𝗕𝘆 𝗣𝗲𝗴𝗴𝘆 𝗢. 𝗦𝗲𝗿𝗮𝗺𝗲
𝗠𝗶𝗻𝗶𝘀𝘁𝗲𝗿 𝗼𝗳 𝗙𝗶𝗻𝗮𝗻𝗰𝗲
𝗗𝗲𝗹𝗶𝘃𝗲𝗿𝗲𝗱 𝘁𝗼 𝘁𝗵𝗲 𝗡𝗮𝘁𝗶𝗼𝗻𝗮𝗹 𝗔𝘀𝘀𝗲𝗺𝗯𝗹𝘆 𝗼𝗻
𝟮𝟵𝘁𝗵 𝗔𝘂𝗴𝘂𝘀𝘁, 𝟮𝟬𝟮𝟰
𝟭. 𝗠𝗿. 𝗦𝗽𝗲𝗮𝗸𝗲𝗿, I beg to present to this Honourable House, a request to extend a 𝗮 𝗚𝗼𝘃𝗲𝗿𝗻𝗺𝗲𝗻𝘁 𝗚𝘂𝗮𝗿𝗮𝗻𝘁𝗲𝗲 amounting to 𝗨𝗦𝗗𝟭𝟳𝟱 𝗺𝗶𝗹𝗹𝗶𝗼𝗻 𝘁𝗼 𝗢𝗸𝗮𝘃𝗮𝗻𝗴𝗼 𝗗𝗶𝗮𝗺𝗼𝗻𝗱 𝗖𝗼𝗺𝗽𝗮𝗻𝘆 (𝗢𝗗𝗖).
𝟮. 𝗠𝗿. 𝗦𝗽𝗲𝗮𝗸𝗲𝗿, the legal basis for this request derives from Section 22 (1) subsection (2) of the PFM Act No.17 of 2011, which provides that"....𝘸𝘩𝘦𝘳𝘦 𝘵𝘩𝘦 𝘔𝘪𝘯𝘪𝘴𝘵𝘦𝘳 𝘪𝘴 𝘴𝘢𝘵𝘪𝘴𝘧𝘪𝘦𝘥 𝘵𝘩𝘢𝘵 𝘪𝘵 𝘪𝘴 𝘪𝘯 𝘵𝘩𝘦 𝘱𝘶𝘣𝘭𝘪𝘤 𝘪𝘯𝘵𝘦𝘳𝘦𝘴𝘵 𝘵𝘰 𝘥𝘰 𝘴𝘰/ 𝘩𝘦 𝘰𝘳 𝘴𝘩𝘦 𝘮𝘢½ 𝘰𝘯 𝘣𝘦𝘩𝘢𝘭𝘧 𝘰𝘧 𝘵𝘩𝘦 𝘎𝘰𝘷𝘦𝘳𝘯𝘮𝘦𝘯𝘵 𝘨𝘶𝘢𝘳𝘢𝘯𝘵𝘦𝘦 𝘵𝘩𝘦 𝘳𝘦𝘱𝘢𝘺𝘮𝘦𝘯𝘵 𝘰𝘧 𝘵𝘩𝘦 𝘱𝘳𝘪𝘯𝘤𝘪𝘱𝘢𝘭 𝘮𝘰𝘯𝘦𝘺 𝘢𝘯𝘥 𝘵𝘩𝘦 𝘱𝘢𝘺𝘮𝘦𝘯𝘵 𝘰𝘧 𝘵𝘩𝘦 𝘪𝘯𝘵𝘦𝘳𝘦𝘴𝘵 𝘢𝘯𝘥 𝘰𝘵𝘩𝘦𝘳 𝘤𝘩𝘢𝘳𝘨𝘦𝘴 𝘪𝘯𝘤𝘪𝘥𝘦𝘯𝘵𝘢𝘭 𝘵𝘩𝘦𝘳𝘦𝘵𝘰 𝘰𝘯 𝘢𝘯𝘺 𝘭𝘰𝘢𝘯 𝘳𝘢𝘪𝘴𝘦𝘥 𝘦𝘪𝘵𝘩𝘦𝘳 𝘸𝘪𝘵𝘩𝘪𝘯 𝘰𝘳 𝘰𝘶𝘵𝘴𝘪𝘥𝘦 𝘉𝘰𝘵𝘴𝘸𝘢𝘯𝘢 𝘪𝘯 𝘵𝘩𝘦 𝘮𝘢𝘯𝘯𝘦𝘳 𝘢𝘯𝘥 𝘤𝘰𝘯𝘥𝘪𝘵𝘪𝘰𝘯𝘴 𝘩𝘦 𝘰𝘳 𝘴𝘩𝘦 𝘮𝘢𝘺 𝘵𝘩𝘪𝘯𝘬 𝘧𝘪𝘵 𝘣𝘺':
(𝙖) 𝘈 𝘴𝘵𝘢𝘵𝘶𝘵𝘰𝘳𝘺 𝘣𝘰𝘥𝘺 𝘸𝘩𝘰𝘭𝘭𝘺 𝘰𝘸𝘯𝘦𝘥 𝘣𝘺 𝘎𝘰𝘷𝘦𝘳𝘯𝘮𝘦𝘯𝘵;
(𝙗) 𝘈 𝘱𝘳𝘪𝘷𝘢𝘵𝘦 𝘦𝘯𝘵𝘪𝘵𝘺 𝘪𝘯 𝘸𝘩𝘪𝘤𝘩 𝘵𝘩𝘦 𝘎𝘰𝘷𝘦𝘳𝘯𝘮𝘦𝘯𝘵 𝘪𝘴 𝘢 𝘴𝘩𝘢𝘳𝘦𝘩𝘰𝘭𝘥𝘦𝘳;
(𝙘) 𝘈 𝘓𝘰𝘤𝘢𝘭 𝘈𝘶𝘵𝘩𝘰𝘳𝘪𝘵𝘺;
(𝙙) 𝘰𝘳 𝘈𝘯𝘺 𝘱𝘦𝘳𝘴𝘰𝘯/ 𝘦𝘯𝘵𝘪 𝘢𝘶𝘵𝘩𝘰𝘳𝘪𝘵𝘺 𝘰𝘳 𝘣𝘰𝘥𝘺 𝘪𝘯 𝘳𝘦𝘴𝘱𝘦𝘤𝘵 𝘰𝘧 𝘸𝘩𝘪𝘤𝘩 𝘪𝘵 𝘸𝘰𝘶𝘭𝘥 𝘣𝘦 𝘪𝘯 𝘵𝘩𝘦 𝘱𝘶𝘣𝘭𝘪𝘤 𝘪𝘯𝘵𝘦𝘳𝘦𝘴𝘵 𝘵𝘰 𝘴𝘰 𝘨𝘶𝘢𝘳𝘢𝘯𝘵𝘦𝘦 𝘵𝘩𝘦 𝘭𝘰𝘢𝘯... "
𝟯. 𝗠𝗿. 𝗦𝗽𝗲𝗮𝗸𝗲𝗿, Section 23 of the PFM Act, further explains circumstances under which such a guarantee may be granted, the obligations of the beneficiary of the guarantee, and those of the guarantor under the arrangement and related issues.
𝟰. 𝗠𝗿. 𝗦𝗽𝗲𝗮𝗸𝗲𝗿, Okavango Diamond Company (Proprietary) Limited, or ODC, is a rough diamond marketing company wholly owned by the Government of Botswana. It was established in 2012, with a primary mandate of providing Government with a direct route-to market for its rough diamond allocation from Debswana. Additionally, ODC is mandated to provide Government with key insight into global market prices and trends which are crucial for decision-making, all part of a broader strategy to transform Botswana into a leading rough sourcing destination.
𝟱. 𝗠𝗿. 𝗦𝗽𝗲𝗮𝗸𝗲𝗿, at inception, ODC was entitled to purchase, sell and market 12 percent of Debswana's total run-of-mine production to the global market. This allocation then increased to 15 percent, and ultimately reached 25 percent in 2020.
In order to be in a position to purchase its entitlement of Debswana's production, ODC had negotiated a 10-year revolving working capital facility with Standard Chartered Bank Botswana Limited, with a capital limit of USD140 million. The facility, which was arranged in October 2013 and has since matured back in October 2023, was secured by a USDl00 million guarantee from the Government of Botswana. That guarantee was, however, never called upon but was beneficial in supporting ODC to secure favourable pricing terms during negotiations with Standard Chartered Bank for the credit facility.
𝟲. 𝗠𝗿. 𝗦𝗽𝗲𝗮𝗸𝗲𝗿, following the conclusion of the landmark new 10-year Sales Agreement for Debswana's rough diamond production through to 2033, and the 25-year extension of the Debswana mining licences through to 2054, ODC's entitlement to Debswana's rough supply is poised to increase to 30 percent in the short term, and thereafter gradually increase to reach 50 percent by 2033.
𝟳. 𝗠𝗿. 𝗦𝗽𝗲𝗮𝗸𝗲𝗿, notwithstanding that ODC has efficiently managed its operations and built up a strong balance sheet over time in order to independently secure funding in the open market, the prevailing credit market conditions are rather adverse. As a result, ODC has since requested for an extension on the Government guarantee by a further ten (10) years, as well as raising of the guarantee amount from the USD100 million on the previous working capital facility, to USD175 million. Cabinet has approved this ODC's request, through 𝗣𝗿𝗲𝘀𝗶𝗱𝗲𝗻𝘁𝗶𝗮𝗹 𝗗𝗶𝗿𝗲𝗰𝘁𝗶𝘃𝗲 𝗖𝗔𝗕 𝟯𝟮/ 𝟮𝟬𝟮𝟯, which will crucially support ODC's increased entitlement of 30 percent to Debswana's rough supply, as well as assist the company in negotiating favourable rates in the local market on a new working capital facility.
𝟴. 𝗠𝗿. 𝗦𝗽𝗲𝗮𝗸𝗲𝗿, following the maturity of the USD140 million working capital facility in 2023, ODC has appointed Standard Chartered Bank to structure and coordinated a new USD300 million syndicated revolving working capital facility.
This will be a one-year facility to be extended annually at the option of Lenders. In line with the condition stipulated in the 𝗣𝗿𝗲𝘀𝗶𝗱𝗲𝗻𝘁𝗶𝗮𝗹 𝗗𝗶𝗿𝗲𝗰𝘁𝗶𝘃𝗲 𝗖𝗔𝗕 𝟯𝟮/ 𝟮𝟬𝟮𝟯, the facility was opened to all domestic financial institutions regulated by Bank of Botswana. Market engagements have been concluded with all Botswana banks, including Botswana Savings Bank, BBS Bank Limited, as well as National Development Bank. Each bank participating in the syndicate, has shared their indicative appetite (minimum and maximum hold range) on the facility, as well as pricing and fee structures. However, due to the confidential nature of the syndicated agreement, these details cannot be disclosed.
𝟵. 𝗠𝗿. 𝗦𝗽𝗲𝗮𝗸𝗲𝗿, in order to ensure equitable treatment and protection for all the participating banks, a Special Purpose Vehicle (SPV) will be established to coordinate and manage the facility. All security (lien over inventories, receivables, collection account, insurance policies and the guarantee) will be managed within the SPV and allocated per prorated limits.
𝟭𝟬. 𝗠𝗿. 𝗦𝗽𝗲𝗮𝗸𝗲𝗿, it is important to note that failure to have the Government Guarantee approved by the Winter Meeting of Parliament will be detrimental to ODC's operations for the following reasons:
(𝙞) ODC is currently only able to afford purchases up to US$70 million, using its own cash reserves. The proposed US$300 million credit facility, backed by a US$175 million Government guarantee would support larger volumes of diamonds that ODC can purchase from Diamond Trading Company Botswana at each cycle.
(𝙞𝙞) It may have a negative impact on investor sentiment.
Arrangement of this financing syndication has been launched with strict timelines, and any deviations from these could create market uncertainty, as well as possibly raise pricing for the transaction.
(𝙞𝙞𝙞) Recovery of the diamond industry is expected to start from quarter 4 of 2024, and be sustained into coming years.
Projections indicate that, if the guarantee was to be granted, total public debt including guarantees would reach 24.2 percent of GDP by the end of 2024/2025 and thereafter remain with the statutory limit over the medium-term. Domestic debt including guarantees, would consequently also increase, to 15.3 percent of GDP by the end of 2024/2025, and also thereafter remain within the statutory limit over the medium-term period.
𝟭𝟭. 𝗠𝗿. 𝗦𝗽𝗲𝗮𝗸𝗲𝗿, this concludes my presentation. I, therefore, beg to move that this Honourable House resolves that a 10-year Government guarantee to ODC amounting to USD175 million be approved.
I thank you, 𝗠𝗿. 𝗦𝗽𝗲𝗮𝗸𝗲𝗿.