Botswana’s second largest retail supermarket, Sefalana Holdings, is in the process of rising a quarter of a billion Pula on the capital market. Market watchers say the company is in a quest to further its ambitions of regional expansion.
This week, the Managing Director (MD) of Fast Moving Consumer Goods (FMCG) Company, Mr. Chandra Chauhan issued a statement notifying shareholders that it is raising approximately P 351 million, net of expenses, by way of a rights issue of 27,858,523 Offer Shares. Which in Stock Market terms involves an alternative method of raising capital by way of a dividend of subscription rights in order to buy additional securities in the company available to the company’s existing security holders.
Sefalana Secretary, Mohammed Osman said major shareholders had been approached to sign irrevocable undertakings to subscribe for any excess shares that have not been already subscribed by way of the rights issue. On this basis, he said the issue is expected to be fully subscribed. “The offer shares will, when issued and fully paid, rank pari passu (on equal footing) in all respects with the shares now in issue,” Osman went on to add, that an application to the Botswana Stock Exchange has been made to list the renounceable letters of allocation and the subsequent offer shares.
The retailer valued at P2.99 billion in market capitalisation, however did not go further in details of how it intends to allocate and invest the proceeds it intends to raise. Osman declined to comment, citing that the information is classified when he was contacted by The Business Weekly and Review newspaper. “I can’t answer that, I can only release information to the Botswana Stock Exchange,” he said over phone call.
The most obvious reason for the raising of capital, Moemedi Mosele, a Research Analyst at Motswedi Securities pointed out, will be that the company is preparing to make an acquisition in the “region”. Interestingly, in September the company advised its shareholders that it had entered into negotiations with two separate unrelated third parties in the Region, which if successfully concluded, and subject to relevant regulatory approval, will result in a transaction that might have an impact on the price of the company’s shares. The company did not share the nature of the talks then and now, nor were the parties involved disclosed.
Previously Sefalana said it was not aroused by rapid expansion policies, which policies are deemed risky by analysts. In fact the group’s MD kept insisting on a cautious approach that will propel the company’s efficiency. The slow, steady, cautious and prudent approach according to market analysts, by Sefalana would be in keeping with the fact that it has operations in only two foreign countries: Namibia and Zambia.
Mosele says if the impending acquisitions are in line with their wholesaler or even manufacturing pursuits rather than retail it will add great value to the company and trickle down to investors, who will be now entitled to a share of the company’s growing profits.
“Expansions are risky endeavours, particularly outside ones main market, however Sefalana has been highly successful in Namibia through their acquisition of Metro,” he said.
Currently, about 92 percent of the company’s shares are held and controlled by the citizens of Botswana, spread across approximately 1500 shareholders. The retailer said the offer shares are being offered by way of a rights issue to shareholders on the register at the close of business on Friday 28 October 2016. Mosele explained that those shareholders unwilling or unable to buy the stock on the given date, would be able to sell their rights to someone else, and pocket the proceeds.
He emphasised however, that if one exercises their full rights, their relative shareholding in the company will not change. In other words, a 5 percent shareholder having exercised all their rights will remain a 5 percent shareholder post the offer.
“As new stocks have a dilutive effect, the company offers existing shareholders the ‘right’ to buy the stocks at a set price, usually at a discount to the prevailing market price,” he explained adding that there are many valuation techniques and assumptions one would have to make, however the dilution will tend to suppress the price.
The company said for every 8 shares held, 1 offer share will be at P12.60 and so on in proportion for any greater number of shares held. Any allocation of offer shares that would result in fractional entitlements will be dealt with in the following manner: If the fraction is less than one-half of an offer share it will be rounded down to the nearest whole number; and if the fraction is equal to or greater than one-half of an offer share, it will be rounded up to the nearest whole number.