The Botswana Development Corporation (BDC) suffered a P300 million decline in net assets in the balance sheet in the year to June 2017 as the bear run on the Botswana Stock Exchange (BSE) knocked down the value of one of its key assets, Sechaba Breweries Limited.
In the 12 months to June 2017, Sechaba Breweries, which was 26% owned by BDC before selling down to 24%, saw its share price on the BSE tumble 31% from P29 per share to about P20 per share.
At the beginning of the financial year, BDC’s 26% shareholding in Sechaba translated to 34.58 million shares valued at P1.01 billion. But at the end of the financial year after the 31% drop in the share price, the value of the investment in Sechaba had dropped to P691 million, representing a fall in value of over P300 million.
Besides Sechaba being affected by regulatory constraints, which have affected profitability in the last 10 years, the share price fall is also in line with general trends on the bourse, where the benchmark Domestic Companies Index (DCI) has lost 5.16% on a year-to-date basis.
The BSE has been on a bear-run for the past two years, a development analysts say is reflective of sluggish economic conditions. In an interview with BusinessWeek, BDC chief financial officer, Mbako Mbo said the fall in Sechaba’s share price has brought down the value of the investments in Sechaba where they held 26% before reducing the stake to 24% during the year.
“The decrease in the Sechaba heavily impacted on the net worth of the balance sheet. We had hoped our net worth of our investments in the
But because of the loss of value on investments in the listed space, the net worth ended up falling to P2 billion, reflecting a decrease of P300 million,” he said.
Apart from Sechaba, BDC’s other exposure on the BSE is in Cresta Marakanelo as well as Letlole Larona.
Cresta and Letlole share prices have not suffered the same losses as Sechaba in the past year with their share prices mainly oscillating.
Going forwarded BDC is looking to divest from Sechaba in the next three years, but Mbo says it will be a gradual process at they would not want to ‘dump’ the share at once.
“The market is small, and we would not want to shake it with heavy sell-down at once. We have a responsibility to protect the share price as our fellow shareholders in the company include pensioners. We have received a few offers that were a bit below the market price and we had to turn them down,” he said.
In the period, BDC financial performance was lower although Mbo says it is reflective of the challenging economic conditions.
In the year to June 2017, BDC’s total revenue decreased to P273 million from P381 million in the previous year. This led to net profits also softening to P150 million from P223 million in the corresponding previous period.