02 May 2017
Letshego Holdings Limited says it will seek shareholders permission to buyback the company’s shares of up to 10 percent in efforts to increase shareholders’ value. On Monday, the leading micro lender released a proposed share buy-back mandate that will see the company retaining or possibly cancelling all of the repurchased shares.
“The Directors of Letshego propose to seek a new Share Buy-back Mandate from the Shareholders to purchase up to a maximum of ten percent (10%) of the stated share capital of the Company by way of on-market Share Buy-back and pursuant to that, retain those shares as Treasury Shares up to five per cent (5%) of the stated share capital of the Company and cancel the rest of the shares and effect a Reduction of Capital on the shares purchased,” the company stated in the document detailing the proposed share buy-back.
The shareholders are expected to approve the proposed share buy-back mandate during the company’s annual general meeting on the 24th of May. Amongst the resolutions to be approved is that the purchase of shares should not exceed ten percent of the stated capital of the company. Moreover, shareholders are requested to approve the special resolution that authorises the company to reduce its stated capital as may be determined by the board of directors from time to time.
With an issued share capital of 2, 144, 045, 143 shares, Letshego proposes purchasing up to ten percent of that, meaning that the company is willing to buy up to a maximum of 214,404, 514 shares. Upon buying the ten percent of stated capital, 107, 202, 257 shares will be reduced from the stated capital, leaving the company with the stated share capital of 2, 036, 842, 886 shares. Alternatively, if the board decides to cancel the whole of the purchased ten percent of the stated share capital, it will mean Letshego will wipe as much as 214, 404, 514 shares, leaving the company with 1,929, 640, 629 shares.
In the proposed share buy-back mandate, Letshego intends to buy the shares from shareholders on the Botswana Stock Exchange (BSE) using one or more duly licensed stockbrokers appointed by the company. The repurchase of the shares will be spread over time, marked by one or several transactions depending on the availability of funds and shareholders who are willing to sell their stake back to the company. Furthermore, while the purchase price of the shares has not been explicitly stated, the company’s directors have revealed that the purchase price will be determined by the Letshego committee mandated for the purposes of effecting the share buy-backs.
The proposed purchases of shares will be effective immediately upon approval of the mandate by shareholders and will continue to be in force until the date of the next annual general meeting is held or required to be held by law. The share buy-backs may be cancelled if shareholders of the company revoke or vary the date on which purchases and acquisitions of shares are carried out to the full extent mandated.
Letshego says it will either tap into its internal cash reserves or source external funds to finance the repurchase of shares. The type of funding will be determined by the funding model which will ensure that the share buy-back mandate does not significantly impact the working capital requirements, financial flexibility or investment ability of Letshego.
The latest proposal by Letshego’s directors for shareholders to approve the share buy-back mandate comes on the heels of another share buy-back program that was initiated and concluded last year. In the previous annual general meeting, shareholders approved the company’s request to repurchase ten percent of shares which constituted a maximum limit of 218, 490, 166 shares and subsequently cancelling the repurchased shares. Pursuant to that mandate, the company only repurchased 52, 782, 546 of those shares, representing 2.41 percent instead of the envisaged 10 percent.
Letshego will be hoping to appeal to shareholders who have become frustrated with the company’s stock price that has been in decline in the last two years. By buying back the shares, Letshego says this will improve shareholder value by leveraging on its balance sheet to improve returns on equity and earnings per share.
Moreover, Letshego hopes to stoke positive investor sentiments as share buy-backs can be seen as a sign that a company has excess money, and therefore attracting other investors to invest in Letshego which could improve the share price. However, the downside of share buy-backs is that the company is forced to use some of the company’s cash reserves and borrowings to buy back shares instead of using the money in optimizing its operations.
Letshego’s profit after tax in 2016 was P669.7 million, down by 12.8 percent from the previous year’s profit. Letshego with its P7.9 billion in total assets, has large cash reserves amounting P529 million. Assuming the current share price of P2.27, Letshego will have to spend around P486.7 million of its cash to buy 10 percent of the stated share capital of the company. The sufficient cash reserves will save Letshego from further borrowings. The company’s existing debts amount to P3.4 billion.
Letshego which is listed on the BSE currently has a market capitalization of P4.8 billion, which is expected to decrease after the share buy-back is completed. The public shareholding spread of Letshego is currently at 74.59 percent of stated share capital. If the share buy-back is carried out in full, the public shareholding spread will be reduced to 64.59 percent since the company is prohibited from knowingly buying shares from its own directors, CEO of the company or major shareholders. Letshego’s major shareholder is Botswana Insurance Holdings Limited (BIHL) with a 23.7 percent stake. If Letshego goes ahead and cancel the repurchased shares, the reduction in share capital will increase percentage shareholding of existing shareholders and also increase their voting rights.
On Wednesday, two days after the share buy-back mandate was made public, Letshego’s shares gained 2t or 0.8 percent to trade at P2.27, signalling that shareholders approve of the share buy-back. Furthermore, shareholders will seek to drive up the stock price so that if the share buy-back is approved the purchase price will be high. Letshego’s shareholders are seeking to recoup their losses following string of losses in the stock price. Letshego share price was down by 5.7 percent in the first quarter of the year but has since made advances, bringing down its loss to just about 1.3 percent. However the stock has a long way to go to recover the 20 percent share price loss recorded in 2016.
By: OBONYE MODIAKGOTLA