Gov’t explains BTCL listing delay

Want to know why government continues to postpone the sale of BTCL shares when a team of experts has long completed work on Botswana’s most high profile float in history?

The official reason is that the project team and cabinet were of the view that the general public had not been fully apprised of the sale of shares and had not saved enough to participate. But there could be another explanation.An investigation by Botswana Guardian has revealed that given the circumstances of the privatisation model for the quasi-government institution where the shares are reserved for citizens, it is a requirement to have government as full underwriter of the transaction. 

The Permanent Secretary in the Ministry of Finance and Development Planning, Solomon Sekwakwa, explained this week that government would serve as the underwriter for the Initial Public Offer of the Botswana Telecommunications Corporations Limited (BTCL). “Because of the conditions of the privatisation being reserved to fulfil the citizen economic empowerment and have only citizens eligible to buy the shares, we cannot have foreign institutions coming in as underwriters,” Sekwakwa said.

“The nature of this privatisation affects the whole scene and has its own complexities, and we are trying to find options to facilitate this. From our assessment of the market, the shares will be taken and chances are that there might be a limit for each purchaser and we might find ourselves challenged as to how to spread the benefit to everybody.”

But for further inquiries, Sekwakwa referred this publication to the Public Enterprises Evaluation and Privatisation Agency (PEEPA), saying that he is yet to be advised on the matter while PEEPA is handling the privatisation of BTCL.

This is how it works: In underwriting, a bank accepts some of the risk in a given venture in exchange for a premium. However, all commercial banks in Botswana are foreign-owned and cannot be accepted by government to underwrite. But indigenous financial institutions such as that of Botswana Savings Bank and Botswana Building Society may be brought in. However, they can participate by buying stakes as local companies but as underwriters.

While Sekwakwa admitted being little informed on this aspect, those who understand the issues say indigenous insurance industry and banks lack the requisite skills and capacity to underwrite. Sekwakwa said foreigners could participate only if citizens did not buy all the shares as expected. The CEO of PEEPA, Kgotla Ramaphane, said they are currently working together with the government on the modalities of availing the funds. “These funds will be availed from government through the Ministry of Finance and Development Planning,” he explained. “We do not see the underwriting process taking more than three months from now. We have made significant progress and we are waiting for the latest update from the government.”

However, the Botswana Stock Exchange’s underwriting requirement is different from the government’s requirement in the case of BTCL as it does not have any limitations on underwriting. This is BSE’s listing requirements for underwriting: Section5.21: “An offer for sale or subscription must be underwritten.” Section 5.22: “The underwriter must satisfy the Committee that it can meet its commitments”. Section 5.23: “Any underwriting commission paid to a shareholder of the company should not be above the current market rate payable to independent underwriters.”

Said the BSE’s Deputy Chief Executive Officer, Thapelo Tsheole: “There is no requirement that limits underwriting to ‘local’ institutions only. This is not a BSE requirement. As long as the underwriter meets BSE requirements, they are permitted to underwrite.”

Meanwhile, it has emerged from the Minister of Transport and Communications, Tshenolo Mabeo, that postponement of the BTCL’s initial public offer is attracting additional legal fees and transactional advisory services. The IPO has been tipped for months as BTCL seeks to become a public company and further entrench its foot in the cutthroat mobile telephony business. Initially set for launch on 31 December 2014, the IPO was postponed to enable BTCL to conclude the process of raising funds for underwriting arrangements.

Minister Mabeo told parliament last week that some of the activities under the scope of transactional advisory services would have to be redone or updated. In particular, legal due diligence, financial due diligence, enterprise valuation and various sections of the prospectus have to be redone. The consortium’s project management services are also required to manage these activities. 

It is understood that Collins and Newman and Delloite were appointed as advisors for privatisation for a legal fee of P2.9 million. The total amount of the consortium is said to be P9.5 million. Under this transaction, the government of Botswana holds 51 percent, 5 percent will be reserved for employees of BTCL while citizens will have the rest.