Opportunity For Investors As African Firms Divest In 2016
In line with global trends, 2015 was a challenging year for African capital markets: the first half had the highest levels of equity capital markets transactions and proceeds in five years, while the second half was rocked by market volatility and global economic uncertainty, Naija247 news reported.
As companies reassess their strategies, 2016 will be pivotal, and may include divesting of non-core businesses, according to AfricanBusinessReview. This will create an opportunity for cash-rich investors.
PwC analyzed equity and debt capital markets transactions between 2011 and 2015 on exchanges throughout Africa, as well as transactions by African companies on international exchanges.
The newly released PwC 2015 Africa Capital Markets Watch report analyses capital-raising activities including initial public offerings (IPOs) and further offers (FOs). Debt capital markets (DCM) transactions analysed include debt funding raised by African companies and public institutions.
We’ve included just a few of the findings here.
African exchanges on Dec. 31, 2015 had a market capitalization of about $1 trillion, with 23 percent of this value residing on exchanges outside of South Africa, according to Nicholas Ganz, PwC Africa capital markets leader. “Though statistics cannot be interpreted in isolation, certain metrics commonly used to analyse global market performance, such as the market capitalization-to-GDP ratio, suggest that untapped value remains in Africa’s capital markets.”
Here’s a brief summary PwC’s findings on Africa-related IPO activity in 2015:
Overall in 2015, $12.7 billionn was raised in 2015 in equity capital markets transactions in Africa.
In 2015 there was a 12-percent increase in IPO transaction volume and 17 percent in U.S. dollar-denominated value compared to 2014. However, 72 percent of 2015 IPO value and 54 percent of IPO volume happened in the first half of 2015, when consumer confidence was higher.
From 2011 to 2015, there were 105 IPOs raising $6.1 billion by African companies on exchanges worldwide and non-African companies on African exchanges. The top 10 African IPOs by value in 2015 were in South Africa, Egypt and Morocco.
In 2015, capital raised in U.S. dollars decreased by 11 percent for IPOs by companies on the Johannesburg Stock Exchange compared to 2014, largely due to the weaker rand. The rand value of IPO capital raised on the JSE in 2015 increased by 11 percent over 2014. The JSE saw a 33-percent increase in the number of IPOs compared to 2014, and listings on the JSE’s AltX more than doubled. AltX is a JSE-owned alternate South African public equity exchange for small and medium-sized companies.
The JSE led African exchanges for IPO transactions and capital raised since 2011, at $2.7 billion. Bourse de Tunis was in second place for IPO transaction volume after the JSE with 23 issuances. The Egyptian Exchange came in second place by capital raised. The Casablanca Stock Exchange was in third place for volume with seven issuances. The Nigerian Stock Exchange was in third place for capital raised with $751 million.
Since 2011, capital raised from IPOs by companies on the JSE represented 45 percent of the total African IPO capital and 33 percent of the total transaction volume.
“The JSE remains a significant anchor of African capital markets activity, with a ranking of second in the world for exchange regulation and a leading global ranking for ease of raising debt and equity capital, according to the World Economic Forum’s Global Competitiveness Report 2015-2016,” said Coenraad Richardson, PwC South Africa capital markets partner.
The financial services sector continued to dominate the African IPO market during 2015 with 46 percent of total value and 50 percent of volume, followed by industrial, health care and consumer goods in terms of value.
African debt markets
African debt capital market activity peaked in 2013 and has gone downhill since then. Over the past five years, 489 debt transactions took place on African debt markets or, more commonly, by African companies on international markets, raising $110.2 billion, of which 72 percent was U.S.-dollar denominated. The average of proceeds raised in 2015 was $411 million per transaction — $85 million higher than the 2014 average.
“Despite challenging economic times which are felt heavily in Nigeria, 2016 will be pivotal as companies will be looking to reassess their strategies, which may include divesting of non-core businesses,” said Darrell McGraw, PwC Nigeria capital markets partner. “This will create an opportunity for cash-rich investors or other corporates to tap into the local debt markets to raise domestic currency bonds. Until relative certainty returns to the currency markets, the popularity of U.S. dollar-denominated bonds is likely to taper.”