20/05/2021
FOR the past few months Sekhametsi Investment Consortium has been celebrating its 20th anniversary. In those months newspaper articles and radio programmes have traced the company’s journey from humble beginnings to becoming the biggest locally owned investment consortium.
The value of each share has grown from M34 to between M8 500 and M9 000. Sekhametsi is now a M1.2 billion company with interests in telecommunications, property, manufacturing and the financial services.
This growth has been achieved through hard work, patience, diligence, trust, accountability and transparency. Yet the Sekhametsi story is far from over. If anything, it is just the beginning. This week we spoke to Leboela Lebete, the chairman of Sekhametsi, about the next phase of the journey.
What is the next phase for Sekhametsi?
We are on the verge of another exciting period as a company. I recall that sometime in 2015 the board had a strategic meeting where it was agreed that our vision is for Sekhametsi to be worth M1 billion by 2020. It was just a dream but it has been achieved. Looking at the testimonies of the shareholders and directors, it is only fair that we continue to dream about growing the company.
We are dreaming of what we can achieve in the next five years. We want to reinvent Sekhametsi for the next 20 years. We are expanding our footprint in telecommunications, manufacturing, property and financial services. We have just completed the first phase of the expansion of the Sekhametsi Centre and the plan is to have an eight-storey building. The shareholders have said they want the building completed in the next five years. We are also looking at broadening Sekhametsi to be inclusive in terms of the shareholding structure.
How does the company plan to raise the capital for the expansion?
Ideally, there are three ways to raise capital. We can use retained earnings, debt or equity. We are intending to list on the Maseru Stock Exchange later this year or early next year. Of course, that will be subject to the shareholders’ approval. The listing and the course of action will be the subject of the next annual general meeting.
What is the nature of this listing?
This will be a partial listing. We are looking at listing 20 percent of the issued shares. There are several benefits to be derived from listing. The first is that the price of the listed shares would provide an indicator of those held by the shareholders. The second is that it improves the liquidity of the Sekhametsi shares.
It will be easier for the buyer to seek shares. Shareholders can also easily find buyers. Listing also creates brand awareness which is crucial for any company. Sekhametsi would also be more attractive to investors both locally and globally. This is because listing, by its nature, reflects a high level of adherence to corporate governance rules, integrity, accountability and transparency.
Once a company is listed potential investors can have the assurance that they can get into a transaction with minimal due diligence because they know that there is already a high level of corporate governance required by the authorities.
Existing shareholders may ask how will they benefit from the listing?
In addition to the benefits I have just mentioned, there will be a share split through which we are also going to reward the existing shareholders with a bonus issue.
What is a bonus issue?
This is a method of altering the share capital without raising cash. In this case, it’s changing the financial reserve into share capital. When a company wants to change its share capital it can either do so through a bonus issue or rights issue. Bonus issue means shares are allocated to shareholders without payment.
A rights issue is when you issue shares to raise capital. With a bonus issue, we are saying we want to give you extra shares for each share you hold. An example could be one additional share for every two shares held. That is to say, if you have two shares you get an additional one to make them three. If you have 100 shares you get 50 additional shares to make them 150.
But doesn’t that change the value of each share?
It will change the value of each share but the value of your total holding will not be changed. Suppose you have 100 shares at M10 each. The total market value of those shares is M1 000.
If you then use the example of one share for two shares the value of each share will decrease because you are now dividing 1 000 as the total market value of the increased number of shares by 150. In other words, you have more shares at less price but the same value you were holding.
What is the point of that exercise then?
We are saying we are rewarding shareholders as part of the 20th anniversary. Assuming you need some cash for your capital project you have more shares to sell. Using the same example of one for two means you now have three shares to sell and the shares are easily tradable.
So instead of two shares, you now have three. You can then sell one share and remain with two. You can also allocate the shares as you wish because they are more after the bonus issue. This also applies when you want to distribute the shares as an inheritance.
But I must emphasise that a bonus issue requires an increase in the issued share capital of a company so its implementation will be subject to shareholders’ approval.
What are the other benefits of the bonus issue to the shareholders?
Our tax laws encourage investment in shares. As the company grows, it generates more dividends for the shareholders. Now, dividends from local companies are not taxed. This is because the dividends are derived from the tax that has already been taxed. So, it makes sense to invest in shares.
I must also point out that for us to proceed with the bonus issue and the listing we have to seek shareholder approval to increase the authorities share capital. This is because there is a certain minimum requirement for listing.
What is authorised share capital?
It is the maximum number of shares that a company can issue. Sometimes issued share capital can reflect the value of the assets of the company. If the share capital remains the same over the years it means the book value of the shares held doesn’t reflect the true value of the assets held by the company.
Sekhametsi shares started with a book value of M34 but now the shares are trading between M8 500 and M10 000. There is now a mismatch between the book value and market, which translates to a mismatch at the asset level. The assets held should to some extent reflect the value of shares held. This is why we need shareholders’ approval to increase the share capital within which we can have a share split and a bonus issue.
