Imara Holdings Limited (IHL) is set to delist by end of March following a hostile takeover by FWA Financial Ltd. The latest announcement to delist was widely expected as FWA had made it clear that they will delist the company after wrestling control from other shareholders.
The delisting puts an end to hostile takeover bid that began in the last quarter of 2016 when FWA, a financial holding company registered in Mauritius, and the single largest shareholder in Imara with a 28.97% stake proposed to buy the remaining 71% of Imara shares which were currently not held by them. The offer was not a combined offer as it was made directly to shareholders; which meant shareholders did not need approval to sell to FWA.
In making an offer to other shareholders at the time, FWA was not impressed with the direction of the company and its future prospects. Chiefly amongst them, FWA was disappointed that the share buyback programme approved by shareholders in October 2015 to buy back 15 million shares has not been implemented, denying shareholders capital gains accrued and also the chance to offload the hard to sell stock. Moreover, FWA said that the potential for Imara to keep its shareholders happy through a special dividend is unlikely as the company simply doesn’t have sufficient cash reserves to finance an attractive special dividend.
FWA’s offer to take over the whole of Imara also hinged on the notion that the company is not far from the cusp of collapse hence need for change of strategy. FWA says Imara has experienced difficult trading conditions in the sub-Saharan African markets in which it is active.
African economies have suffered a sharp decline in the past two years, driven by weak commodity prices which led to declines in currencies versus the US Dollar, difficult economic conditions, currency controls, reduced liquidity, lower share prices and reduced equity trading volumes. Indicative of the challenges experienced by Imara is the 50% drop in the value of the flagship Imara African Opportunities Fund in US Dollar terms in the period from 30 April 2015 to 30 September 2016 as a result of the decline in African equity values and redemptions.
In the five years to 30 April 2016, Imara generated profits Attributable to Owners of the Parent in two out of the five years. Cumulative Losses Attributable to Owners of the Parent totalled BWP24.6 million in the five years to 30 April 2016. In the year to 30 April 2016 IHL reported a pre-tax loss of BWP13.38 million from continuing operations before the profit on disposal of Imara SP Reid Proprietary Limited, exchange rate gains and goodwill impairments. FWA had also noted that Imara has high central costs for a company of its size, adding that the high central costs reflect the fixed costs associated with its listing on the Venture Capital Board of the Botswana Stock Exchange (BSE) as well as fixed costs associated with the complexity of its business model.
“In determining the Offer price, FWA has taken in to account IHL’s track record, the value of IHL’s balance sheet at 30 April 2016 and IHL’s growth prospects. FWA therefore considers that the all-cash nature of the Offer allows Shareholders to realise their entire investment at a fair value given the uncertainties facing African economies and IHL at this time,” the acquiring company said when making the offer.
Most importantly, FWA revealed during the initial offer that should it manage to buy the requisite shares, it intends to make an application for a delisting of shares on the Venture Capital Board of the BSE. The reasons for delisting include the lack of liquidity in the Botswana market for small-cap shares and thus the ability to set proper market prices becomes compromised; the limited liquidity to raise capital as a small-cap stock; management having to spend a significant amount of time to focus on investor relations and compliance with the BSE Listing Requirements and ongoing fixed costs associated with BSE Listing Requirements compliance and regulatory oversight.
FWA’s takeover of Imara faced fierce opposition from the Independent Board formed by Imara Board of Directors which was mandated to look at the offer. The independent Board not only rejected the offer price but also quashed some of FWA’s claims regarding the operations of Imara.
“The Independent Board, taking into account the opinion of the Independent Expert that the terms and conditions of the Offer are not fair and not reasonable, has considered the Offer and is of the opinion that the Offer undervalues the Company and, on that basis, recommends that Imara Shareholders reject the Offers,” the independent board advised before adding that The Independent Board considers the Offer to be an opportunistic move to take advantage of the current short-term adverse trading environment for the IHL Group and to acquire control of it cheaply.
The independent board stopped short of accusing FWA of being disingenuous by trying to absolve themselves from the operations of Imara. The board has revealed that while FWA is critical of the recent and current performance of the company, the management team of Imara comprised of four executive directors, three of whom are also directors of FWA. In an interesting twist, the independent board said Imara’s board of directors has been pressing the management team, most of the members of which are now directors of FWA, for its promised strategy proposals, which have not been forthcoming and have delayed the implementation of various key decisions by the board of directors.
However, the Independent Board’s resistance was later weakened by unfolding events that put FWA in a strong position. Imara incurred losses in its operating businesses in the first half year ended 31 October 2016, an event that strengthened FWA’s case. Furthermore, FWA received a boost when Competition Authority unconditionally approved FWA’s intention to acquire the rest of Imara’s shares that were not in their possession.
The Independent Board lost the fight in December when the buoyant FWA announced that as of 16 December 2016 they have accepted offers for IHL shares representing 35,597,118 shares (60%) and, combined with its extant holding such share represents 89 % of the total nominal value of IHL Shares.
As part of the Offer Conditions, it was announced that that the Offer will become Unconditional once FWA has received valid acceptances in respect of not less than 12,572,599 Imara Shares or such number of Imara’s shares that when aggregated with FWA’s current shareholding results in FWA owning no less than 50.1% in nominal value of IHL Shares after the implementation of the Offer.
With FWA having exceeded the acceptance condition and the offer now becoming unconditional as to acceptances, meaning it has acquired sufficient acceptances from shareholders of Imara, the takeover was certain to go ahead with the only uncertainty being the timing of the delisting. This has now too been put to rest this week through a terse statement from Imara.
“At an Extraordinary General Meeting of the Company held on 24 February 2017, shareholders approved to delist the shares of the Company from the Venture Capital Board of the Botswana Stock Exchange (“BSE”) and for the Company to apply to the BSE for the delisting. Approval for the delisting of the shares of Imara Holdings Limited from the Venture Capital Board of the BSE was granted by the Listings Committee of the BSE on 10 March 2017,” the company said in a statement issued by Imara’s Board of Directors.
The statement concluded by advising shareholders that the shares of the Imara shall be delisted for trading on the BSE with effect from the close of business on Friday, 31 March 2017.
The recent study on youth entrepreneurship in Botswana has identified difficult access to funding, land, machinery, lack of entrepreneurial mindset and proper training as serious challenges that continue to hamper youth entrepreneurship development in this country.
The study conducted by Alliance for African Partnership (AAP) in collaboration with University of Botswana has confirmed that despite the government and private sector multi-billion pula entrepreneurship development initiatives, many young people in Botswana continue to fail to grow their businesses into sustainable and successful companies that can help reduce unemployment.
University of Botswana researchers Gaofetege Ganamotse and Rudolph Boy who compiled findings in the 2022 study report for Botswana stated that as part of the study interviews were conducted with successful youth entrepreneurs to understand their critical success factors.
According to the researchers other participants were community leaders, business mentors, Ministry of Trade and Industry, Ministry of Youth, Gender, Sport and Culture, financial institutions, higher education institutions, non-governmental institutions, policymakers, private organizations, and support structures such as legal and technical experts and accountants who were interviewed to understand how they facilitate successful youth entrepreneurship.
The researchers said they found that although Botswana government is perceived as the most supportive to businesses when compared to other governments in sub-Saharan Africa, youth entrepreneurs still face challenges when accessing government funding. “Several finance-related challenges were identified by youth entrepreneurs. Some respondents lamented the lack of access to start-up finance, whereas others mentioned lack of access to infrastructure.”
The researchers stated that in Botswana entrepreneurship is not yet perceived as a field or career of choice by many youth “Participants in the study emphasized that the many youth are more of necessity entrepreneurs, seeing business venturing as a “fall back. Other facilitators mentioned that some youth do not display creativity, mind-blowing innovative solutions, and business management skills. Some youth entrepreneurs like to take shortcuts like selling sweets or muffins.”
According to the researchers, some of the youth do not display perseverance when they are faced with adversity in business. “Young people lack of an entrepreneurial mindset is a common challenge among youth in business. Some have a mindset focused on free services, handouts, and rapid gains. They want overnight success. As such, they give up easily when faced with challenges. On the other hand, some participants argue that they may opt for quick wins because they do not have access to any land, machinery, offices, and vehicles.”
The researchers stated that most youth involved in business ventures do not have the necessary training or skills to maintain a business. “Poor financial management has also been cited as one of the challenges for youth entrepreneurs, such as using profit for personal reasons rather than investing in the business. Also some are not being able to separate their livelihood from their businesses.
Lastly, youth entrepreneurs reported a lack of experience as one of the challenges. For example, the experience of running a business with projections, sticking to the projections, having an accounting system, maintaining a clean and clear billing system, and sound administration system.”
According to the researchers, the participants in the study emphasized that there is fragmentation within the entrepreneurial ecosystem, whereby there is replication of business activities without any differentiation. “There is no integration of the ecosystem players. As such, they end up with duplicate programs targeting the same objectives. The financial sector recommended that there is a need for an intermediary body that will bring all the ecosystem actors together and serve as a “one-stop shop” for entrepreneurs and build mentorship programs that accommodate the business lifecycle from inception to growth.”
Botswana Housing Corporation (BHC) is said to have recorded an operating surplus of P61 Million, an improvement compared to the previous year. The housing, office and other building needs giant met with stakeholders recently to share how the business has been.
The P61 million is a significant increase against the P6 million operating loss realized in the prior year. Profit before income tax also increased significantly from P2 million in the prior year to P72 million which resulted in an overall increase in surplus after tax from P1 million prior year to P64 million for the year under review.
Chief of Finance Officer, Diratsagae Kgamanyane disclosed; “This growth in surplus was driven mainly by rental revenue that increased by 15% from P209 million to P240 million and reduction in expenditure from P272 million to P214 million on the back of cost containment.” He further stated that sales of high margin investment properties also contributed significantly to the growth in surplus as well as impairment reversals on receivables amounting to P25 million.
It is said that the Corporation recorded a total revenue of P702 million, an 8% decrease when compared to the P760 million recorded in the prior year. “Sales revenue which is one of the major revenue streams returned impressive margins, contributing to the overall growth in the gross margin,” added Kgamanyane.
He further stated professional fees revenue line declined significantly by 64% to P5 million from P14 million in the prior year which attributed to suspension of planned projects by their clients due to Covid-19 pandemic. “Facilities Management revenue decreased by P 24 million from P69 million recorded in prior year to P45 million due to reduction in projects,” Kgamanyane said.
The Corporation’s strength is on its investment properties portfolio that stood at P1.4 billion at the end of the reporting period. “The Corporation continues its strategy to diversify revenue streams despite both facilities management income and professional fees being challenged by the prevailing economic conditions that have seen its major clients curtailing spending,” added the CEO.
On the one hand, the Corporation’s Strategic Performance which intended to build 12 300 houses by 2023 has so far managed to build 4 830 houses under their SHHA funding scheme, 1 240 houses for commercial or external use which includes use by government and 1 970 houses to rent to individuals.
BHC Acting CEO Pascaline Sefawe noted that; BHC’s planned projects are said to include building 336 flat units in Gaborone Block 7 at approximately P224 million, 100 units in Maun at approximately P78 million, 13 units in Phakalane at approximately P26 million, 212 units in Kazungula at approximately P160 million, 96 units at approximately P42 million in Francistown and 84 units at approximately P61 million in Letlhakane. Emphasing; “People tend to accuse us of only building houses in Gaborone, so here we are, including other areas in our planned projects.”
Researchers from some government owned regulatory institutions in the financial sector have projected that the banking sector’s profitability could increase, following Bank of Botswana Monetary Policy Committee recent decision to increase monetary policy rate.
In its bid to manage inflation, Bank of Botswana Monetary Policy Committee last month increased monetary policy rate by 0.50 percent from 1.65 percent to 2.15 percent, a development which resulted with commercial banking sector increasing interest rate in lending to household and companies. As a result of BoB adjustment of Monetary Policy Rate, from 1.65 percent to 2.15 percent commercial banks increased prime lending rate from 5.76 percent to 6.26 percent.
Researchers from Bank of Botswana, the Non-Bank Financial Institutions Regulatory Authority, the Financial Intelligence Agency and the Botswana Stock Exchange indicated that due to prospects of high inflation during the second half of 2022, there is a possibility that the Monetary Policy Committee could further increase monetary policy rate in the next meeting in August 25 2022.
Inflation rose from 9.6 percent in April 2022 to 11.9 percent in May 2022, remaining above the Bank of Botswana medium-term objective range of 3 – 6 percent. According to the researchers inflation could increase further and remain high due to factors that include: the potential increase in international commodity prices beyond current forecasts, logistical constraints due to lags in production, the economic and price effects of the ongoing Russia- Ukraine conflict, uncertain COVID-19 profile, domestic risk factors relating to possible regular annual administered price adjustments, short-term unintended consequences of import restrictions resulting with shortages in supplies leading to price increases, as well as second-round effects of the recent increases in administered prices “Furthermore, the likelihood of further increases in domestic fuel prices in response to persistent high international oil prices could add upward pressure to inflation,” said the researchers.
The researchers indicated that Bank of Botswana could be forced to further increase monetary policy rate from the current 2.15 percent if inflation rises persistently. “Should inflation rise persistently this could necessitate an upward adjustment in the policy rate. It is against this background that the interest rate scenario assumes a 1.5 percentage points (moderate scenario) and 2.25 percentage points (severe scenario) upward adjustment in the policy rate,” said the researchers.
The researchers indicated that while any upward adjustment on BoB monetary policy rate and commercial banks prime lending rate result with increase in the cost of borrowing for household and compnies, it increase profitability for the banking sector. “Increases in the policy rate are associated with an overall increase in bank profitability, with resultant increases in the capital adequacy ratio of 0.1 percentage points and 0.2 percentage points for the moderate and severe scenarios, respectively,” said the researchers who added that upward adjustment in monetary policy rate would raise extra capital for the banking sector.
“The increase in profit generally reflects the banking industry’s positive interest rate gap, where interest earning assets exceed interest earning liabilities maturing in the next twelve months. Therefore, an increase of 1.5 percentage points in the policy rate would result in industry gains of P71.7 million (4.1 percent increase), while a 2.25 percentage points increase would lead to a gain of P173.9 million (6.1 percent increase), dominated by large banks,” said the researchers.