Thursday, October 29, 2020

Cresta shareholder’s “Valentines” agreement

Shareholder of Botswana Stock Exchange Limited quoted – Cresta Marakanelo Limited have whole heartedly agreed to give its directors a go-ahead to acquire properties owned by Botswana Hotel Development Company (BHDC) and Letlole La Rona(LLR).

Cresta said in a statement this week that Shareholders holding a total of 98,808,924 shares were represented at the EGM held on valentines’ day either in person or by proxy, representing 75.6 percent of the shares eligible to vote at the meeting and 53.4 percent of the total issued share capital.

A more detailed statement released to shareholders in December 2018 showed that Cresta intends on acquiring a plot in Maun owned by BHDC. The plot is currently being leased to Cresta Riley’s Hotel, one of the 12 hotels owned by Cresta. The price consideration for the prime land comes at about P25 million.

Moreover, Cresta will also acquire some properties owned by LLR which have been housing some Cresta business: Cresta Lodge, Cresta Thapama, Cresta President and Cresta Bosele. These four properties acquisition will set Cresta back by around P235 million.

The hotel chain company says it will fund these transactions through debt financing, and added it will have no bearing on the net asset value. “The interest expense in the first year will be less that then current rental expense, therefore the transaction will have significant positive effect on the net profit of the company,” said Cresta in a circular sent to shareholders.

It appears that the transaction will benefit Cresta in the long term as it will no longer pay rental fees to BHDC and LLR, something Cresta says it will decrease overhead costs.

On the other hand, LLR says it will use the sales proceeds to further expand its property portfolio. The property investment company with exposure to the industrial sector has said that it has identified future growth in the retail sector, and intends to pursue these opportunities.

“The benefits which are expected to accrue to LLR include reduced exposure to the hospitality industry’s operational risk. The transaction will also enable the company to acquire new properties that can provide appropriate diversified returns to the property portfolio,” said LLR in a prepared statement to its shareholders in December 2018.

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