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Lenders and Letshego loan book to fatten April 1st

Banks and micro-lenders like Letshego will be one of the big beneficiaries when government effects the second leg of the civil servants on April 1st, this was observed by Motswedi Securities experts recently.

Last year after trade unions and government sat down for salary negotiations, it was announced that for the financial year 2019/20 there be an increment of 10 percent for scales A  and B , 6  percent for scales C and D, effective 1st April 2019. It was also announced at the same time that there will be the same manner of increment for the financial year of 2020/21, civil servants are still waiting.  

When commenting on the recently released Letshego 2019 final financial results on Monday, Motswedi Securities experts said: “We are expecting the second leg of the Botswana civil servants salary increments to be effected on the 1st of April – this will likely play well into growing the retail loan book as is in line with the Group strategy. Otherwise, the group will maintain its core business of deduction at source while also looking to diversify its product offering.”

Letshego is a major lender of government and state owned companies employees who make a larger percentage of the working class in Botswana. Last year the micro-lender’s deduction code ensured that before salaries were credited into accounts of civil servants, instalments due to Letshego were collected by government workers and paid as a lump sum to the micro lender, which decreased or eliminated chances of defaults. Hence why the micro-lender has kept a fair loan book with few defaults as impairments were kept at bay according the 2019 financial results. Botswana’s Household Debt is currently standing at USD 3.6 billion.

However renowned rating agency, Moody’s Investor Service is very sceptical of this system of deduction of loan payments at source from the public sector employees because governments may change terms and regulations or impose restrictions on such platform of loan collection hence leading to a sharp rise in bad debts and impairment costs. Moody’s said this could lead to negative rating pressure being exerted on Letshego's rating if regional authorities in the company's main operating markets change the terms of loan collections from public servant.

According to Moody’s, as of June 2019 Letshego offered payroll loans to around 20 percent of Botswana’s civil servants which was less than the Namibian government workers’ 47 percent. Mozambique government employees who were offered payroll loans last year were around 23 percent. Letshego’s loan book is topped by Botswana being high at 29 percent, followed by Namibia contributing to the micro-lender’s lending by 23 percent. Rwanda does not contribute anything to Letshego’s loan book currently, while Nigeria only adds a percent.

Letshego has just woken up from a human resource fracas with exodus of top management, failing to keep a CEO for more than a year. Motswedi Securities highlighted the bright side was marked by some improvement from the prior year’s numbers, with Profit After Tax up 35 percent at P691 million from P510mn, driven by a 93 percent spike in non-interest income and a 53 percent cut in the expected credit losses. The Letshego EPS climbed to 29.2 thebe, while RoE went up 16 percent and RoA went up to 6 percent.

Letshego has 2,144,045,175 shares in offer and was trading at P0.90 with a market capitalization of 1,929,640,658. Last year just when this country was going for national polls, Letshego saw the biggest decline in its share price, losing 51.2 percent. Letshego’s 12 month low is P0.70 while its high is P1.62. “Letshego achieved growth in both income and profits in 2019, with profits after tax enjoying a strong resurgence on 2018. This is against a backdrop of a challenging year for Letshego following unexpected changes in the Group’s senior leadership team and new regulatory regimes in some of its markets.

The focus for the year was on embedding the strategy to deliver positive performance through maintaining stability, cost control, improving portfolio collection quality and stabilizing the effective tax rate," said Letshego directors. Letshego has declared final dividend of 7.7 thebe per share for the year ended 31 December 2019. The micro-lender shares go ex-dividend from 27 April 2020, while last date to register is 29 April 2020 before dividend payment date on 11 May 2020. Going forward, according to Motswedi Securities, the group maintains its stance on expansion and will not be increasing its footprint across Africa, it will remain present in 11 countries on the continent. One of the key deliverables noted by the incoming CEO Andrew Okai according to Motswedi, include a 10 percent growth in the top line while maintaining the cost to income; cost of credit to sit at around 2.5 percent, push RoE to 20 percent; and reduce the effective tax rate to a target rate of 35 percent (2019: 39%, 2018: 50%).

Letshego ratings

Respected rating agency Moody’s assigned a Ba2 Corporate Family Rating (CFR) and Ba3/Not Prime issuer ratings to Letshego two weeks ago. According to the rating agency, the outlook on Letshego is stable. “The Ba2 CFR captures the company's solid capitalisation and profitability, supported by its niche, low-cost, franchise. They also capture Letshego's growing diversification across regional countries, which makes the company more resilient to an adverse change in any of its operating markets,” said Moody’s.

According to Moody’s, Letshego’s strengths enabled it to overcome challenges such as narrow business models with high reliance on payroll deductions for loan repayment collections. Letshego also has high exposure to foreign exchange risk. The micro-lender has elevated asset quality risks. According to Moody’s, Letshego's expansion in other sub-Saharan markets, client segments and products, results in a material weakening of asset quality and profitability metrics. Letshego has a major challenge by its dependence on market-sensitive wholesale funding, Moody’s acknowledges that the micro-lender has put on action to address this weakness.

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Jewellery manufacturing plant to create over 100 jobs

30th January 2023

The state of the art jewellery manufacturing plant that has been set up by international diamond and cutting company, KGK Diamonds Botswana will create over 100 jobs, of which 89 percent will be localized.

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Investors inject capital into Tsodilo Resources Company

25th January 2023

Local diamond and metal exploration company Tsodilo Resources Limited has negotiated a non-brokered private placement of 2,200, 914 units of the company at a price per unit of 0.20 US Dollars, which will provide gross proceeds to the company in the amount of C$440, 188. 20.

According to a statement from the group, proceeds from the private placement will be used for the betterment of the Xaudum iron formation project in Botswana and general corporate purposes.

The statement says every unit of the company will consist of a common share in the capital of the company and one Common Share purchase warrant of the company.

Each warrant will enable a holder to make a single purchase for the period of 24 months at an amount of $0.20. As per regularity requirements, the group indicates that the common shares and warrants will be subject to a four month plus a day hold period from date of closure.

Tsodilo is exempt from the formal valuation and minority shareholder approval requirements. This is for the reason that the fair market value of the private placement, insofar as it involves the director, is not more than 25% of the company’s market capitalization.

Tsodilo Resources Limited is an international diamond and metals exploration company engaged in the search for economic diamond and metal deposits at its Bosoto Limited and Gcwihaba Resources projects in Botswana.  The company has a 100% stake in Bosoto which holds the BK16 kimberlite project in the Orapa Kimberlite Field (OKF) in Botswana.

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Global CEOs Back Plan to Unlock $3.4 Trillion Potential of Africa Free Trade Area

23rd January 2023

African heads of state and global CEOs at the World Economic Forum Annual Meeting backed the launch of the first of its kind report on how public-private partnerships can support the implementation of the African Continental Free Trade Area (AfCFTA).

AfCFTA: A New Era for Global Business and Investment in Africa outlines high-potential sectors, initiatives to support business and investment, operational tools to facilitate the AfCFTA, and illustrative examples from successful businesses in Africa to guide businesses in entering and expanding in this area.

The report aims to provide a pathway for global businesses and investors to understand the biggest trends, opportunities and strategies to successfully invest and achieve high returns in Africa, developing local, sub-regional and continental value chains and accelerating industrialization, all of which go hand in hand with the success of the AfCFTA.

The AfCFTA is the largest free trade area in the world, by area and number of participating countries. Once fully implemented, it will be the fifth-largest economy in the world, with the potential to have a combined GDP of more than $3.4 trillion. Conceived in 2018, it now has 54 national economies in Africa, could attract billions in foreign investment, and boost overseas exports by a third, double intra-continental trade, raise incomes by 8% and lift 50 million people out of poverty.

To ease the pain of transition to its new single market, Africa has learned from trade liberalization in North America and Europe. “Our wide range of partners and experience can help anticipate and mitigate potential disruptions in business and production dynamics,” said Børge Brende, President, and World Economic Forum. “The Forum’s initiatives will help to ease physical, capital and digital flows in Africa through stakeholder collaboration, private-public collaboration and information-sharing.”

Given the continent’s historically low foreign direct investment relative to other regions, the report highlights the sense of excitement as the AfCFTA lowers or removes barriers to trade and competitiveness. “The promising gains from an integrated African market should be a signal to investors around the world that the continent is ripe for business creation, integration and expansion,” said Chido Munyati, Head of Regional Agenda, Africa, World Economic Forum.

The report focuses on four key sectors that have a combined worth of $130 billion and represent high-potential opportunities for companies looking to invest in Africa: automotive; agriculture and agroprocessing; pharmaceuticals; and transport and logistics.

“Macro trends in the four key sectors and across Africa’s growth potential reveal tremendous opportunities for business expansion as population, income and connectivity are on the rise,” said Wamkele Mene, Secretary-General, AfCFTA Secretariat.

“These projections reveal an unprecedented opportunity for local and global businesses to invest in African countries and play a vital role in the development of crucial local and regional value chains on the continent,” said Landry Signé, Executive Director and Professor, Thunderbird School of Global Management and Co-Chair, World Economic Forum Regional Action Group for Africa.

The Forum is actively working towards implementing trade and investment tools through initiatives, such as Friends of the Africa Continental Free Trade Area, to align with the negotiation process of the AfCFTA. It identifies areas where public-private collaboration can help reduce barriers and facilitate investment from international firms.

About the World Economic Forum Annual Meeting 2023

The World Economic Forum Annual Meeting 2023 convenes the world’s foremost leaders under the theme, Cooperation in a Fragmented World. It calls on world leaders to address immediate economic, energy and food crises while laying the groundwork for a more sustainable, resilient world. For further information,

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