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.
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Following a devastating first half of the year 2020 due to COVID-19, the global diamond industry started gaining positive momentum towards the end of the year as key markets entered into thanks giving and holiday season.
However Bruce Cleaver, Chief Executive Officer of De Beers Group cautioned that the industry is not out of the woods yet, citing prevailing challenges ahead into 2021.
The first half of 2020 was characterized by some of the worst challenges in history of global diamond trade.
The midstream, where rough diamonds are traded in wholesale and bulk to cutters and polishers, was for the most part of second quarter 2020, suffocated by international travel restrictions as countries responded to the contagious Corona Virus.
This halted movement of buyers and shipment of the rough goods , resulting in unprecedented decline of sales, in turn ballooning stockpiles as the upstream operations produced with little uptake by the midstream.
The situation was exacerbated by muted demand in the downstream where jewelry industries and tail end retailers closed to further curb the spread of COVID-19.
However towards the end of third quarter getting into the last quarter of the year, demand in both midstream and downstream started to steadily pick up as countries relaxed COVID-19 restrictions.
De Beers, the world’s largest diamond producer by value started reporting significant recovery in sales in the sixth and seventh cycle, figures began to reflect an upswing in sentiment as well as increase in uptake of rough goods by midstream.
Sales for the sixth cycle amounted to $116 Million, following a sharp downturn in the previous cycles, significant jump was realized during the seventh cycle, registering $320 million, an over 175 % upswing when gauged against the proceeding cycle.
De Beers noted that diamond markets showed some continued improvement throughout August and into September as Covid-19 restrictions continued to ease in various locations.
“Manufacturers focused on meeting retail demand for polished diamonds, particularly in certain product areas, accordingly, we saw a recovery in rough diamond demand in the seventh sales cycle of the year, reflecting these retail trends, following several months of minimal manufacturing activity and disrupted demand patterns in all major markets,” said De Beers Chief Executive, Bruce Cleaver in September last year.
The diamond mining behemoth continued to register impressive sales in the eighth and ninth cycle signaling the industry could end the year on a positive note.
The momentum was indeed carried into the last cycle of the year. The value of rough diamond sales (Global Sightholder Sales and Auctions) for De Beers’ tenth sales cycle of 2020 amounted to $440 million, a significant increase from the 2019 tenth sales cycle value.
Against what seemed like a positive year end that would split into the New Year Bruce Cleaver, CEO, De Beers Group, however warned the industry not to count eggs before they hatch.
“Positive consumer demand for diamond jewellery resulting from the holiday season is supporting the continuation of retail orders for polished diamonds from the diamond industry’s midstream sector. This in turn supported steady demand for De Beers’s rough diamonds at our final sales cycle of 2020,” Cleaver had said in December.
In caution the De Beers Chief noted that “While the diamond industry ends the year on a positive note, we must recognise the risks that the ongoing Covid-19 pandemic presents to sector recovery both for the rest of this year and as we head into 2021.”
All segments of the supply chain were severely impacted by the global lockdown measures introduced in response to the Covid-19 pandemic in the first half of 2020.
After a strong US holiday season at the end of 2019, the rough diamond industry started 2020 positively as the midstream restocked and sentiment improved.
However, from February 2020, the Covid-19 outbreak began to have a significant impact on diamond jewellery retail sales and supply chain, with many jewelers suspending all polished purchases and/or delaying payments to their suppliers.
Rough diamond sales were materially affected by lockdowns and travel restrictions, delaying the shipping of rough diamonds into cutting and trading centers and preventing buyers from attending sales events.
These resulted in significant decline in total revenue for the business in the first six months of 2020. Total revenue decreased by 54% to $1.2 billion from $2.6 billion registered in the prior half year period ended 30 June 2019.
For the entire first six (6) months of the year 2020 De Beers Rough diamonds sales fell drastically to $1.0 billion from $2.3 billion in the prior H1 period ended 30 June 2019. Sales volumes decreased by 45% to 8.5 million carats compared to 15.5 million carats registered in the prior period.
Next month Minister of Finance & Economic Development, Dr Thapelo Matsheka will face the nation to deliver Botswana‘s first budget speech since COVID-19 pandemic put the world on devastating economic trajectory.
The pandemic that broke out in late 2019 in China has put the entire world on unprecedented chaos ,killing over P1 million people across the globe , shattering economies and almost rendering the year 2020 – a 12 months stretch of complete setback.
The 2021/22 budget speech will come at time when Botswana’s economy is still trying to emerge out of this.
National lockdowns and local travel restrictions have hit small medium enterprises hard, while international travel restrictions halted movement of both good and people, delivering by far some of the heaviest and worst catastrophic blows on the diamond industry and tourism sector, the likes of which this country has never seen before on its largest economic sectors.
As Minister Matsheka faces parliament next month, the reality on the ground is that Botswana’s national current cash resource, the Government Investment Account (GIA) is depleting at lightning speed.
On the other hand the COVID-19 economic mess is prevailing, the virus is reported to have taken a new dangerous shape of a deadly variant, spreading like fueled veld fire and causing some of the world’s super powers back to tough restrictions of lockdown.
According official figures released by Bank of Botswana, in October 2020 the GIA was running at P6 billion compared to the P18.3 billion held in the account in October 2019.
However reports indicate that the account could be currently holding just about P3 billion. The draw down from the GIA has been by exacerbated by declining diamond revenue, the country‘s largest cash cow. The sector was experiencing significant revenue decline even before COVID-19 struck.
When the National Development Plan (NDP) 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at a 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.
Taking into account the COVID-19 economic mess in 2020/21 financial year, the budget deficit could add up to P20 billion after revised figures.
Drawing down from government cash balances to finance these budget deficits meant significant withdrawals from the Government Investment Account, hence the near depletion of this buffer.
Meanwhile should Botswana’s revenue streams completely dry up to zero levels; the country would only have 11 months, before calling out for humanitarian aids and international donors, because foreign reserves are also on slow down.
During 2019, the foreign exchange reserves declined by 8.7 percent, from Seventy One Billion, Four Hundred Million Pula (P71.4 billion) in December 2018 to Sixty Five Billion, Three Hundred Million Pula (P65.3 billion) in December 2019.
The reserves declined further in 2020, falling by 2.3 percent to Sixty Three Billion, Seven Hundred Million Pula (P63.7 billion) in July 2020. This was revealed by President Masisi during State of the Nation Address in November last year.
The decrease was mainly due to foreign exchange outflows associated with Government obligations and economy-wide import requirements.
However latest statistics(October 2020) from Bank of Botswana reveal that Botswana’s foreign reserves are estimated at P58.4 billion, with government’s share of these funds significantly low.
Government has since introduced several measures to contain costs and control expenditure with the most recent intervention being the halting of recruitment in government departments and parastatals.
Furthermore, Value Added Tax has been signaled to go up from 12% to 14% in April this year with more hikes and service fees anticipated as government embarks on unprecedented domestic revenue mobilization.