Companies could use stock market to recover from Covid-19 disruption

Kabelo Adamson

The World Bank has projected that Sub-Saharan Africa could experience its first recession in 25 years due to the Coronavirus pandemic.

The negative projection is expected to have a damaging effect on the performance and competitiveness of most companies, with the impact varying across industries.

One of the major problems businesses are likely to face is a sizeable reduction in earnings, as most enterprises in the region have shut down in line with Extreme Social Distancing policies.

It is anticipated that the disruption will change the business world’s competitive landscape.

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To this end, Botswana Stock Exchange Limited (BSEL) Chief Executive Officer (CEO), Thapelo Tsheole encouraged companies to utilize the stock exchange in the aftermath of the pandemic.

“At company level, access to capital is very critical in any business cycle,” explained Tsheole, adding there are several ways entities can make use of the stock exchange to recover from the effects of Coronavirus.

Firstly, companies can issue and list shares through an initial public offering (IPOs) or private placement to raise capital for business operations.

“As a pandemic is systemic, it is highly likely that valuations will get depressed during the pandemic whereas the fundamentals of a business could be viewed differently by existing and potential investors,” said Tsheole, noting this often presents opportunities to both seekers and suppliers of capital.

“The timing could prove beneficial in terms of optimizing the capital structure of the company by accessing public funds through the stock exchange,” continued the CEO.

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On the BSEL, companies could use available boards to list their shares such as Main Board, Venture Capital Board and the Tshipidi Board, which caters for Small and Medium Enterprises (SMEs).

Alternatively, instead of issuing shares, companies could issue and list bonds on the stock market.

“A bond is a debt instrument acknowledging an obligation of indebtedness to a lender by the issuer of the bond for a specified period of time and with a predetermined interest rate or coupon rate,” highlighted Tsheole.

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He revealed bonds are generally deemed less risky in comparison to shares because of the contractual obligations of the borrower to the lender as regards to payment of interest and repayment of principal, among other things.

Tsheole says enterprises could also use the platform to enhance their strategic performances as well as to optimize the capital structure and manage risks.

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