Focus tends to be on blue chips
BSE building a pipeline of equity listings, notes lack of support for corporate actions
“We need to devote more time and attention to other instruments”
“SMEs are scaled faster than larger corporates”
“Maybe the asset managers will now be forced to be less conservative”
Billions in pula of pension funds’ assets are expected to flow into Botswana in line with new Pension Fund Rules (PFR) which have set asset allocation at 50-50 for onshore and offshore investing. Whether there are assets or there are no assets to accommodate this influx of cash is very debatable and perhaps depends on whether you are a regulator, asset manager, or asset owner.
But predominantly, the focus tends to be on the listings on the exchange for investors. The reality on the ground is that equities are hard to come by; it is not just in Botswana it is around the world. The last time the Botswana Stock Exchange (BSE) had an Initial Public Offering (IPO) was in 2017. The last time the bourse listed a company was in 2018.
Fund managers focused on Blue Chips
Five years down the line, nothing. Yet the focus for the managers tends to be more on the blue chips, Kopano Bolokwe, BSE Head of Product Development observed. To an extent that, he noted, there is an outcry of lack of support for the companies that are not seen as blue chips; the small caps and SMEs.
Bolokwe thinks this is where “we need to see a lot of innovation in terms of how we can safely deploy the money into these companies to support them to become blue chip companies in the long term”. Bolokwe was speaking during a breakfast seminar organised by the Botswana Insurance Fund Management (BIFM)
At the end of the day, RMB Botswana, Moemedi Moyo Sector Lead – Mining and Natural supports that “over time for the small and medium, we tend to think that they are small but they are scaled faster than larger corporates”. Moyo who was speaking during the breakfast seminar also emphasised the “need to support those small companies because they hold the key to the future”.
BIFM Local Private Debt Fund
BIFM launched the BIFM Local Private Debt Fund in April 2023. This Fund, according to the company, seeks to make capital more accessible to SMEs, whilst providing an investment vehicle through which professional investors can gain exposure to the local private debt market. The initiative adds to BSE initiatives to provide SMEs with access to capital.
“If we see more of that we will be able to capitalise these SMEs and see them become listable entities in the long term,” Bolokwe said adding that “we are also working on something as the exchange with other stakeholders to address the problem of SME access to finance with a view of building a pipeline of equity listings”.
Value propositions for Small and medium companies
While there is that open debate over whether there is too much conservatism or not on the SMEs, Dr Keith Jefferis is not convinced that a listing is convenient for Small Companies. “It is questionable whether it is a good value proposition,” he said at the breakfast seminar. “If you are dealing with the compliance costs and don’t overburden them then maybe.” Jefferis thinks the emphasis should be on the Medium-sized companies. Those, he said, are the ones that can gain from capital raising and other benefits of listing.
PE competition
But ofcourse the Medium companies he is talking about have options. “I know that the private equity institutions are looking at the same entities,” Jefferis said citing FSG as a classic size medium company, which delisted and went private equity. “That’s the trade-off for a medium-sized company,” Jefferis argued. The question is: Is private equity better or a listing is better for them? While that may depend on the expectations of the owners, the economist thinks there is a lot of competition for those potentially good medium-sized companies that could be listed.
PE versus Listing
Fund managers on the ground argue that the alternative space, Private Equity (PE), is more exciting, given that the investable universe on the BSE is small and the wave of delistings seen over the last few years has made things complicated. In other words, too much liquidity is chasing few assets, thus the move to PE because the limits are less. PE is said to be more dynamic and offers more opportunities. Private equity versus stock market is historically an unresolved debate that will go on for a long time given that the BSE itself argues that PE has no composite measure. BSE CEO Thapelo Tsheole previously argued that there are various stocks that even private equity will not match. To an investor, he said, “It is a question of when to buy and then when to sell,” noting that one needs to get some good stock in one’s portfolio for one to really make more money.
Ultimately, he underscored that it leads to stock selection and the companies that one really buys. “You need to be either a clever manager or an individual that actually looks at the mood of the stock market,” he emphasised. “It’s a kind of 50/50 type of investment.”
Jefferis emphasised the importance of listing and “maybe the asset managers will now be forced to be less conservative”. According to his presentation slides, pension funds hold P15 billion on listed assets and if another P15 billion is going to flow into listed equities he feels “there needs to be more listings”. “The ability of government bonds to absorb the funds is limited by issuance program,” Jefferis said warning this may make it cheaper for the government to borrow because there is a lot of money that has nowhere to go.
Paucity of innovation
Bolokwe called for more appetite for credit and appropriate structures, urging potential issuers to bring products into the market. His boss had previously decried the paucity of innovation by market players, arguing that “we can’t issue instruments as the BSE”, and “it is the market participants who operate in this market who can actually list”. This, he said impedes diversification on the local bourse. For Bolokwe when speaking at the seminar: “It is a question of whether the structures are right instead of having our money sit in cash.”
Lack of attention to other instruments
Bolokwe cited one particular product that is disappointingly non-performing from an institutional point of view. It is a fixed-income ETF anchored by AFDB paying more than 10% coupon – USD denominated. But he said there are no institutional investors even as it is one of the most credible products.
“It’s looking at risk-free instruments in the African continent. We have the likes of NEWPLATINUM, which has not been touched this year, but it has done phenomenally in its primary market in the JSE. But we are seeing nothing on the BSE,” Bolokwe said noting “a lack of attention on other instruments than the traditional ones we are used to. “It’s not right because we are working hard to bring more of these. We need to devote more time and attention to these particular instruments.”
BPOPF acquires shares in blue chips
Botswana Public Officers Pension Fund (BPOPF) recently acquired 8,201,450 of the 9,000,000 shares sold by Chobe Holdings, underscoring Bolokwe’s point of the focus on blue chips and lack of attention to other instruments. Vunani Fund Managers also recently acquired 18,375,145 units of Letlole La Rona on behalf of BPOPF.
No support for corporate actions
Bolokwe decried the lack of support for corporate actions. Citing Lucara, he said at one point the company tried to raise close to P2 billion but did not get support from the local market. “They went to offshore markets but they raised the money,” Bolokwe said turning his attention to a recent rights issue by Choppies Enterprises which was not fully taken up. Yet “We are crying that there is a lot of cash from the asset managers sitting in the banks which is not appropriate”, Bolokwe lamented.
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