The details surrounding Sefalana’s Rights issue have finally come full circle with the latest circular to shareholders clearly outlining what the company intends to do with the capital raised.
In October Sefalana announced that it intends to raise capital by way of a Rights Issue. While the details were sketchy at the time of announcement, shareholders were told the capital raised was to fund a business acquisition in Lesotho. However the latest details from the company show that the capital raised will be used to finance two transactions.
“At the Meeting of the Board of Directors of Sefalana held on 26 October 2016, the Board determined that the stated capital comprising ordinary shares would be increased from 222,868,186 shares to 250,726,709 shares. The Directors have thus caused the stated capital to be increased.
The Offer Shares are to be offered to existing Shareholders by way of a Rights Issue,” the group said in a letter to shareholders before revealing that the capital raised by this issue is to be used to finance the acquisition of the Lesotho Business (TFS), to make an investment in a South Africa Consortium, to assist with future acquisition opportunities, to fund property acquisitions relating to these Transactions, and for other working capital requirements of the Sefalana Group.
The group further revealed that the combined consideration for the transaction will be approximately R280million (P 219 million). The remaining proceeds, being P132 million, from the Rights Issue will be used to fund additional store openings in Lesotho (P40 million), further acquisition opportunities and purchase of related property (P80 million) and supporting working capital purposes (P12 million) within the Sefalana Group.
While the Lesotho transaction became a matter of public knowledge last week, details surrounding the deal were scant. In the latest circular, the group has revealed that Sefalana, through its 95% owned Lesotho subsidiary, Sefalana Trading Lesotho (Proprietary) Limited has entered into an agreement to purchase specified assets belonging to TFS, an existing FMCG business based in Maseru, Lesotho. The business operates from a single location and employs approximately 95 staff members.
TFS operates in Maseru, Lesotho, selling a wide range of fast moving consumer goods (FMCG). It offers a full range of edible and non-edible grocery products including perishable (frozen and refrigerated) and non-perishable food, household cleaning products, toiletries, catering supplies, tobacco products, over the counter patent medicines, as well as a limited range of general merchandise such as household utensils and crockery.
It is the largest cash and carry in Lesotho and has established a strong relationship with its customer base. Through this Lesotho (TFS) Acquisition, Sefalana will immediately have a significant presence in the Lesotho market in a short space of time and intends to continue to grow that business.
For the Lesotho transaction, Sefalana expects to pay as much as R80 million for the acquisition. This figure is made up of the specified assets of Lesotho business which stood at R23 million and the value of the inventory was estimated at R30 million at the time the deal was being made. In addition, the group will pay R27 million in respect of intangible assets attaching to the Lesotho business, including, but not limited to, customer relationships and goodwill.
“The Lesotho Transaction allows the Sefalana Group to further expand into the Southern African region building on the remarkable success of Metro Namibia operations and in line with its overall Sefalana Group strategy to focus on regional growth of its FMCG segment. This Lesotho Transaction will accelerate the Sefalana Group’s expansion plan and enable it to be a significant player in the Lesotho market in a short space of time.
The Sefalana Group turnover is expected to grow by over BWP 300 million in the year following the acquisition. This is expected to translate into additional profit after tax of over BWP 7 million in the first year,” the group said.
In the second transaction that was kept under wraps, Sefalana group will take a significant stake in a large consortium in South Africa. According to details contained in the circular, it is a consortium of an existing retail and wholesale store network operating the business of FMCG trade across South Africa. The business operates from multiple locations and currently employs approximately 450 staff members.
The Consortium wishes to significantly expand its presence across South Africa and will acquire a number of target stores (approximately 30) commencing in January 2017. The Consortium will consider further expansion in the coming years as suitable targets present themselves for acquisition.
The Consortium operates from a head office in South Africa selling a wide range of FMCG. It offers a full range of edible and non-edible grocery products including perishable (frozen and refrigerated) and non-perishable food, household cleaning products, toiletries, catering supplies, tobacco products, over the counter patent medicines, as well as a limited range of general merchandise such as household utensils and crockery.
It is also one of the largest buying groups which supply wholesale and retail chains in South Africa and Botswana. The Consortium hopes to strengthen its presence in the South African market and become one of the top ten largest businesses in the FMCG sector. It is anticipated that Sefalana’s investment will amount to around 25% of the share capital of the Consortium. The consideration for the investment in the consortium’s business by Sefalana is estimated at R200 million. This investment is expected to translate for the Sefalana Group, an additional profit after tax of over P19 million in the first year.
This is the second time in two years that Sefalana turned to the stock market and its shareholders to raise capital to fund its expansion plans. When Sefalana entered the Namibian market in 2014 by acquiring the Metro chain of 12 stores in the FMCG trade sector, it facilitate the entry into this market by undertaking a Rights Issue program in May 2014 in which it raised P255 million. The Rights Issue program was significantly oversubscribed at 151%.
The Metro business was a R750 million turnover business at the date of take over. Two years on, it generates just under R1.5 billion in revenue and contributes approximately P40 million towards the Sefalana Group earnings before interest, tax and amortization. This now represents just under 20% of Sefalana Group profitability demonstrating the success of the Metro acquisition.
In the latest round of raising capital, the group announced that the 27,858,523 new shares in the capital of the Company will be issued in a ratio of 1 Offer Share for every 8 shares held by existing shareholders at a price of P12.60 per offer share, representing a 10% discount of the current Sefalana share price.
According to the FMCG giant, the Rights Issue has not been underwritten because irrevocable undertakings have been obtained from major shareholders, who have undertaken to exercise their rights in respect of Offer Shares that they are entitled to and to subscribe for any excess shares that remain after the Rights Issue allocation has been made. The Board of Sefalana has obtained dispensation from the BSE that the Rights Issue not be underwritten, as the Issue will be fully subscribed.
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”