Monday, November 29, 2021

More questions than answers in BTCL listing

The delay by Botswana Telecommunications Corporation Limited (BTCL) to release its share sale prospectus and financial results for the year 2014/15 has caused consternation among prospective investors who have been waiting in anticipation for the Corporation’s initial public offering (IPO).

The FY: 2014/15 financial results, as well as the share sale prospectus, would have enabled prospective investors to appreciate the full value of BTCL ahead of its listing. The Corporation’s flotation was hailed as the most lucrative in the history of Botswana’s financial services sector and a shining example of the country’s trailblazing privatisation exercise. While BTCL would not divulge how much the flotation was anticipated to raise, and what the funds would be used for, reports indicated that high profile institutional and citizen  investors were lining up to purchase huge chunks of the Corporation’s equity. But doubts started emerging when the listing, initially pencilled for August 2014, was postponed on numerous occasions. As industry captains started casting aspersions on the profitability of BTCL going forward, amid failure by the Corporation to release its share sale prospectus, the much anticipated BTCL listing quickly turned into a damp squib.

In December 2014, government said the listing had been postponed to sometime this year, adding that the initial deadline had always been ambitious considering the magnanimity of the exercise.

“A deferred IPO would have the additional benefit of allowing more Batswana to participate. Institutional investors also felt that opening over the holiday break would not allow them enough time to conduct their own internal processes,” said the Ministry of Transport and Communications (MTC) at the time.

Government also revealed that it was still concluding a number of material steps in the listing, including securing the necessary underwriting arrangements. Because BTCL shares would be reserved for citizen investors, government was compelled to serve as an underwriter for the IPO. Because they are foreign owned, local commercial banks were barred from underwriting the listing, amid fears that BTCL would fall into foreign hands should the listing be undersubscribed. At the same time, indigenous financial institutions like Botswana Savings Bank (BSB), Botswana Building Society (BBS), as well as local insurance companies were deemed as lacking the requisite skills to undertake such a complex process.

Despite these explanations, industry players have cast aspersions on the success of the listing, saying there are serious doubts among investors on the profitability of BTCL going-forward. Potential investors are doubtful that BTCL will replicate the stellar results of yester years. In FY: 2012/13, BTCL revenue surged to P 1.375 billion while profits before tax (PBT) shot up 20 percent from P237m in FY: 2011/12 to P284m. Revenues were largely driven by BTCL’s mobile network (beMOBILE), as well as revenue from data and private circuits. However, BTCL has over the years been recording a steady decline in demand for its fixed line services as customers took up mobile and data services due to increased internet penetration.

BoFiNet and separation of assets


These stellar results were posted before the advent of Botswana Fibre Networks (BoFiNet). Phase II of the BTCL privatisation involved separation of the telecommunications backbone infrastructure from the Corporation and registration of a special purpose vehicle (SPV) to manage it. This SPV was registered as BoFiNet, which inherited infrastructure worth P1.4 billion from BTCL. The assets include the Dense Wavelength Division Multiplexing (DWDM) system, designed to optimise the EASSY and WACS undersea cables, and a 6000 kilometre country wide fibre network. All these assets were previously under BTCL’s portfolio, pushing the Corporation’s asset value to an estimated P2.3 billion. The separation of assets was hailed by independent telecommunications operators and internet services providers (ISPs), who had long complained about the Corporation’s monopoly on voice and data network provision. Industry players opined that the separation would end BTCL’s cross subsidization, level the playing field and reduce tariffs. After the separation, BTCL was now competing on an equal footing with other industry players and no longer playing the dual role of player and referee.




Doubts over BTCL valuation

Industry players are waiting with bated breath for the BTCL results for FY: 2014/15. The Corporation traditionally releases its results in March, but the latest financial results are still to be released. These particular results are of great importance because they will reflect the Corporation’s performance at a time when it no longer enjoys the advantage of not having to pay for infrastructure. Also, they will reflect the true valuation of BTCL as previous valuations included fibre infrastructure and undersea cable investments.

“It will be interesting to see BTCL results bearing increased operating costs occasioned by having to pay for backbone telecommunications infrastructure. We are also waiting to see the share sale prospectus so that we can see exactly what is being listed,” they said.

But the financial results and the prospectus are still to see the light of day.

In an interview with Sunday Standard, BTCL Public Relations Manager, Golekanye Molapisi said the prospectus is to be updated so that citizens interested in purchasing shares are provided with the latest state of BTCL operations. He further revealed that BTCL’s financial results for FY: 2014/15 will be released soon as they have already been approved by the board and are awaiting approval by the shareholder at the AGM.

However, Molapisi refused to divulge how much BTCL owes BoFiNet as payments for use of its backbone infrastructure, saying that was a confidential contractual matter between two companies. Asked how such payment has affected BTCL’s operating expenses and profitability going forward, Molapisi said: “We recommend that you await the official release of the 2014/2015 financial statements.”

On what measures BTCL has put in place to control operating costs, Molapisi said the Corporation has identified “cost control” as one of its strategic imperatives, and remains committed to continually optimizing shareholder value by coupling revenue growth with aggressive cost management.


“BTCL is currently in relentless pursuit of its strategy of a fixed, mobile and convergent operator. The company is leveraging on the synergies from its historically separate lines of business to form a formidable single force,” he said.


The damning due diligence report by Deloitte & Touche

Sources have revealed that the jovial mood ahead of the BTCL listing was dampened by a damning financial due diligence report by accounting firm Deloitte & Touche, which advised that the Corporation may have exaggerated its value and further cast aspersions on its profitability going forward. Industry insiders believe the damning report and the not so impressive financial results could be the reason behind the delay in publishing the listing prospectus. Sunday Standard is informed that the report highlighted a significant reduction in BTCL’s value, occasioned by the separation of assets and depreciation in the corporation’s remaining assets. While he confirmed that Deloitte & Touche was engaged to submit a financial due diligence report, Molapisi said BTCL was not in a position to share its findings as they are confidential.


Since early last year, citizen investors have been waiting with bated breath to claim a stake in BTCL. The Corporation was poised to become Botswana’s first ever public enterprise to be listed on the local bourse. 49 percent of BTCL shares would be up for grabs by strictly citizens and citizen-owned companies while five percent was to be reserved for BTCL employees. Government would retain 51 percent shareholding in BTCL. Meanwhile, no official communication is coming forth from government, despite robust public interest in the share sale. As the listing drags on forever, the tax payer is losing millions in additional legal fees and transactional advisory services. In typical Botswana style, the long wait for the BTCL IPO continues, amid rising doubts about the profitability of the Corporation going forward.


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