BSE Acting CEO Kopano Bolokwe
BSE’s Bolokwe urges neutrality by not imposing ownership restrictions to allow for price discovery, a better valuation and vibrant investor participation
Kopano Bolokwe, the Acting Chief Executive Officer of the Botswana Stock Exchange (BSE), believes that listing State-Owned Enterprises (SOEs) on the Stock Exchange is a key strategy for economic transformation and private sector growth.
Bolokwe spoke at the just-ended 17th National Business Council during a panel discussion on “Spurring Private Sector Growth Through Privatisation”.
Urges Best Practices
As one of the resolutions regarding spurring private sector growth through SOE listings, Bolokwe advised that shareholders must adopt best practices when taking SOEs public. He said this includes promoting competitive neutrality by not imposing ownership restrictions to allow for price discovery, a better valuation and vibrant investor participation.
Bolokwe said the kind of SOEs that Botswana has are large enterprises with sizeable assets, such that their listing on the BSE could not only develop the capital market but could also grow the size and the diversity of the private sector.
BTCL – Litmus test
He alluded to the listing of Botswana Telecommunications Corporation Limited (BTCL) in April 2016, having contributed to the growth in the size of the BSE, and to the growth in the number of investors. The BTCL listing has been recognised as one of the largest and most historic initial public offerings (IPOs) in Botswana. The company has paid more than P1 billion in dividends since listing, according to Bolokwe. He revealed that the Government who owns 51% of BTCL has received just over P500 million in income since listing as well as hundreds of millions in income taxes paid. Further, Batswana have received close to P500 million as income from BTCL. This, he said is in addition to the returns from price movements as some sold their shares when the share price went above the listing price.
Price Discovery Argument
While the BTCL listing was praised, its shares were reserved exclusively for Batswana, a move that has sparked heated debate within the industry.
Imara Capital Analyst Kaone Ranko recently said “the argument in relation to the counter’s price discovery still stands, as its shareholding is limited only to citizens of Botswana, hence its significantly discounted price relative to its peers”.
The market has been calling for the liberalisation of its shares for several years. A lot of BTC’s shares are in the arms of retail investors who are considered to be unseasoned when it comes to investing. Analysts observed that the share price is very volatile (large moves up and/or down over short spaces of time) because of the large retail component. The citizen requirement does contribute to the volatility, especially on the downside because some large investors even within the country are excluded from holding the share.
At the recent results announcement, former Managing Director (MD) Anthony Masunga said: “We have engaged for many years, but the government is neither saying yes or no.”
In 2022, Thapelo Tsheole, then CEO of the BSE, advocated for the removal of restrictions on the company's shares. He mentioned that the government responded, stating it was a cabinet decision and would be reviewed.
“When we say a market, we mean a place where diverse people with diverse views can actually come into play.”
The BSE strongly believes that one reason why BTC's share price remained stagnant was the lack of demand, regardless of profitability. Tsheole noted that the prevailing mindset persists regardless of profit levels.
Accordingly, Tsheole suggested that restrictions should only be imposed at the IPO stage. Beyond the IPO and after several years, he argued, there is no justification for maintaining restrictions.
Bolokwe believes price discovery, a better valuation and vibrant investor participation help to build a track record and gain investor confidence and public support for future SOE privatisations.
SOE impetus
Research conducted by the World Bank on the Impact of SOE Listings on Capital Market Development in Emerging Markets showed significant increases in the Stock Exchanges in Egypt, Morocco, Nigeria, Kenya and South Africa as a result of their privatisation programmes.
“Due to their large size and value, SOE listings can significantly boost market capitalisation and broaden the investor base, especially among retail and foreign investors,” the report said, adding that “some of the largest SOE listings across our case study countries allowed local equity markets to improve market capitalisation by up to 170%”.
The World Bank said this effect is largest where equity markets are still relatively small, i.e., during the early and intermediate phase of a market’s development. Where governments have been able to list a series of large SOEs, conduct follow-on offerings or encourage private companies to list, it said they could often sustain that growth momentum over an extended period.
Graphics by World Bank
Wealth Distribution
SOE listings have been a popular strategy for governments to redistribute some of the wealth created by SOEs to the citizenry.
“The dividend paid by a listed company is a way of distributing wealth to nationals and to Government in the case of listed SOEs,” Bolokwe said adding that a listed SOE provides the Government the opportunity to raise finance on a continuing basis by selling some stake to the public”. He explained that the government tends to experience less pressure in terms of having to provide financial support to SOEs and therefore saves money that is deployed into development projects.
Botswana Gov’t Finance Pressure
The government has been drawing down has been drawing down on its reserves as diamond revenues fall short of targets. Recently Minister of Finance Peggy Serame revealed that Government spending substantially increased due to, among others, payment of personal emoluments of P5.75 billion, expenditure on Botswana Public Officers Pension Fund (BPOPF) of P1.5 billion for pension augmentation, tariff subsidy to Botswana Power Corporation of P1.5 billion, payment for the acquisition of land from Tati Limited Company of P939.3 million (which was a final instalment), P623.1 million for water projects, Chema Chema Funds of P200 million, Air Botswana (P123.5 million for purchase of additional fleet), Subvention to State-Owned Entities (SOEs) and Revenue Support Grant (RSG) to Local Authorities, amongst others.
Subventions Strain Government
Economist Dr. Keith Jefferis has found that subventions are straining the government, as administered or regulated prices—such as those for petrol and electricity—continue to remain below the cost of supply or production. This situation, he said, necessitates substantial subsidies that keep prices artificially low.
Impact On Employment, Service Delivery
SOEs are often regarded as inefficient, with employees exhibiting low productivity levels. World Bank concluded that a combination of sector reforms combined with SOE listings could maximise the impact on the delivery of public goods and services.
Graphics by World Bank
On the other hand, the overall impact of SOE listings on firm performance largely depends on whether or not a listing is accompanied by a change in ownership and management. “Governments that continue to hold a significant share in SOEs have often struggled to refrain from political interference or imposing hard budget constraints,” the World Bank said adding that “thus, performance improvements have been weaker or did not materialise at all”. “Therefore, we conclude that a combination of sector reforms combined with SOE listings could maximise the impact on the delivery of public goods and services.”
From the employment side, the World Bank said the impact of SOE listings on employment remains ambiguous and dependent on various factors, including the SOE’s pre-listing profitability and the country’s economic structure.
SOEs Listing Can Inspire Private Companies
Bolokwe believed that any successful SOE listing has a potential to inspire other SOEs, and even unlisted private companies, that it is indeed possible to undertake a listing on the stock exchange and reap the benefits of listing.
Data from the BSE indicates that there are a number of SOEs that are already issuing bonds on the BSE. Therefore, Bolokwe believes they are very familiar with the BSE listing requirements and have built relationships with the advisors and intermediaries in the capital market ecosystem. He said they also have support from the Government in so far as raising capital on the BSE is concerned, as well as from investors who invest in these bonds. Thus, he views that these SOEs could find it easier to list equity on the BSE if a listing is considered to be an appropriate method of privatising them.
“This shows that if more and more SOEs are listed on the BSE, Government could save a lot of money that is ordinarily paid out as subventions, could receive significant income as the point of listing, and could also receive material incremental income from these entities as they seek to grow their revenues and pay taxes, and also grow their profits and the value of their shares and rewards shareholders through dividends”.
Botswana has a large and sophisticated domestic institutional investor base who devote expertise and resources to analyse these opportunities and invest in them. The country has no capital controls and has an impressive number of foreign investors. It has large SOE pipeline as seen from the Privatisation Masterplan, with some already having presence in the capital market by way of bonds. Bolokwe said all these factors bode well for successful listing of SOEs and capital raising, and must be fully exploited to invigorate economic transformation through the private sector and to spur private sector growth through privatisation.
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