The Botswana Telecommunications Corporation Limited (BTCL) share price seems to have stabilised in the past two months following volatility in trading the stock.
The stabilization of the share price comes after the share price plunged from the highs of P1.34 to the current P0.85t, which is 15% lower than the Initial Public Offering price of P1.
The BTCL IPO was the most highly anticipated IPO of the year more especially that the IPO was postponed several times. In addition, the IPO was heavily marketed as a chance for citizens to grow their wealth through buying shares. Consequently the IPO was oversubscribed, bringing in as many as 50000 domestic investors. On the first day of trading, the stock price surged by 30% to P1.30, bringing joy to investors whom many of them were first time buyers.
Things began to unravel when BTCL declared a loss which was larger than expected, and the market reacted: there was a flurry of trading in the stock with the price taking a hit and ultimately falling to new lows of 91t. It was around that time, that the telecommunication company appointed the market maker as they had promised prior to listing. The telecommunication giant chose of the country’s leading stock brokers, Motswedi Securities, to play the part.
Mr. Garry Juma, Head of Research at Motswedi Securities, says the listing of BTCL was met with great excitement from investors. “There was lots of buying especially from those investors who missed out during the IPO.” Mr. Juma went on to say that after BTCL released its financials which showed a loss, the market reacted negatively despite prior warning from BTCL contained in their IPO prospectus that the corporation will incur a once off impairment charge.
Perhaps it was the larger than expected loss that rattled the investors as evidenced by how quickly the share price fell in the usually slow to react stock exchange.
“There was panic selling. Some investors were selling at any price. Unfortunately because of the demand side which was low, we had a market in which there were many sellers but not many buyers, creating a mismatch which pushed the price down to current levels,” Mr. Juma said.
With the share price at 0.85t, representing a 20% discount of the IPO price, Mr Juma says real investors who know the value of shares see BTCL as a sitting duck as the share price is low therefore creating opportunities. Furthermore, he said it is expected that BTCL will put on a good performance when they announce their interim results later this year.
“So investors are now seeing value. We are also seeing lots of buying from participants. As a market maker we have not participated much because our role is only to interfere as the last resort to avoid a mismatch between sellers and buyers.”
While the share price has not moved in two months, the stock continues to be traded frequently. Mr Juma puts the stabilization of the share price to investors finally coming around and realising value of the stock. This is evidenced by the bid-ask spread which does not deviate much from the current 0.85t price. Moreover, some sellers are not willing to sell below the IPO price. “We can say the share price is now in equilibrium, that’s why the stock could be traded frequently without affecting its share price. The investors are seeing beyond short term fluctuations; instead they are focusing on the long term investment horizon period.
BTCL remains a good company which has no leverage and debts hence it can finance expansion through internal operations.”
The trajectory of BTCL on the stock market closely mirrors that of another listed local company Cresta Marakanelo which listed under similar circumstances: when the government decided to reduce its stake by selling it to citizens. The company listed on the BSE in 2010 after Botswana Development Corporation (wholly owned by the government), the main shareholder, put up 62.9 million shares in an Initial Public Offering (IPO). The IPO was made up of 40.7 million shares offered to the public at P1.45 per share, while 18.5 million was sold through private placement.
The remaining 3.7 million was bought by the company on behalf of its employees. The IPO which was 94% subscribed managed to raise P55.4 million, a record for the BSE at that time which has now been usurped by BTCL. Like BTCL, after listing the stock price fell below the IPO price and this was partly blamed on first time investors. The stock which is currently trading below its IPO price has been gaining momentum this year, with the share price appreciating by 21.5% to trade at P1.30, making Cresta the best performing stock so far in the BSE’s domestic company index.
The gain in share price follows an impressive run that began in 2015 when the company’s share price went up by 20%.
Marcian Concepts have been contracted by Selibe Phikwe Economic Unit (SPEDU) in a P230 million project to raise the town from its ghost status. The project is in the design and building phase of building an industrial hub for Phikwe; putting together an infrastructure in Bolelanoto and Senwelo industrial sites.
This project comes as a life-raft for Selibe Phikwe, a town which was turned into a ghost town when the area’s economic mainstay, BCL mine, closed four years ago. In that catastrophe, 5000 people lost their livelihoods as the town’s life sunk into a gloomy horizon. Businesses were closed and some migrated to better places as industrial places and malls became almost empty.
However, SPEDU has now started plans to breathe life into the town. Information reaching this publication is that Marcian Concepts is now on the ground at Bolelanoto and Senwelo and works have commenced. Marcian as a contractor already promises to hire Phikwe locals only, even subcontract only companies from the area as a way to empower the place’s economy.
The procurement method for the tender is Open Domestic bidding which means Joint Ventures with foreign companies is not allowed. According to Marcian Concepts General Manager, Andre Strydom, in an interview with this publication, the project will come with 150 to 200 jobs. The project is expected to take 15 months at a tune of P230 531 402. 76. Marcian will put together construction of roadworks, storm-water drains, water reticulation, street lighting and telecommunication infrastructure. This tender was flouted last year August, but was awarded in June this year. This project is seen as the beginning of Phikwe’s revival and investors will be targeted to the area after the town has worn the ghost city status for almost half a decade.
The International Monetary Fund (IMF) has slashed its outlook the world economy projecting a significantly deeper recession and slower recovery than it anticipated just two months ago.
On Wednesday when delivering its World Economic Outlook report titled “A long difficult Ascent” the Washington Based global lender said it now expects global gross domestic product to shrink 4.9% this year, more than the 3% predicted in April. For 2021, IMF experts have projected growth of 5.4%, down from 5.8%. “We are projecting a somewhat less severe though still deep recession in 2020, relative to our June forecast,” said Gita Gopinath Economic Counsellor and Director of Research.
The struggle of humanity is now how to dribble past the ‘Great Pandemic’ in order to salvage a lean economic score. Botswana is already working on dwindling fiscal accounts, budget deficit, threatened foreign reserves and the GDP data that is screaming recession.
Latest data by think tank and renowned rating agency, Moody’s Investor Service, is that Botswana’s fiscal status is on the red and it is mostly because of its mineral-dependency garment and tourism-related taxation. Botswana decided to close borders as one of the containment measures of Covid-19; trade and travellers have been locked out of the country. Moody’s also acknowledges that closing borders by countries like Botswana results in the collapse of tourism which will also indirectly weigh on revenue through lower import duties, VAT receipts and other taxes.
Latest economic data shows that Gross Domestic Product (GDP) for the second quarter of 2020 with a decrease of 27 percent. One of the factors that led to contraction of the local economy is the suspension of air travel occasioned by COVID-19 containment measures impacted on the number of tourists entering through the country’s borders and hence affecting the output of the hotels and restaurants industry. This will also be weighed down by, according to Moody’s, emerging markets which will see government losing average revenue worth 2.1 percentage points (pps) of GDP in 2020, exceeding the 1.0 pps loss in advanced economies (AEs).
“Fiscal revenue in emerging markets is particularly vulnerable to this current crisis because of concentrated revenue structures and less sophisticated tax administrations than those in AEs. Oil exporters will see the largest falls but revenue volatility is a common feature of their credit profiles historically,” says Moody’s. The domino effects of containment measures could be seen cracking all sectors of the local economy as taxes from outside were locked out by the closure of borders hence dwindling tax revenue.
Moody’s has placed Botswana among oil importers, small, tourism-reliant economies which will see the largest fall in revenue. Botswana is in the top 10 of that pecking order where Moody’s pointed out recently that other resource-rich countries like Botswana (A2 negative) will also face a large drop in fiscal revenue.
This situation of countries’ revenue on the red is going to stay stubborn for a long run. Moody’s predicts that the spending pressures faced by governments across the globe are unlikely to ease in the short term, particularly because this crisis has emphasized the social role governments perform in areas like healthcare and labour markets.
For countries like Botswana, these spending pressures are generally exacerbated by a range of other factors like a higher interest burden, infrastructure deficiencies, weaker broader public sector, higher subsidies, lower incomes and more precarious employment. As a result, most of the burden for any fiscal consolidation is likely to fall on the revenue side, says Moody’s.
Moody’s then moves to the revenue spin of taxation. The rating agency looked at the likelihood and probability of sovereigns to raise up revenue by increasing tax to offset what was lost in mineral revenue and tourism-related tax revenue. Moody’s said the capacity to raise tax revenue distinguishes governments from other debt issuers. “In theory, governments can change a given tax system as they wish, subject to the relevant legislative process and within the constraints of international law. In practice, however, there are material constraints,” says Moody’s.
‘‘The coronavirus crisis will lead to long-lasting revenue losses for emerging market sovereigns because their ability to implement and enforce effective revenue-raising measures in response will be an important credit driver over the next few years because of their sizeable spending pressures and the subdued recovery in the global economy we expect next year.’’
According to Moody’s, together with a rise in stimulus and healthcare spending related to the crisis, the think tank expects this drop in revenue will trigger a sizeable fiscal deterioration across emerging market sovereigns. Most countries, including Botswana, are under pressure of widening their tax bases, Moody’s says that this will be challenging. “Even if governments reversed or do not extend tax-easing measures implemented in 2020 to support the economy through the coronavirus shock, which would be politically challenging, this would only provide a modest boost to revenue, especially as these measures were relatively modest in most emerging markets,” says Moody’s.
Botswana has been seen internationally as a ‘tax ease’ country and its taxes are seen as lower when compared to its regional counterparts. This country’s name has also been mentioned in various international investigative journalism tax evasion reports. In recent years there was a division of opinions over whether this country can stretch its tax base. But like other sovereigns who have tried but struggled to increase or even maintain their tax intake before the crisis, Botswana will face additional challenges, according to Moody’s.
“Additional measures to reduce tax evasion and cutting tax expenditure should support the recovery in government revenue, albeit from low levels,” advised Moody’s. Botswana’s tax revenue to the percentage of the GDP was 27 percent in 2008, dropped to 23 percent in 2010 to 23 percent before rising to 27 percent again in 2012. In years 2013 and 2014 the percentage went to 25 percent before it took a slip to decline in respective years of 2015 up to now where it is at 19.8 percent.