Sub-Saharan Africa debt level Surges – Moody’s
Following a sharp decline in government debt from multilateral debt-relief initiatives in the last decade, primary fiscal deficits, currency depreciation as well as the materialization of contingent liabilities in some countries, has driven an accumulation in SSA sovereign debt since 2012.
This is according to a report by Moody's Investors Service released last week. The Global think tank says while containing debt-servicing costs in the near term, relatively favourable financing conditions in recent years have encouraged spending and debt accumulation especially for infrastructure investment. “Between 2012 and 2018, government debt-to-GDP ratios increased by at least 15 percentage points in almost two thirds of the sovereigns we rate in SSA and by at least 30 percentage points in about one third.” Reads the report released from UK this week.
Moody’s says Government debt now exceeds 50% of GDP in more than half of the region's rated sovereigns. Angola, Mozambique, Zambia and the Republic of the Congo are among the sovereigns that have experienced the most rapid accumulation of government debt since 2012. The report further reveals that drivers behind the debt increase vary, including disclosure of hidden debt in the case of Mozambique, exchange rate depreciation inflating the foreign-currency denominated debt in the case of Angola and Zambia as well as persistent fiscal deficits.
Sub-Saharan African sovereigns' debt has increased and affordability has deteriorated, with government debt now exceeding 50% of GDP in more than half of the sovereigns we rate in the region," said Daniela Re Fraschini, a Moody's AVP-Analyst and the report's co-author.
"At the same time, a shift in creditor bases has increased credit risks in several countries. He said
Moody's Investors Service says although the debt burdens of most Sub-Saharan Africa (SSA) governments will stabilize in 2020-21 after years of increase, several sovereigns are now increasingly vulnerable to a financing shock. Credit risks are highest in countries where unfavourable debt structures coincide with narrow external buffers, financing constraints on domestic banking sectors and weak debt-management capacity. The Republic of Congo, Mozambique and Zambia are most exposed, while Ghana, Angola and Kenya are also vulnerable but to a lesser extent.
With countries having greater access to capital markets, issuance on domestic and international capital markets has increased and the share of borrowing from multilateral lenders has fallen. Although this has diversified funding sources, fostered investor scrutiny on macro-fiscal policy and provided funding for development spending, Moody’s says it has also increased exposure to global financing conditions, amplified foreign-currency exposures and increased refinancing risk. At the same time, in some countries bilateral lending has shifted toward non-traditional creditors that usually offer less transparent and predictable terms.
Daniela Re Fraschini says the domestic banking sector remains the main holder of domestic bonds and a significant portion of total government debt and its absorption capacities may be limited, especially when the sector is small relative to the sovereign's financing needs. Fraschini however says its absorption capacities may be limited, especially when the sector is small relative to the sovereign's financing needs like in Kenya and government securities already account for a large share of assets.
In Ghana and Zambia, relatively high foreign participation in the domestic market intensifies the vulnerability to shifts in investor appetite. “Improvements in debt management have not been commensurate to the risks from higher debt levels and debt structures more exposed to financing shocks” he said
The composition of public debt in terms of maturity, interest rate and currency structure and the existence of explicit or implicit contingent liabilities determine a government's resilience to domestic and external shocks, and is an important consideration in our assessment of fiscal strength, government liquidity risk as well as external vulnerability risk.
Moody’s assessment of fiscal strength typically incorporates the vulnerability to adverse currency movements leading to an increase in the sovereign’s overall debt burden and a decrease in its debt affordability by measuring the share of foreign-currency debt. Debt affordability and contingent liabilities that pose substantial risks to a government’s balance sheet are also captured in the assessment of fiscal strength. Moody’s further assess government liquidity risk focusing on the sovereign's ease of access to funding, taking into account the maturity and cost structure, the currency mix and the creditor base.
Assessment of external vulnerability risk takes into account external imbalances, large reliance on short-term capital inflows to finance the current account deficit that can result in depreciation pressures and the adequacy of foreign reserve buffers to meet foreign currency payments.
Moody’s says amid favourable conditions in global financial markets and increased foreign interest in domestic debt markets, governments in SSA have shifted their borrowing strategies away from international financial institutions and traditional bilateral official creditors to private creditors. The decline in the share of multilateral debt since 2012 has been most pronounced in Ghana, Kenya, Nigeria, Senegal, Uganda and Zambia. Sovereigns that have reported an increase in multilateral financing include Gabon and Niger
A total of 15 governments in SSA issued international bonds between 2010 and 2019, several on a repeated basis with sizeable issuances. “The eurobond issuance of the SSA sovereigns of countries rated by Moody’s reached a record high $19.2 billion in 2018, more than triple 2016 levels. Sovereigns across the region have tapped international bond markets for different reasons including supporting the development of the corporate bond markets in countries such as South Africa and Nigeria and mostly for financing the increase in public investment
Business
LLR transforms from Company to Group reporting
Botswana Stock Exchange listed diversified real estate company, Letlole La Rona Limited (“LLR” or “the Company” or “the Group”), posted its first set of group financial statements which comprise the Company and Group consolidated accounts, which show strong financial performance for the six months ended 31 December 2023, with improvements across all key metrics.
The Company commenced the financial year with the appointment of a Deputy Chairperson, Mr Mooketsi Maphane, in order to bolster its governance and enhance leadership continuity through the development of a Board and Executive Management Succession Plan.
At operational level, LLR increased its shareholding in Railpark Mall from 32.79% to 57.79% and proudly took over the management of this prime asset.
The CEO of LLR, Ms Kamogelo Mowaneng commented “During the period under review, our portfolio continued to perform strongly, with improvements across all key metrics as a result of our ongoing focus on portfolio growth and optimisation.
“We are pleased to report a successful first half of the 2024 financial year, where we managed to not only grow the portfolio through strategic acquisitions and value accretive refurbishments but also recycled capital through the disposal of Moedi House as well as the ongoing sale of section titles at Red Square Apartments. The acquisition of an additional 25% stake in JTTM Properties significantly uplifted the value of our investment portfolio to P2.0 billion at a Group level. Our investment portfolio was further differentiated by the quality of our tenant base, as demonstrated by above market occupancy levels of 99.15% and strong collections of above 100% for the period”.
The growth in contractual revenue of 9% from the prior year’s P48.0 million to the current year P52.2 million, increased income from Railpark Mall, coupled with high collection rates, has enabled the company to declare a distribution of 9.11 thebe per linked unit, which is in line with the prior year.
In line with its strategic pillars of ‘Streamlined and Expanded Botswana Portfolio’ as well as ‘Quality African Assets’, the Group continuously monitors the performance of its investments to ensure that they meet the targeted returns.
“The Group continues to explore yield accretive opportunities for balance sheet growth and funding options that can be deployed to finance that growth” further commented the CEO of LLR Ms Kamogelo Mowaneng.
Ms Mowaneng further thanked the Group’s stakeholders for their continued support and stated that they look forward to unlocking further value in the Group.
Business
Botswana’s Electricity Generation Dips 26.4%
The Botswana Power Corporation (BPC) has reported a significant decrease in electricity generation for the fourth quarter of 2023, with output plummeting by 26.4%. This decline is primarily attributed to operational difficulties at the Morupule B power plant, as per the latest Botswana Index of Electricity Generation (IEG) released recently.
Local electricity production saw a drastic reduction, falling from 889,535 MWH in the third quarter of 2023 to 654,312 MWH in the period under review. This substantial decrease is largely due to the operational challenges at the Morupule B power plant. Consequently, the need for imported electricity surged by 35.6% (136,243 MWH) from 382,426 MWH in the third quarter to 518,669 MWH in the fourth quarter. This increase was necessitated by the need to compensate for the shortfall in locally generated electricity.
Zambia Electricity Supply Corporation Limited (ZESCO) was the principal supplier of imported electricity, accounting for 43.1% of total electricity imports during the fourth quarter of 2023. Eskom followed with 21.8%, while the remaining 12.1, 10.3, 8.6, and 4.2% were sourced from Electricidade de Mozambique (EDM), Southern African Power Pool (SAPP), Nampower, and Cross-border electricity markets, respectively. Cross-border electricity markets involve the supply of electricity to towns and villages along the border from neighboring countries such as Namibia and Zambia.
Distributed electricity exhibited a decrease of 7.8% (98,980 MWH), dropping from 1,271,961 MWH in the third quarter of 2023 to 1,172,981 MWH in the review quarter.
Electricity generated locally contributed 55.8% to the electricity distributed during the fourth quarter of 2023, a decrease from the 74.5% contribution in the same quarter of the previous year. This signifies a decrease of 18.7 percentage points. The quarter-on-quarter comparison shows that the contribution of locally generated electricity to the distributed electricity fell by 14.2 percentage points, from 69.9% in the third quarter of 2023 to 55.8% in the fourth quarter. The Morupule A and B power stations accounted for 90.4% of the electricity generated during the fourth quarter of 2023, while Matshelagabedi and Orapa emergency power plants contributed the remaining 5.9 and 3.7% respectively.
The year-on-year analysis reveals some improvement in local electricity generation. The year-on-year perspective shows that the amount of distributed electricity increased by 8.2% (88,781 MWH), from 1,084,200 MWH in the fourth quarter of 2022 to 1,172,981 MWH in the current quarter. The trend of the Index of Electricity Generation from the first quarter of 2013 to the fourth quarter of 2023 indicates an improvement in local electricity generation, despite fluctuations.
The year-on-year analysis also reveals a downward trend in the physical volume of imported electricity. The trend in the physical volume of imported electricity from the first quarter of 2013 to the fourth quarter of 2023 shows a downward trend, indicating the country’s continued effort to generate adequate electricity to meet domestic demand, has led to the decreased reliance on electricity imports.
In response to the need to increase local generation and reduce power imports, the government has initiated a new National Energy Policy. This policy is aimed at guiding the management and development of Botswana’s energy sector and encouraging investment in new and renewable energy. In the policy document, Minister of Mineral Resources, Green Technology and Energy Security Lefoko Moagi stated that the policy aims to transform Botswana from being a net energy importer to a self-sufficient nation with surplus energy for export into the region. Moagi expressed confidence that Botswana has the potential to achieve self-sufficiency in electric power supply, given the country’s readily available energy resources such as coal and renewable sources.
Business
MMG acquires Khoemacau in a transaction valued at P23Bn
MMG Limited, the Hong Kong-based mining company specializing in base metals, has successfully concluded the acquisition of Khoemacau Copper Mine, a state-of-the-art, world-class copper asset nestled in the northwest of Botswana.
On Monday, MMG announced that the acquisition of Khoemacau Mine in Botswana was finalized on 22nd March 2024. “This acquisition enriches the company’s portfolio with a top-tier, transformative growth project and signifies a monumental milestone in the Company’s journey,” MMG communicated in an official statement published on the Hong Kong Stock Exchange.
Upon completion of the acquisition, MMG remitted to the Sellers an Aggregate Consideration of approximately US$1,734,657,000 (over P23 billion), a sum subject to potential adjustments post-Completion.
In addition to the Aggregate Consideration, MMG, in accordance with the Agreement, advanced an aggregate amount of approximately US$348,580,000 (over P4.5 billion) as the Aggregate Debt Settlement Amount, to settle certain debt balances of the Target Group (Cuprous Capital/Khoemacau).
On November 21, 2023, Khoemacau announced that the shareholders of its parent company [Cuprous Capital] had agreed to sell 100% of their interests to MMG Limited.
MMG is a global resources company that mines, explores, and develops copper and other base metals projects on four continents. The company is headquartered in Melbourne, Australia, and has a significant shareholder, China Minmetals Corporation, which is China’s largest metals and minerals group owned by the Government of the People’s Republic of China.
On December 22, 2023, Khoemacau Copper Mining (Pty) Ltd received the approval from the Minister of Minerals and Energy of Botswana regarding the transfer of a controlling interest in the Project Licenses and Prospecting Licenses associated with the Khoemacau Copper Mine, a result of the Acquisition.
The Botswana Competition & Consumer Authority (CCA) on January 29, 2024, notified the market that it had given its approval for the takeover of Khoemacau Copper Mining by MMG Limited.
On January 29, 2024, the CCA issued a merger decision to the market, stating that after conducting all necessary assessments, it was ready to proceed.
The Competition Authority affirmed that the structure of the relevant market would not significantly change upon implementation of the proposed merger as the proposed transaction is not likely to result in a substantial lessening of competition, nor endanger the continuity of service in the market of mining of copper and silver ores and the production, and sale or supply of copper concentrate in Botswana.
Furthermore, the CCA stated that the proposed merger would not have any negative impact on public interest matters in Botswana as per the provisions of section 52(2) of the Competition Act 2018.
Earlier this month, Minister of Minerals & Energy, Lefoko Maxwell Moagi, informed parliament that his Ministry was endorsing the Khoemacau acquisition by MMG Limited. He noted that not only was the company acquiring the existing operation but also committing to an expansion program that would cost over $700 million to double production, create more jobs for Batswana, and increase taxes and royalties paid to the Government.