Govt spurns offer to raise De Beers stake

Brian Benza
Staff Writer | Thursday August 2, 2012 00:00

 

The right stems from a deal struck last year in which Anglo American, a 45 percent shareholder in De Beers, agreed to buyout the Oppenheimer family's 40 percent stake for $5.1 billion (P36.5 billion) in cash.Under the terms of the agreement, the Botswana government had the right to take up its pro-rata share of the Oppenheimer stake, which would have lifted its stake in De Beers to 25 percent, and leave Anglo American with a 75 percent stake in De Beers.

'The government of the Republic of Botswana wishes to announce its decision not to take up its pre-emptive rights to acquire an additional shareholding in De Beers, following the receipt of a formal pre-emption offer from the Central Holdings Limited. 'The $1.275 billion which is equivalent to about P9.8 billion represents about 10 percent of the Gross Domestic Product (GDP), a large cost for a country whose government budget is still in deficit, and is trying to bring the budget to balance within a year and a half,' the Ministry of Minerals Energy and Water Resources announced in a statement. Botswana's annual GDP currently stands at just above P100 billion.

If it had exercised the right, government says the decision would have had not only pushed back the restoration of balancing the budget but drained the country's international reserves on top of raising the government debt to GDP ratio.After recording three successive budget deficits on the back of the economic recession in 2009, government is only expected to post a modest 0.9 budget surplus in the current financial year, thanks to high customs revenues from the Southern African Customs Union (SACU).

On the other hand, the total debt portfolio for government as at June 30, 2012 stood at P20.5 billion with external debt sitting at P14 billion, constituting 68 percent of total debt.Although Botswana's debt level is still within statutory limits, financing the share offer from outside  borrowing would have taken government's external debt to P23 billion(23 percent), which is  above the legal limit.According to the Stock, Bonds and Treasury Bill Act, total domestic and government guaranteed debt couldn't exceed 20 percent of annual GDP, which percentage also applies separately to total foreign debt and government-guaranteed debt.'Such a purchase would have raised the government debt to GDP ratio thus precluding the government from raising additional debt in the international markets for other projects.

'However, we look forward to building on the excellent relationship we have with Anglo American, both through our ownership of De Beers and through the Debswana joint venture, and to sharing in De Beers' highly attractive long term prospects,' added the statement.Anglo, which announced a lukewarm set of results last week, will now hold an 85 percent stake in De Beers.On the other hand, first-half profit halved at De Beers as trade buyers were held back by a lack of funds and worries over consumer demand.