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BIHL keeps faith in Letshego, despite P140m impairment

MBONGENI MGUNI
Lesetedi, Mukushi and Dambe-Groth
Botswana Insurance Holdings Limited (BIHL) has no immediate plans to reduce its Letshego Holdings stake, despite incurring a P140 million impairment as a result of reviewing the value of its investment in the micro-lender, BusinessWeek can reveal.

BIHL is the country’s largest diversified financial group and also the Botswana Stock Exchange’s (BSE) third largest listed domestic counter. Letshego, a pan African micro-lender active in 11 countries, is the largest non-bank financier in Botswana and the BSE’s fourth largest domestic stock by market capitalisation. 

BIHL currently has a 26.2% stake in Letshego, nearly double what it held in 2009 when a decision was made to ramp up its holdings in the micro-lender and cash in on Letshego’s pan-African expansion, which was gathering momentum at the time.

BIHL chief financial officer, Kudakwashe Mukushi revealed this week that a biannual review of the financial group’s investments had resulted in a lower valuation of the Letshego stake.

Every six months, BIHL evaluates all its investments on the basis of a Discounted Cash Flow which essentially attempts to measure the future returns on the different equity stakes. Besides Letshego, the group holds about 36% of Funeral Services Group, 50% of Botswana Insurance Company and 25.1% in Malawi’s Nico Holdings Limited.

“The Letshego impairment was on the basis of growth assumptions and our own valuation assumptions of the investment,” Mukushi said, in presenting BIHL’s results for the year ended December 31.

“The valuation of our investment comprises many assumptions and what we have seen in the past two years in terms of the group’s performance and growth of the bottom line was part of the reason we revised our valuation assumptions.

“Letshego’s operating results are better actually, but we are looking at those assumptions and the impairment.” It is understood some of BIHL’s growth assumptions have to do with part

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of Letshego’s branches reaching maturity and the difficulties start-ups in eastern Africa are presently facing. Letshego posted after-tax profits of P745.4 million for the year ended December 31, 2017 representing an 11% year-on-year increase, while the micro-lender’s loan book swelled 17% to P7.8 billion. However, the poorer valuation of the Letshego investment on BIHL’s books, was amongst contributors to the group’s 17% drop in after-tax profits to P394.5 million. BIHL’s share of profits from associates fell by 47% to P119 million for the year ended December 31, 2017.   Directors however told BusinessWeek that the board was not considering cutting back on the exposure to Letshego.  BIHL CEO, Catherine Lesetedi said Letshego was a long-term investment for the group and the fluctuations were expected.  “Letshego is a combination of mature and start-up investments and we expect to go through these cycles,” she told BusinessWeek.

“You have businesses within Letshego that are new and dragging on both the results and the outlook.  When businesses go out into Africa, there are expenses, money to be invested, differences in administrations, but we don’t get out when we hit a J-curve.

“At present, there’s no discussion about divesting from Letshego; we have to see the results going forward especially around the newer operations.”  A J-Curve refers to a phenomenon in which a period of negative or unfavourable returns is followed by a gradual recovery that stabilises at a higher level than before the decline. BIHL board chair, Batsho Dambe-Groth also told BusinessWeek that a divestment from Letshego was not on the table “at the moment”.



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