Wednesday, January 19, 2022

BDC, the biggest impediment to Sechaba’s delisting from BSE

BDC owns 25.59 percent of the BSE quoted brewer, Sechaba Holdings. SAB Miller on the other hand owns about 22 398 016 shares which reflects a 16.84 percent stake, making the multinational brewer the second biggest shareholder. Faced with an increasingly hostile trading environment, Sechaba, a blue chip company, continues to evaluate its options, which may include a possible de-listing from the local bourse. If it does occur, the de-listing will say a mouthful about Botswana, a country whose government owns a large stake in the brewer through its investment arm, BDC.

Sechaba, a holding company for Kgalagadi Breweries Limited and Botswana Breweries Limited is mulling ceasing to be a public trading company, largely because of implementation of harsh trade regulations in Botswana. There is no doubt that Sechaba’s main hindrance to trade is President Ian Khama’s alcohol levy, which was introduced in 2008 as a way of curbing excessive drinking among citizens.

Over the years, government has repeatedly reviewed and increased the levy and it rose from an initial 30 percent to 50 percent currently. While Sechaba was still smarting from compressed profit margins due to the levy, government delivered a double whammy when the Khama administration introduced Traditional Beer Regulations effective July 2013. The regulations, which have been described as more
harmful than the alcohol levy, barred traditional beer sellers from
operating their businesses from their homesteads, particularly the selling of Chibuku. Hundreds of retailers, especially women who previously depended on Chibuku sales for their livelihoods, were left in the lurch and displaced. The situation was worsened by unavailability of land to set up formal retail operations. Sechaba immediately felt the debilitating effects of Traditional Beer Regulations as sales of Chibuku took a nose dive, dropping by up to 24 percent, according to Sechaba’s financial year results for the year 2013.

It seems the Traditional Beer Regulations were the final straw. Sechaba could not take it anymore. After sucking it in for a couple of years, during which they were privately lobbying the Khama administration to reconsider and proposing various alternatives to the alcohol levy, the company’s board of directors made a shocking public announcement that caused tremors throughout the Botswana markets. More than eight months ago, the board of Sechaba Holdings announced that it had given approval to proceed with analysis of the merits of a continued listing on the BSE. So far, initial discussions have been held with a limited number of key shareholders including amongst them the BDC and SAB Miller.

While discussions are raging on, it is quite evident that between the two major shareholders of Sechaba, SAB Miller will most likely vote for a pull out while BDC could opt to stay put. Jono Waters, publisher of the Central African Stock Exchanges Case Handbook, agrees that it is highly unlikely that BDC would buy into the idea of selling its stake to SAB Miller. The publisher said in Gaborone this week that ‘chances are very slim’ that Sechaba will de-list especially that the local exchange craves liquidity.

“While SAB Miller may want to delist the group, government through the BDC, is ironically the second biggest shareholder and may well block this. It is unlikely the BDC would sell to SAB Miller, leaving the multinational to export products from SA,” Waters said.

One of the world’s largest brewers, SABMiller Plc has management control in Sechaba’s operating company, Kgalagadi Breweries. KBL, as it is affectionately known in local shores, has over the years benefited considerably from SABMiller’s insight and experience with regard to management, technical expertise, brand building and distribution expertise. The company employs about 1000 people throughout the country and operates four traditional beer breweries, a clear beer brewery, a sparkling soft drinks production plant and six sales and distribution depots. Figures from the capital markets indicate that Sechaba remains not just amongst BSE’s top gainers but also the highest traded stocks. Sechaba is one BSE’s most attractive counters and commands a market capitalisation of US$29.8 million (about P2.6 billion). Market observers have opined that performance such as that of Sechaba would become key in delisting and take-over negotiations.

The company recently told shareholders that its board is still assessing the full impact of certain corporate change proposals that, if embarked upon and successfully implemented, may have an effect on the price at which the company’s securities trade.

“Accordingly, shareholders are advised to exercise caution when
dealing in the company’s securities until a further detailed
announcement is made,” said Sechaba.

The market is eagerly awaiting the final ‘corporate structure change’ decision and market pundits are waiting in anticipation to see if it would culminate in SAB Miller selling its stake in Sechaba and pulling out of Botswana totally.

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