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Buoyant MVAF joins big guns in property market

Publishing Date : 24 September, 2018

Author : TSAONE SEGAETSHO

Motor Vehicle Accident Fund (MVAF) finally got approval to purchase shares in a company that owns the lucrative Airport Junction Mall-one of the Fund’s biggest investment this year, after months of waiting,

MVAF acquired 24.85 percent shareholding in Feune Pty Ltd from Exrod Pty Ltd. Feune owns Airport Junction Mall meaning the Fund now owns the plush mall which is adjacent to; the A1 road which goes to the north and the Airport road heading to Sir Seretse Khama International Airport. The MVAF-Exrod merger which was under the keen perusal of the Competition Authority finally got approved by the antitrust body last week.


The antitrust body said it has determined through the analysis of the facts of the merger that, “the proposed transaction is not likely to result in the prevention or substantial lessening of competition, or endanger the continuity of the services offered in the markets under consideration. The market structure in the relevant market will not be altered, and as such this transaction does not raise any competition concerns. In addition, there are no public interest concerns that could arise as a result of the proposed transaction.”


MVAF provides universal compensation to people affected by road accidents, hence does not sell any products or services for a fee.  In its latest financial statement released last week, MVAF recorded that total assets increased from P3.82 billion in 2016 to P3.83 billion in 2017.
On the back of increases in non-current assets from P3.0 billion to P3.1 billion while current assets reduced from P808.7 million to P727.2 million. Also, according to the Fund financial results, the reserves reduced from P2.7 billion in 2016 to P2.6 billion in 2017 while non-current liabilities increased from P794.6 million in 2016 to P999.9 million in 2017.


Current liabilities on the other hand reduced from P313.0 million in 2016 to P247.2 million in 2017 according to the fund’s financials. The revenue streams of the Fund are the fuel levy, third party cover, investment income and Government subvention.  The fuel levy rate is 5 thebe per litre of petroleum product sold. The Fuel levy revenue comprises fuel levy charged to fuel importers into Botswana. This levy income is accounted for on an accrual basis and its rate is 5 thebe per litre.


 According to the latest financial results, the net fuel levy income increased by 3.6% from P50.1million in 2016 to P52.0 million in 2017. In its bid to increase its revenues, MVAF has perpetually advocated for the increase of the fuel levy rate for years. According to MVAF CEO Micheal Tlhagwane in the Fund’s latest financial results, the accident compensation fund is planning  “engagement with government for the restoration of fuel levy to its previous rate of 9.5 thebe per litre are ongoing as the Fund now heavily relies investment income to meet the costs of claims and operating costs, which poses serious financial risks.”

 
Tlhagwane said the Fund will also initiate a limited legislative review to ensure that both the MVA Fund Act of 2007 and the MVA Fund Regulations of 2008 are relevant to the current operating environment geared towards improving administration of claims. The other revenue source, Third Party cover, comprises of premiums charged on foreign registered vehicles which enter the country.  The Third Party Cover decreased by P2 million from P10 million in 2016 to P8 million in 2017.  


The investment income comprises of the of the following: (a)Interest income which is recognized on a time proportion basis, taking account of the principal outstanding and the effective rate over the period to maturity, when it is determined that such income will accrue to the Fund. (b)Dividends are recognised when the right to receive payment is established. These relate to investments in local and offshore investments.


Lastly, the other part of investment income is (c) rental income revenue includes gross rental income, service charges and management charges from properties and income from property trading. Rental income is accrued on a straight-line basis over the contractual periods as and when the Fund becomes entitled to the income.  Even though the investment income has decreased by P78 million from being P94 million in 2016 to P16 million in the current year, the Airport Junction Mall will directly falls in this portfolio.


The latest MVAF investment venture, Airport Junction mall, will be buoyed by currently undergoing extension where there will be 30 shops and 488 parking area according to information reaching this publication.  There are currently 74 tenants, 51 145m² of two retail floors, 104 stores and 2378 parking bays. Since its inception Airport Junction has always been a money spinning venture according to property experts and investors with a space of 41 445m².


Property expert Sethebe Manake said for anyone investing in property; whether an individual or a company, it will depend on how deep the pocket is because currently there are lots of risks involved in the property venture. She said she hopes anyone in the property venture knows what they are doing given the fact that household utility or the cost of living is currently higher-cushion needs to be exercised.


With a huge decline in investment income, MVAF hopes that buying Airport Junction mall will boosts its investment in property.  According to the MVAF the Fund’s Investment Portfolio was valued at P3.73 billion as at 31st December 2017, recording a marginal increase of P10.0 million from P3.72 billion reported as at 31st December 2016. According to MVAF CEO, the year 2017 was another challenging year in the history of MVA Fund, as for a second successive year, the Fund recorded a high total comprehensive loss owing to depressed primary sources of income like the fuel levy, high unrealized offshore foreign exchange losses and high claims provisions.


However on a positive, the Fund received 2 934 claims during 2017, representing a decline of 3% when compared to 3 019 claims received in 2016 and the decline was attributable to reduction in serious injuries. But the Fund failed to settle claims well as the settled claims were 2 340 in 2017 unlike 2 568 claims settled in 2016.According to MVAF chairman Abraham Botes, the Fund was affected negatively by unrealized foreign exchange losses on offshore investments as the Botswana Pula continued to strengthen against the United States Dollar.


The Airport Junction Mall will join others in MVAF property portfolio which consists of the MVA Fund Head Office building, residential property investments in Gaborone and Francistown as well as retail partnership properties in Palapye, Francistown and Maun.  According to MVAF, the portfolio was valued at P155.5 million as at 31st December 2017, recording an increase of P22.0 million from P133.5 million recorded in 31st December 2016. “The overall impact of the negative performance by the local equities as well as the decrease in money market instruments affected the asset growth despite the strong run by the offshore investments,” said the MVAF financial statement.

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