Saturday, October 24, 2020

Can private companies really make a killing on the BSE?

When the Botswana Stock Exchange (BSE) Chief Executive Officer Thapelo Tsheole adjudicated the recent private business growth award, his involvement was not simply limited to offering his expertise but to establish ties with successful private businesses with potential to list in the local bourse. 

Botswana’s private sector is considered small but the private business growth award, a collaborative effort between Grant Thornton and Business Botswana, depicted the capabilities of private businesses that are often overlooked, which qualifies them to list in BSE. 

The improvement in the participation of local invididual investors as well as local companies in contributing to turnover in BSE as indicated in the exchange’s market performance for the period ended September 30, 2016 could be seen as impetus to private businesses to use the capital market as an alternative funding method. 

Their participation could perhaps be used to gauge the interest of investors regarding the capital market, which as cited by BSE market performance shows improvement.    

“In Quarter 3 of 2016, the contribution to turnover by local companies increased to 61.5 % from 50.4 % in Quarter 3 of 2015. Another improvement was noticed in respect of local individuals with their contribution to turnover rising to 3.3 % in Quarter 3 of 2016 relative to 2.2 % in the same period in 2015. During the period of January 1, to September 30, 2016, local companies contributed 55.1 % of total turnover compared to 3.6 % in the same period contributed by local individuals. This is evidence that there is potential to increase retail investor participation in the market,” notes the market performance. 

Industry proponents have in previous engagements organised by BSE shared that the capital market offers a funding option that allows private business to access financing that would have otherwise been costly through commercial banking institutions. The advantage often advanced is that debt funding through the capital market accommodates projects of various scales which allows businesses to expand their operations. Despite that the cost of borrowing through banking institutions is at the historic low, businesses’ uptake of financing does not demonstrate the present funding advantage. This has been attributed, among other things, to the fact that opportunities of growth remain limited within Botswana. The limited opportunities in the domestic market offer the region as an alternative market to expand operations into which as observed in the market the route has been followed primarily by publicly listed businesses as opposed to private businesses. 

Private businesses in this regard could explore the capital market for the benefit of funding, which in the case of Botswana may prove beneficial as it would mean that their impact to the economy increases. 

Companies such as Letshego, Sefalana and Choppies provide examples of business growth aided by debt funding through the capital market. They have successfully made inroads into the regional market through floating shares for investors to buy, which in return allowed them to increase their footprint.           

“The top three companies on a year-to-date  basis in terms of value traded were Letshego (P722.1 million), New African Properties (P466.9 millionn) and Sefalana (P214.5 million). These accounted for 65.9 percent of total turnover generated in the first three quarters of 2016,” cites the performance market report. 

Overall, however, the local bourse’s turnover registered a slight decline between September 30, 2016 and the previous year over the same period. 

“As at September 30, 2016, the BSE had recorded a turnover of P2 138.7 million from 653.1 million shares traded. During the same period in 2015, the BSE had registered a turnover of P2 209.6 million and a total volume of 546.8 million shares traded,” reads the report.

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