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Choppies directors’ sell-down on course

Group Chief Executive Officer, Ramachandran Ottapathu

The pair at the helm of retail group, Choppies, is finally on course to selling off a string of companies that they jointly own, that supply the retail group with goods and services.

Group Chief Executive Officer, Ramachandran Ottapathu and Farouk Ismail own a string of companies that supply stocks and services to the Group. Such services include distribution, grain packaging, milling, Pharmaceuticals’ distribution, and Air conditioning supplies among others.

The Choppies group annual report 2014 states: “The board of directors of Choppies has been advised that, in relation to transactions which are ongoing with certain companies which are jointly majority owned by Mr Ramachandran Ottapathu (Mr Ottapathu) and Mr Farouk Ismail (Mr Ismail), hence making those transactions related-party transactions and the relevant companies related-party companies (the related-party companies), negotiations by Mr Ottapathu and Mr Ismail are at an advanced stage with a consortium of bidders for the sale of their joint majority stake in the related-party companies (the proposed sell-down).

It is envisaged that, subject to the finalisation of contractual terms and the necessary regulatory approvals, the proposed sell-down will be effected during the first half of 2015. Mr Ottapathu and Mr Ismail have undertaken that they will keep the board of directors of Choppies duly informed as to the state of progress of the proposed sell-down.”

Last week, Ram Ottapathu confirmed to BusinessPost that the Competition Authority had, two weeks back, approved the transaction in the spirit of better corporate governance.

Competition Authority spokesperson, Gideon Nkala confirmed that the Authority had indeed approved the transaction as it did not pose anti competitive concerns.

While an anonymous source told this publication that it is the Botswana Stock Exchange that advised the retailer to eliminate the vertical ownership of both the suppliers and the retailers, in the spirit of better corporate governance, the deputy chief executive of the BSE, Thapelo Tsheole neither denied nor confirmed the allegation but instead, in an emailed response, advised that the Choppies executive team offer the relevant information.  

The Group however has acquired relevant certification to prove that it deals with its related parties at arms’ length, the accepted norm for such transactions.

The CA’s Merger decision No 21 of 2015 titled a DECISION ON THE PROPOSED ACQUISITIONS OF: 1. 91.9 percent interest in Spark Capital (PTY) LTD by Standard Chartered Private Equity (MAURITIUS) III LTD, Development Capital Africa Master Fund, L.P.  and Chalk Farm Investments (PTY) LTD ; 60 percent interest IN ZCX Investments (PTY) LTD by Iorn Core (PTY) LTD; and iii 100 percent interest in ZCX Investments (PTY) LTD BY Spark Capital (PTY) LTD.

The Authority determined through the analysis of the facts of the cases, that the proposed transactions were not likely to result in the prevention or substantial lessening of competition, or endanger the continuity of the services offered in the markets under consideration. The market structures in the services industry will not likely be altered, and as such they do not raise any competition concerns.
Through the Competition Act, the Authority therefore ruled that:

(i) the proposed acquisition of 91.9 percent issued share capital in Spark Capital (Pty) Ltd by Standard Chartered Private Equity (Mauritius) III Ltd and the Development Capital Africa Master Fund, L.P.; and Chalk Farm Investments (Pty) Ltd is unconditionally approved;

(ii) the proposed acquisition of 60 percent issued share capital in ZCX Investments (Pty) Ltd by Iorn Core (Pty) Ltd is unconditionally approved; and the proposed acquisition of 100 percent issued share capital in ZCX Investments (Pty) Ltd by Spark Capital (Pty) Ltd is unconditionally approved.

The deal is reported to be worth P45O million.

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Botswana on high red alert as AML joins Covid-19 to plague mankind

21st September 2020

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.

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Finance Committee cautions Gov’t against imprudent raising of debt levels

21st September 2020
Finance Committe Chairman: Thapelo Letsholo

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.

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Gov’t Investment Account drying up fast!  

21st September 2020
Dr Matsheka

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”

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