Imara Holdings Limited’s attempt at preventing a hostile takeover from FWA Financial Ltd has fallen through following two major developments that tilted the scales in FWA’s way. This week, Competition Authority unconditionally approved the proposed acquisition of 71.23% of the issued share capital of Imara Holdings Ltd by FWA Financial Ltd, leading to a 100% shareholding.
In approving the acquisition, the antitrust body determined through the analysis of the facts of the merger, that the proposed transaction is not likely to result in the prevention or substantial lessening of competition, or endanger the continuity of the services offered in the market under consideration. The market structure in the provision of investment banking, financial products and services to corporate, institutional and private clients will not be altered and as such does not raise any competition concerns.
The regulatory approval is a major victory for FWA, a financial holding company incorporated in Mauritius, as it now set to be a controlling majority shareholder in Imara following a major development that saw high ranking shareholders accepting the takeover offer. A total of 59,494,301 Imara Shares are currently in issue, of which 17,234,046 Imara Shares are held by FWA, representing approximately 28.97% of the issued share capital of Imara. The Offer by FWA was therefore to acquire the remaining 42,260,255 Imara Shares which are currently not held by them. The Offer was made directly to shareholders for a cash consideration of P2.10 per share.
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 (“Acceptance Condition”). FWA has since announced that as of 16 December 2016 FWA has now 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.
FWA has confirmed that if, following the implementation of the Offer, FWA owns more than 80% of the Imara Shares in issue, then it is the intention to approach the BSE to delist Imara on the basis that the requisite shareholder spread is no longer extant. Furthermore, the company said if the Offer is accepted by Imara Shareholders holding such number of Imara Shares as will result in FWA (together with its existing beneficial shareholding) beneficially holding (directly or indirectly) not less than 90% of the entire issued share capital of Imara, then FWA reserves the right to implement a compulsory acquisition of the remaining Shares in accordance with the Botswana Companies Act.
The success of FWA in achieving the threshold they needed for a complete takeover of Imara adds to the drama that has pitied FWA against the Independent Board of Imara which has been desperately fending off FWA’s advances ever since the takeover was proposed. When making its offer to take over the whole of Imara, FWA said Imara has failed to hold steady amid difficult trading conditions in the sub-Saharan African markets in which it operates in.
African economies have suffered a sharp decline in the past 18 months, 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.
FWA has 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 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.
While it appeared that FWA had made a convincing case for the takeover, the Independent Board rejected the offer price. The board of directors of Imara were obligated to form the independent board for the purpose of considering the terms and conditions of the offer. The Independent Board, in accordance with its obligations in the Takeover Regulations, appointed KPMG as an Independent Expert to provide it with a fair and reasonable opinion regarding the fairness and reasonable of the offer consideration.
“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’s recommendation was to be soon overshadowed by Imara’s interim loss and the biggest blow came through shareholders who somersaulted on the promises not to sell .In an Offeree Response Circular issued by the Independent Board of Imara to Shareholders, it was revealed that Mrs Ann Mackeurtan, a non-executive director, who indirectly holds 2 623 124 shares, has indicated that she will not be accepting the Offer. The board has since released a statement that Mrs. Mackeurtan, having reflected on her original decision, has confirmed to the Independent Board on 9 December 2016, that she will now be accepting the Offer in respect of all of her shares.
With FWA having exceeded the acceptance condition and the offer now becoming unconditional as to acceptances-which means it has acquired sufficient acceptances from shareholders of Imara- the takeover is certain to go ahead. Imara shareholders will be getting P2.10 per share, which is 19% lower than the current share price. The offer consideration values the entire issued share capital of the company at approximately P125 million, based on shares outstanding. This is lower than the actual market value of Imara which is currently at P154 million on the Botswana Stock Exchange.
Based on the offer consideration, the aggregate value of the consideration payable by FWA to Imara Shareholders is P88.7 million. FWA will be funding the offer consideration by means of internal resources and a line of finance received from Standard Chartered Bank Mauritius Limited. Imara’s shares have not moved in response to the hostile takeover that begun over two months back, further strengthening the case of FWA to delist Imara after they get complete control of it.
When making the offer, FWA reasoned that the offer price of P2.10 per share is attractive to shareholders, providing a liquidity event as well as representing a fair value proposition. The Mauritius based company had made the absence of liquidity for Imara shares on the Venture Capital Board of the BSE a rallying call for shareholders to exit their positions by selling the shares to FWA. The strategy appears to have worked.
As COVID-19 and its variants continue to cast a shadow over the world’s health systems and economies, the level of uncertainty and strength of the economic recovery will vary across countries. The real GDP in all G-20 countries is expected to grow compared to the previous year, but some countries will take longer than others to return to full capacity.
According to Mooody’s Global Macro Outlook 2021-22 report released this week, precautionary behavior and official restrictions are still hampering interpersonal interactions. The resulting toll on global economic activity has been staggering, even as the economy has also shown a remarkable degree of resilience.
Overall economic outcomes in 2020 exceeded Moody’s forecasts in most countries because of stronger-than-expected rebounds in the second half of the year. Aided by technology, many people and businesses quickly adapted so that they could carry on with daily activity with reduced in-person interactions.
However, Moody’s says the recovery remains unbalanced, with the pandemic affecting individual businesses, sectors and regions very differently. According to the group, goods demand has almost fully recovered because goods can be produced and consumed with limited in-person interactions, while the recovery in service continue to lag.
Within services, businesses that were able to effectively deliver their products at arms-length have stabilized, if not prospered. Large businesses with access to cheap funding have performed better than small and mid-sized firms. According to the report, the transportation, hospitality and leisure and arts sectors continue to languish, but the information technology, consumer goods, pharmaceuticals and financial sectors have thrived.
According to the report, many individuals around the world (including Botswana), have lost their jobs and continue to face employment uncertainty, but on the flip side, the forced decline in household consumption and the rise in asses prices have buttressed household financial balances at an aggregate level. Moody’s reported that all G-20 countries will post growth rates in 2021 and 2022, but the pace of recovery will vary significantly.
“The COVID-19 shock has exposed differences between countries in terms of political leadership, community health management, fiscal and monetary policy response, economic structures and inherent economic dynamism. Public health considerations drove the economic shock of the pandemic. In that sense, the steep declines in GDP in 2020 across advanced and emerging market countries were less a reflection of underlying weaknesses in the economy, and more a function of the combined effects of the spread of the virus and the stringency of lockdown measures,” says Moody’s.
Economic outcomes will remain closely tied to the pandemic, Moody’s said. “The quicker countries can curb the spread of the virus, the faster their economic activity will recover. Otherwise the costs of keeping parts of the economy shut, in terms of lost income and revenue, will keep adding up. The longer the crisis lasts, the more difficult it will be for governments to compensate the private sector for its continuing losses.”
Without adequate government support, Moody’s predict that large-scale deterioration in asset quality will ensue. Such detrimental effects, it says, could eventually transmit the shock through financial channels to other parts of the economy.
“We have cut or estimate of the 2020 contraction for the G-20 countries. We now expect a collective contraction of 3.3%, compared with our previous estimate of 3.8%, because of a better-than-expected recovery across a wide range of advanced and emerging market economies in the second half of the year. We expect the G-20 countries to grow by 5.3% in 2021 and 4.5% in 2022, up from our prior forecasts of 4.9% and 3.8% respectively.”
US ECONOMY TO LEAD THE GLOBAL SERVICES DEMAND RECOVERY
The US economy advanced at a 4.0% annualized rate in the fourth quarter 2020, but the headline figure masks the fact that the economy has lost momentum since November, when COVID-19 cases began to rise. Moody’s says it expects this current moderation in economic growth to be temporary. Economic momentum will likely puck up pace over the course of 2021 and 2022, supported by: enhanced pandemic control, significant additional fiscal support to the economy and a more predictable policy environment.
With infection rates now starting to fall, economic momentum should naturally pick up in the second quarter and into the summer as individual states progressively ease up social distancing restrictions, Moody’s reports. “We believe that a stronger pandemic management response from the Biden administration, will increase public confidence and allow for a relation of restrictions over this year and next.”
COVID-19 SHOCK EXACERBATES EXISTING STRUCTURAL CHALLENGES IN SOUH AFRICA
South Africa’s economy is expected to growth by 4.5% in 2021 and by 11% in the following year, following an estimated 7.0% contraction last year. According to Moody’s, this will make South Africa’s recovery one of the weakest among emerging market countries. The economy has struggled to build momentum for many years, and as a result suffers from chronically high unemployment. The COVID-19 shock has made the economic situation all the more challenging, says Moody’s.
Reconnaissance Africa, a Canadian exploration company has started piercing the natural resource-rich lands of Kavango basin in Namibia, the company in searching for oil and gas.
The prospective area stretches into North West district of Botswana, the company through its local subsidiary Recon Africa Botswana has been given the nod by Ministry of Mineral Resources, Green Technology & Energy Security to explore petroleum mineral for four (4) years.
Amid all the negative reports around the company’s drilling activities in the Kavango basin, which covers ecosystem components feeding into the mighty Okavango Delta, the bottom line is that there are prospects of billions of dollars beneath the area in form of oil and gas-and Recon Africa is out to unearth the treasures.
Member of Parliament for Selibe Phikwe Dithapelo Keorapetse says Botswana should strive to participate in the exploration and development of these potential oil and gas deposits in the North West district. Contributing to the 2021/22 budget speech on Monday Keorapetse cautioned government against watching from afar while a potential multi-billion pula industry unfolds in the Okavango area.
He implored Botswana Oil Limited(BOL) and Mineral Development Corporation Botswana (MDCB) both state owned enterprises, to take up equity stakes in the exploration activities as early as now to “ rather than being spectators and waking up late when the foreigners are enjoying the billions”.
ReconAfrica through its subsidiary Recon Botswana was issued an exploration license under the Petroleum Act to explore for petroleum minerals in the North West District of Botswana, on 1 June 2020, for a period of four years.
“Botswana Oil as the country ‘s petroleum investment company together with MDC-a state owned mineral interest holding company must come together and acquire a stake in the ongoing exploration activities ,not to wait until Recon is making money and you say you want shares”. Keorapetse made reference to Karowe mine which Botswana’s diamond mining partner De Beers Group sold to Lucara over a decade ago while still at exploration stage.
Lucara bid on the site, and its internal partner Lundin provided a bank guarantee to De Beers for fifty million dollars, capturing some seventy per cent of the stake.Soon afterward, Lucara bought the remaining stake by acquiring De Beers’s London-based junior venture partner, African Diamonds. Lucara now owns AK6 (now Karowe Mine), having spent a little more than seventy million dollars.
The mine has since developed into a prolific rare gem producer celebrated worldwide, having unearthed some the world’s largest diamond ever in history , such as the over 1000 carats Lesedi La Rona, Sewelo and the magnificent 813 carats Constellation.
“We are now mulling acquisition of shares in Lucara but when transactions were happening in 2009 we were just spectators, we could have acquired shares back then when they were affordable now it is expensive to buy into Karowe mine, we must not make the same mistake with this oil and gas projects” said Keorapetse urging Government to be pro-active and move quickly to approach Recon Africa for a stake in Recon Africa Botswana.
ReconAfrica is a junior oil and gas company engaged in the exploration and development of oil and gas in North East of Namibia and North West of Botswana—the Kavango Basin. The company officially launched the oil and gas exploration project in Namibia in early January 2021. The exploration activities are taking place in the Kawe area, Kavango East Region, Namibia.
ReconAfrica holds a 90% interest in a petroleum exploration license in Namibia which covers the entire Kavango sedimentary basin in Namibia, the remaining 10% is owned by Government of Namibia. The exploration licence covers an area of 25,341.33 km2 (6.3 million acres), and based on commercial success, it entitles ReconAfrica to obtain a 25-year production license.
Further, ReconAfrica holds a 100% interest in petroleum exploration rights in Botswana over the entire Kavango sedimentary basin in the country. This covers an area of 8,990 km2 (2.2 million acres) and entitles ReconAfrica to a 25-year production license over any commercial discovery. The company acquired a high-resolution geomagnetic survey of the license area and conducted a detailed analysis of the resulting data and other available data, including reprocessing and reinterpretation of all existing geological and geophysical data.
The survey and analysis confirm that the Kavango Basin reaches depths of up to 9,000 m (30,000 feet) under optimal conditions to preserve a thick interval of organic rich marine source rock, and is anticipated to hold an active petroleum system.
“We believe that the Kavango Basin is another world class Permian basin, analogous to the Permian basin in Texas It is estimated that the oil generated in the basin could be billions of barrels. Recon Africa’s initial goal is to establish the presence of an active petroleum system with its fully funded 3-well drilling program starting early January 2021.
Canadian mining company, Lucara Diamond Corporation, well known globally for producing rare gems of unprecedented quality, has not been spared by the 2020 global market downturn caused by the COVID-19 pandemic.
In their financial results for the year ended 31st December 2020, released from Vancouver Canada late Monday, the junior minor reported a significant net loss of $26.3 million for the year (approximately P287 in Botswana currency).
This according to the financials is a loss of $0.07 loss per share, which is a significant decline when compared to net income of $12.7 million ($0.03 per share) in 2019. The company which wholly owns and runs Botswana’s Karowe mine registered total revenues of $125.3 million (over P1.3 billion), a 34 percent drop compared to $192.5 million (almost P2 billion) recorded in 2019 or $335 per carat from $468 per carat in 2019.
The decrease in revenue resulted in adjusted EBITDA of $18.4 million, a decline when compared to adjusted EBITDA for the same period in 2019 of $73.1 million. Lucara executives explained that total revenue decline was a result of challenging market conditions, a longer ramp-up for production and polished sales in the latter half of 2020 under the HB supply agreement.
“As a result, revenue from certain polished diamonds from Lucara’s highest value stones that would otherwise have been recorded as revenue in 2020, is now expected to be realized in 2021.” reads a commentary alongside the figures.
During the year ended December 31, 2020, Lucara sold 373,748 carats at an average price of $335 carat. Diamond sales for the fourth quarter of 2020 were held through a combination of regular tenders, Clara, for diamonds less than 10.8 carats, and through HB under the supply agreement for those diamonds greater than 10.8 carats.
The Company recognized revenue of $42.4 million or $402 per carat from the sale of 105,648 carats. Price recovery was observed in most size and quality classes. Of note, prices achieved for goods sold on Clara (under 10.8 carats in size) in January 2021 have now recovered to the level of pricing achieved early in 2020.
For the year ended December 31, 2020, Lucara registered revenue totaling $55.2 million from the two agreements with HB, including an accrual for variable consideration of $7.2 million related to “top-up” payments arising from polished diamond sales in excess of the initial purchase price paid to Lucara.
With global restrictions impeding travel for many diamantaires, Lucara says interest in Clara grew significantly in 2020 and the number of buyers on the platform increased from 27 to 75. During 2020, Clara began selling stones on behalf of third party sellers, which was a significant objective for the year.
“As Clara becomes the online marketplace of choice for rough buyers, discussions are underway with several producers to begin trials for the sale of their diamonds on Clara” the company said Amidst challenging circumstances for the diamond industry in 2020 Lucara forged ahead with the Karowe mine underground project.
During the year period under review $18.7 million (over P190 million ) was spent on project execution activities including the following: Site earthworks (consisting of laydown preparation and clearing of shaft and surface infrastructure locations), geotechnical test pitting and drilling, and completion of two pilot holes at the shaft locations, a 746 metre hole for the ventilation shaft and a 768 metre hole for the production shaft.
The Company was able to complete on-site earth works and geotechnical studies by using local contractors while a State of Emergency remained in effect in Botswana. Long lead time item orders were also placed for shaft muckers, and hoist and winder refurbishment was initiated. In addition, power line engineering and detailed shaft design and engineering (consistent with original targets for 2020) progressed.
In Q4 2020, the Government of Botswana approved the proposed powerline route and granted a 25-year extension to the Karowe Mine License to 2046, sufficient to cover the remaining open-pit life (to 2026) and the expected life of the proposed underground expansion, currently planned to 2040.
Lucara says it’s currently actively exploring opportunities to arrange debt financing for the underground expansion for those amounts which are expected to exceed the Company’s cash flow from operations during the construction period. The underground expansion program has an estimated capital cost of $514 million (over P5 billion) and a five year period of development.
President & Chief Executive Officer of Lucara Diamond Corporation, Eira Thomas said the measures that Lucara took early in the pandemic, including the decision not to sell rough diamonds in excess of +10.8 carats after Q1, helped protect and support prices for large, high value diamonds that account for more than 70% of the company’s revenues.
“These efforts in conjunction with our transformational supply agreement with HB Antwerp executed in July, resulted in strong price recoveries by Q4, a trend which has continued into 2021.” Thomas said the recent recovery of two, high value +300 carat stones “continue to highlight the extraordinary nature of the Karowe resource and underpin the rationale for underground expansion, extending our mine life out to at least 2040”.