last two years. By buying back the shares, Letshego says this will improve shareholder value by leveraging on its balance sheet to improve returns on equity and earnings per share.
Moreover, Letshego hopes to stoke positive investor sentiments as share buy-backs can be seen as a sign that a company has excess money, and therefore attracting other investors to invest in Letshego which could improve the share price. However, the downside of share buy-backs is that the company is forced to use some of the company’s cash reserves and borrowings to buy back shares instead of using the money in optimizing its operations.
Letshego’s profit after tax in 2016 was P669.7 million, down by 12.8 percent from the previous year’s profit. Letshego with its P7.9 billion in total assets, has large cash reserves amounting P529 million. Assuming the current share price of P2.27, Letshego will have to spend around P486.7 million of its cash to buy 10 percent of the stated share capital of the company. The sufficient cash reserves will save Letshego from further borrowings. The company’s existing debts amount to P3.4 billion.
Letshego which is listed on the BSE currently has a market capitalization of P4.8 billion, which is expected to decrease after the share buy-back is completed. The public shareholding spread of Letshego is currently at 74.59 percent of stated share capital. If the share buy-back is carried out in full, the public shareholding spread will be reduced to 64.59 percent since the company is prohibited from knowingly buying shares from its own directors, CEO of the company or major shareholders. Letshego’s major shareholder is Botswana Insurance Holdings Limited (BIHL) with a 23.7 percent stake. If Letshego goes ahead and cancel the repurchased shares, the reduction in share capital will increase percentage shareholding of existing shareholders and also increase their voting rights.
On Wednesday, two days after the share buy-back mandate was made public, Letshego’s shares gained 2t or 0.8 percent to trade at P2.27, signalling that shareholders approve of the share buy-back. Furthermore, shareholders will seek to drive up the stock price so that if the share buy-back is approved the purchase price will be high. Letshego’s shareholders are seeking to recoup their losses following string of losses in the stock price. Letshego share price was down by 5.7 percent in the first quarter of the year but has since made advances, bringing down its loss to just about 1.3 percent. However the stock has a long way to go to recover the 20 percent share price loss recorded in 2016.
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”