Sefalana Holding Company Limited (Sefalana), on the of the leading retail stores in Botswana, has concluded a deal that will see the company operating for the first time in Lesotho.
The deal comes after months of negotiations that have resulted with Sefalana acquiring a large cash and carry store in Lesotho.
“It was previously reported to the Shareholders of Sefalana Holding Company Limited that the Company has entered into negotiations with two unrelated third parties in the Region, which if successfully concluded, and subject to relevant regulatory approval, will result in a transaction that might have an impact on the price of the Company’s shares.
In respect of the first transaction, Shareholders are advised that the Company has entered into an agreement to purchase a large cash and carry going concern in Maseru, Lesotho on 1 November 2016. This will enable the Group to enter into the Lesotho market in line with its expansion plans into the Region,” wrote Mr. Mohamed Osman, the Group’s Finance Director, in a note to shareholders.
The latest communication forms a series of announcements that the company has been releasing all centred around the company raising capital by way of rights of issue. Earlier this month, the retail giant, released a communiqué that it intends on raising capital by issuing more shares which will be offered to existing shareholders in proportion to their holding of shares. The second announcement which carried more information than the previous one revealed that The Company is raising approximately P351 Million, net of expenses, by way of a rights issue of 27,858,523 Offer Shares.
The Offer Shares are being offered by way of a Rights Issue to shareholders on the basis of 1 offer share at P12.60 for every 8 shares held. While the previous announcements did not reveal the specific reasons why Sefalana was raising capital, the recent press release confirms that the money is intended for financing the deal in Lesotho. “A Rights Issue program is underway to raise funds for this transaction. Details of this program have been published and further details will follow in due course,” Mr. Osman said.
The company’s entrance in Lesotho is a confirmation of Sefalana’s growing confidence about its regional expansion plans after its first major retail expansion in Namibia was a success. The Lesotho acquisition has the hallmarks of how Sefalana entered the Namibian market and indications are it will play from the same rule book. In 2013, the company opened its first store in Namibia then a year later, Sefalana swept in and acquired 12 metro stores across Namibia. Metro Namibia contributed 29% and 10% of the Group’s revenue and profit before tax for the year, respectively. Turnover amounted to just under P1.1 billion which was 35% up on the prior year. Profit before tax amounted to P20.0 million which was 87% up on the prior year.
Sefalana is one of the oldest companies trading on the stock exchange, first making contact with the stock exchange in 1975 and has since evolved into the behemoth that is today. The year 1987 brought with it the localization of shareholding allowing the group to be in the hands of citizens, information shows that 92% of Sefalana shares are held by Batswana. The most significant Shareholders are some of the largest Pension Funds of Botswana such as the Botswana Public Officers’ Fund (BPOPF) and the Debswana Pension Fund.
The other significant shareholder is Motor Vehicle accident Fund. Whilst the group’s core business is in the FMCG sector, the Group remains well diversified with a solid property portfolio in Botswana, Zambia and Namibia, 3 motor dealerships (MAN, TATA and Honda), agencies for the sale of industrial and agricultural equipment, a well-established grain mill in Serowe, providing nutritious meals for the country’s population and a UHT milk plant, which commenced operations this year.
The group has achieved significant growth in the last 4 years with revenue doubling from P1.9 billion in 2012 to P3.8 billion in the current year. An annual growth of 10.4% has been achieved compared to the prior year. Over the last 4 years, profitability has almost doubled, from P109 million in 2012 to P207 million in 2016, an impressive growth rate of 90%. At a current share price of P14 per share, this represents a 409% growth over 5 years when the price was P2.75.
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”