Gaetsaloe�s grand turnaround plan for BDC
Brian Benza | Friday October 16, 2015 18:00
In the eyes of its youthful looking new managing director, Bashi Gaetsaloe, the expected return to profitability is evidence of the first fruits of an ambitious turnaround plan which targets doubling the corporation’s P3.6 billion balance sheet in five years.
When he took over the reigns at the government investment arm last year, BDC was a troubled entity weighed down by some subsidiaries that perennially bled losses.
The pinnacle of its tribulations burst to the surface, when news of its investment in the now defunct Fengyue glass plant grabbed the limelight, resulting in BDC writing off the project from its books for over P500 million.
Writing off the infamous project was part of Gaetsaloe starting his tenure on a clean slate in a three-pronged strategy that included fixing the business, preparing it and then growing it.
“When I took over, the first aspect we looked at was whether our mandate was still valid and also whether our operating model was appropriate.
“The results from a consultancy firm we engaged showed that our mandate, which was formulated in 1970, was still valid although we had strayed and taken our eye off the prize a bit by venturing into small businesses financing when we really should be looking at the bigger industrial projects,” Gaetsaloe told a Parliamentary Committee on Statutory Bodies and State Enterprises recently.
Reinvigorating the corporation’s human capital base was another of initial key strategic initiatives that Gaetsaloe implemented as part of restructuring the business, which resulted in BDC staff complement being trimmed from 90 to about 50.
However, the staff rationalisation exercise was not just about reducing staff costs but it included bringing new skills particularly in the areas of venture capital, private equity and risk management.
Divesting out of non-strategic and loss making enterprises, a process that is still on going upto now, was the next tactical move aimed at improving the operating model and exiting industries where, as per their mandate, barriers to entry are now significantly low.
According to Gaetsaloe, nine months after the transformation ended in December last year, the results of the restructuring are already being felt as revenue is up, costs have declined while impairments charges are improving.
“We are now in our first full-year after the transformation. In our soon to be released financial results, we are expecting to post a modest profit in the year ended June after three years of losses,” he said.
Under the restructuring exercise, BDC is divesting from approximately 12% of its existing portfolio disposing of certain businesses while also investing into new ventures at the same time.
Last year, the corporation said it was at an advanced stage of funding the relocation of Malaysian company, Pasdec Automotive Technologies from South Africa to Lobatse for P52 million. The relocation of the company, which manufactures automotive and wiring harnesses, is expected to create about 500 jobs. So far, BDC divested from Asphalt Botswana, Toro Lodge, Khawa Lodge, Cumberland Hotel and Golden Fruit. A decision is expected to be made on other loss making subsidiaries such as Can Manufacturers . As part of its ambitious strategy to double BDC’s balance in five years, Gaetsaloe says he plans to embark on new projects that will not only boost the industrialisation agenda of the country but also diversify Botswana’s exports composition, which is currently 80% dominated by diamonds.
Industries targeted under the strategy include the large scale investments of not less that P30 million in sectors such as energy, in particular solar power plants, manufacturing, agriculture and other infrastructure projects. According to the Yale University schooled managing director, BDC already has P10 billion worth of new projects in the pipeline with P700 million worth of them ready for funding.
In terms of funding, BDC hopes to raise between P200 million to P300 million off its own balance sheet through the various divestments while the majority of the funding will be raised through bond issuance.
“We have also entered into partnership, through an MOU, with the Development Bank of Southern Africa, where we are hoping to leverage on its huge balance sheet. “Locally we will issue bonds as we also look to collaborate with pensions funds such as Debswana Pension Fund. Already we have put in a bid for the P800 million BPOPF’s infrastructure bond,” says Gaetsaloe.
As part of plans to focus on the bigger picture of industrilisation, the managing director explains that they are hiving off all the small projects from their balance sheet and transferring them to either CEDA or commercial banks. “The new BDC is here to answer the big questions such as why we cannot produce enough milk for only two million people or why we can’t build houses for such a small population. We have benchmarked with other development finance institution such the IDC of South Africa and we believe we are on the right track to achieve our goals under the strategy,“ he says.