ODC secures P880m loan from StanChart

Brian Benza | Friday April 11, 2014 15:52

 

Acting minister of finance Vincent Seretse made the announcement in Parliament on Wednesday when he was retrospectively requesting the House of Assembly’s ratification of a government guarantee for the loan facility extended to the state owned diamond company.

The government guarantee, according to Seretse, was signed late last year under fast tracked conditions as ODC has run out of funds to purchase diamonds for the December sale.

“ODC urgently required funding for the December sale as it had exhausted its available funding, having utilised the government loan.

“If ODC had failed to purchase diamonds in December 2013, this would have disrupted the Debswana sales and would in turn affected the government dividends that were due from Debswana.

Taking into consideration the urgency surrounding the need for financing in December 2013, it was therefore not possible to secure parliamentary approval before guaranteeing the loan,” he said.

In 2012, government provided the initial P540 million start-up capital for ODC through a loan facility from the Public Debt Service Fund (PDSF).

The PDSF however could not adequately cover ODC’s funding requirements largely due to foreign exchange fluctuations.

Furthermore, ODC required a US dollar facility to accommodate the US dollar online payment system while also allowing the company to access the competitive US dollar financing offered by commercial banks.

Government has guaranteed the Standard Chartered loan for a period of 10 years after which it is expected that the company would have accrued enough capital to procure goods without a need to utilise the loan facility. ODC buys partially sorted diamonds from De Beers Global Sightholder Sales (DGSS) and then sorts the goods into its own sales assortment before inviting its customers to view and purchase the stones through an auction process.

According to a 2011 agreement, ODC sells government’s share of Debswana’s production, 10 percent of which was available retrospectively from the beginning of 2011. The share increases by one percent each year until it reaches 15 percent in 2016.

ODC was established as a key part of Botswana’s plans to establish diamond trading and other diversified diamond-related activities in the country.

De Beers recently moved its sales operations from London to Gaborone as part of the 2011 sales agreement with government. 

ODC currently sells via 10 online spot auctions per year, having launched commercial sales in October last year. The goods are available for viewing in Gaborone for two weeks before the auction closes, and bidding is conducted online via the company’s website.

Okavango sells about 250,000 carats of rough per auction with projected annual sales of about $400 million (P3.4 billion). ODC is this year planning to introduce fixed-term supply contracts in 2014 to become a direct competitor to De Beers.

Currently, the fledgling state-owned diamond company only sells through auctions. 

The decision by ODC to venture in contract sales will see the state owned company competing directly with De Beers, which sells 90 percent of its  $6 billion a year supply to handpicked, contracted buyers.

(sightholders).