Botswana Insurance Holdings Limited (BIHL) is one step closer to finalising the P57 million purchase of two Letshego subsidiaries, a deal that would consolidate the insurance giant's dominance of the sector.
Letshego Guard and Letshego Guard Insurance Company went up for sale last year, when parent company, Letshego Holdings Limited, decided to focus on its core business of lending. Through the purchase, BIHL plans to add the two subsidiaries' weight to its blue chip portfolio comprising, BIFM and Botswana Life.
Last week, it emerged that BIHL had fulfilled several conditions linked to the sale, which include renewal of the Letshego Guard Insurance Company's short-term licence by the Non Bank Financial Institutions Regulatory Authority (NBFIRA).
"The remaining condition is the approval of the change of ownership of Letshego Guard Insurance Company from Letshego Holdings to BIHL by NBFIRA," said Letshego Chairman, Moses Lekaukau. Once this final condition is completed, BIHL will be required to pay the P57 million to Letshego Holdings.Letshego's decision to offload to the two subsidiaries was guided by a Board decision to focus on the highly successful micro-lending business. The move also gave the company room to spread its micro-lending model to Mozambique, Namibia, Swaziland, Uganda and Zambia.
The focus on the micro-lending has paid dividends for Letshego, with its loan book growing beyond one billion Pula, Botswana operations netting approximately P18 million and its market capitalisation swelling beyond P3 billion on the Botswana Stock Exchange. "The sale of these subsidiaries will also help boost profitability as the company will obtain better utilisation of assets through higher profit margins in lending than insurance. The average yield on loans is 30 to 40 percent, second only to hire purchase (approximately 90 percent). Even though the legal insurance division was doing well, it has lately complained of the high instances of family matters which affected profit margins," said Stockbrokers Botswana analysts, in a research note on the transaction. The sale of the subsidiaries will also contribute capital to Letshego's lending operations, whose growth has been limited by funding. Last week, the micro-lender sealed a P249 million convertible loan agreement, aimed primarily at bolstering its working capital. With the local and regional economies in recovery, the appetite for credit is growing, making it incumbent upon Letshego to seek additional sources of funding for its business. From its establishment in March 2004, Letshego Guard contributed positively to the holding company's bottom line, growing from 12, 946 clients in the first year, to an estimated 55, 000 prior to the sale to BIHL. For the year ended 31 January 2009, the subsidiary posted a profit before tax of P14.8 million. By 31 January 2009, Letshego Guard, previously known as Legal Guard, had approximately P8.4 million in net assets.
Letshego Guard Insurance Company is a dormant company.The sale price for both subsidiaries was pegged at P43 million, with an additional P14 million required of BIHL for settlement of loan accounts. Through the purchase, BIHL expands its reach into the financial services sector through a larger portfolio and assets. In addition, BIHL owns 13.7 percent equity in Letshego Holdings, meaning that the financial services titan wins on both fronts in terms of the micro-lender's profitability and its own expansion.