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Botswana: Stock exchange seeks to improve liquidity and reverse trend of delistings

By David Whitehouse
Posted on Monday, 12 April 2021 16:40

Botswana Stock Exchange CEO Thapelo Tsheole

Botswana’s stock exchange plans to introduce global depositary receipts (GDRs) and trading in short-term debt instruments to attract issuers and increase the market’s liquidity, CEO Thapelo Tsheole tells The Africa Report.

International companies want to be able to sell shares in Botswana, Tsheole says from Gaborone. GDRs, which are designed to let investors buy shares of foreign companies on their own domestic exchanges, will be available by mid-2022, he says, and it will be possible to trade short-term debt instruments by the end of this year.

The exchange has come under pressure from Botswana’s finance ministry, its majority owner, to accelerate new listings and halt the trend of companies leaving the bourse. Finance ministry permanent secretary Wilfred Mandlebe said in February that it was up to the exchange to ensure there was a “balance between the costs and benefits of listing”.

  • The market must reduce the time needed to settle share transactions, he adds.
  • Mandlebe points to the need for integrated depository to facilitate corporate and government bond trading. Government bonds are currently traded over the counter.

The Botswana market lags behind Namibia as well as South Africa in terms of capitalisation. Liquidity has become concentrated in a handful of companies.

  • In 2020, the shares of microfinance lender Letshego, First National Bank Botswana and brewery holding company Sechaba accounted for 47% of total equity turnover.
  • The concentration is getting worse. In January and February of this year, trading in those three companies made up 70% of turnover. Furnmart and Wilderness Safaris both delisted in 2019, and Afinitas shares will cease trading this month.

Paperless trades

Tsheole expects the new securities to increase the liquidity of the market, as happened in 2012 when Botswana introduced exchange-traded funds. Botswana, he argues, can benefit from its strong currency and the absence of foreign-exchange controls.

  • The exchange has a “strong pipeline” of new domestic equity listings including multinationals as well as local companies, Tsheole says.
  • The bourse is planning to make it easier to borrow and lend shares to facilitate short selling, he says.
  • The innovations will be made possible by a new central security depository system, designed to end reliance on paper certificates and scheduled to be in place by May.
  • Tsheole is also trying to persuade institutions to come and serve as market makers.
  • The exchange, which completed its demutualisation in 2018, plans its own stock market listing in Botswana within the next two years, Tsheole says.

Tsheole is also deputy president of the African Securities Exchanges Association.

The association is working to harmonise listing rules to allow companies to list in different African countries, says Tsheole. It’s also trying to standardise trading processes, which will make it easier for brokerages to expand across the continent, he adds.

  • The start of the African Exchanges Linkages Project, which aims to improve the flow of information and capital between African bourses, has been hampered by Covid-19, Tsheole says.
  • Some “mid-sized” exchanges are planning to join, and Botswana will sign up in about two years, he concludes.

Bottom line

Implementing a central security depository system and getting rid of outdated paper certificates is a step towards increasing liquidity.

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