Mixed bag in the state of African capital markets over past decade

Columnists

Mixed bag in the state of African capital markets over past decade

Tuesday, April 21, 2020 21:58

By RUFUS MWANYASI

Companies across the globe are putting planned initial public offers (IPOs) on ice as the spread of the coronavirus rocks equity markets and dampens appetite for new investments.

It is obvious that a prolonged slide in shares would not be helpful for this market. But as the IPO world takes a pause, today we look at Africa's public offers markets over the past decade as reviewed by PwC in its latest report: “Africa Capital Markets Watch 2019.”

First some boring explanation: ECM stands for equity capital markets, DCM for debt capital markets, FOs for further offers, PE for private equity and M&A for mergers and acquisitions.

That aside, here are some key report highlights: Over the 2010 to 2019 period, there were 215 IPOs by African companies on both African and international exchanges, raising Sh1.7 trillion. Highest number of IPOs was recorded in 2015, with 32 IPOs, while the largest proceeds were raised in 2017 at Sh300 billion.

A total of 712 FO deals were recorded on African exchanges and by African companies on international exchanges with a total of Sh7 trillion raised.

The Sh290 billion Barclays Africa Group FO deal in 2017 was the largest such deal recorded over the period.

On cross-border ECM deals (African companies listing on any African exchange, which may also include a dual listing on their domestic exchange), there were 30 recorded transactions raising a total of Sh260 billion in the past 10 years.

This cross-border activity within Africa remains persistently low, constituting just three per cent of African ECM activity within this period.

On outbound ECM deals (African companies listing on an exchange outside of Africa), there were 141 transactions over the past decade, with London the preferred destination for African issuers; 101 or 72 per cent of outbound transactions involved on the LSE, rising Sh320 billion.

Of the 90 inbound deals (non-African entities listing on an African exchanges) over the past 10 years, which raised total proceeds of Sh1 trillion, the JSE accounted for 80 per cent of volume and 89 per cent of the value.

On DCM, African issuers raised Sh24.5 trillion of non-local currency debt from 759 issues over the past 10 years, with almost 50 percent of that value raised in the past five years. In view of the highlights, here are some quick thoughts on the same. First, the decline in IPO activity (also given the weak economic outlook) sets-up two scenarios – an increasing likelihood of PE and M&A activity in the coming months.

Secondly, Johannesburg Stock Exchange's (JSE) IPO dominance - it accounted for 55 per cent of total IPO proceeds raised in the 10- year period means most African stock exchanges are third grade markets at best. They are better off amalgamated.

Thirdly, African corporate international debt issuance is a growth market to watch. The segment raised Sh5.4 trillion in non-local currency debt in 158 transactions, representing a fifth of the grand total in the same period.

Lastly, low preference for dual-listing indicates an aversion for dual-listing costs.

Possibly, the reason why cross-border ECM activity within Africa remains persistently low, constituting just three per cent of African ECM activity over the period.

In summary, Africa capital markets have come a mighty long way. Going forward, despite the on-going market uncertainty, the pipeline of IPO-ready companies is expected to remain healthy.

Mr Mwanyasi is MD, Canaan Capital Limited