Government extends P2.3 billion loan guarantee to facilitate financing
The Government has sanctioned a loan guarantee of $175 million (approximately P2.3 billion) to aid Okavango Diamond Company (ODC) in securing $300 million (P4 billion) in credit from commercial banks, aiming to bolster the company’s business growth.
Finance Minister Peggy Serame informed parliament last week that ODC, a wholly Botswana government-owned rough diamond marketing entity, requires substantial funding to acquire more diamonds from Debswana. Established in 2012, ODC’s primary mission is to provide the Botswana government with a direct marketing route for its rough diamond allocation from Debswana. Additionally, ODC is tasked with offering the government crucial insights into global market prices and trends. Initially, ODC was authorized to purchase, sell, and market 12 percent of Debswana’s total run-of-mine production to the global market. This allocation subsequently increased to 15 percent and ultimately reached 25 percent in 2020. Following the conclusion of a landmark new 10-year sales agreement for Debswana’s rough diamond production through 2033, and the 25-year extension of Debswana’s mining licenses through 2054, ODC’s entitlement to Debswana’s rough supply is set to increase to 30 percent in the short term, eventually reaching 50 percent by 2033, according to the Finance Minister.
To purchase its entitled share of Debswana’s production, ODC requires $300 million in credit from commercial banks. Recently, the company requested a loan guarantee from the government. “Cabinet has approved ODC’s request through Presidential Directive CAB 32/2023, which will critically support ODC’s increased entitlement of 30 percent to Debswana’s rough supply, as well as assist the company in negotiating favorable rates in the local market on a new working capital facility,” stated the Finance Minister.
The Minister emphasized that securing the government guarantee by the Winter meeting of parliament was essential to help ODC obtain funding for its operations, ensuring the company has sufficient capital to purchase more diamonds and capitalize on the anticipated recovery of the diamond markets from the fourth quarter of 2024. “Currently, ODC can only afford purchases up to $70 million using its own cash reserves. The proposed $300 million credit facility, backed by a $175 million government guarantee, would enable ODC to acquire larger volumes of diamonds from the Diamond Trading Company Botswana during each cycle,” Serame elaborated.
Serame further explained that the government, through the guarantee, commits to repaying the principal sum, including interest and other charges on loans raised by ODC in the event the company becomes insolvent. The Public Finance Management Act permits the government to provide such a guarantee.
ODC’s diamond sales are conducted 10 times a year, open to participation from all local and international buyers who have successfully completed ODC’s registration process. The company sells diamonds via an online auction following customer viewings of the Sales Lots, which take place in Gaborone.
