Fengyue losses drag BDC deeper into red
Brian Benza | Friday July 18, 2014 12:28
The BDC last year took a decision to write off the investment and liquidate the project after the joint venture failed to meet its targets, including those of time and budget.
According to the 2013 BDC annual report released this week, the corporation revenue stood at P101 million but huge P300 million bills in administrative and operating expenses dragged the financials into the red of P222 million.
No clear impairment charge to cover the write-off was defined in the financial results.
“The decision to liquidate the plant led to a full impairment of the investment, which further dampened our results.
“Given that the event that led to the impairment commenced in previous years, the provision was staggered over three years resulting in a substantial provision in the current year and a restatement of the 2011 and 2012 comparative information,” read the report.
The 450 tonne per annum Fengyue Glass Manufacturing Company Botswana was incorporated on July 2007 as a joint venture vehicle between BDC and Shanghai Fengyue.
According to liquidation court papers, BDC’s funding of the project was 75 percent but it has equity control of only 47 percent whilst Shanghai Fengyue has 53 percent equity control for its 25 percent contribution.
As a result of the dampened results, the BDC did not declare a dividend to government in the year. In 2012 the corporation contributed P6.5 million to treasury through dividends.
The winding up of the company will allow the BDC to enforce its preferential rights to obtain the use of the assets of the company or alternatively to sell the assets to defray the investment costs that were lost in the project.
The liquidation court papers reveal that at inception in 2007, it was envisaged that the project would cost P539 million. However, it is now estimated that the project will require a further P765 million for completion - a staggering cost of P1.3 billion. “While the liquidation process by its nature is likely to take several months, we are confident that management focus on improving the future will yield enhanced results for the coming financial year,” read the report.
Going forward BDC says it is revamping its 43-year business model with a view to review its processes, structures and risk management systems. With its investments portfolio ranging from industrial, property, agriculture and manufacturing, the BDC offers finance in the form of equity, loans as well as invoice discounting.
Some of these companies include listed firm such as Letlole La Rona, Cresta and Sechaba.
Meanwhile, BDC says it would be moving to its new home named Fairscape Office Park in Gaborone. Fairscape is an iconic 20-story building located in Fairground and has given a facelift to the fairground business area. Already, the corporation has reported that the property is three quarters booked for tenancy.