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African capital markets activity declines in 2018 despite large landmark transactions – PwC report

07 March 2019 PwC

PwC released its 2018 African Capital Markets Watch publication today, which analyses equity and debt capital market transactions that took place between 2014 and 2018 on exchanges throughout Africa, as well as transactions by African companies on international exchanges. This report lists all new primary market equity initial public offerings (IPOs) and further offers (FOs) by listed companies, in which capital was raised on Africa’s principal stock markets and market segments. The report also includes IPO and FO activity on international exchanges or non-African companies on African exchanges, on an annual basis.

Overall, African equity capital market (ECM) activity in 2018 declined both in volume and value in the wake of global and local economic and socio-political uncertainty. Despite 2018 starting on a positive note with some landmark transactions, capital markets activity declined year-on-year by 25% in volume and 40% in value.
Andrew Del Boccio, PwC Capital Markets Partner, comments: “The positive trend recorded in 2017 in overall ECM activity, in terms of an increase in volume and value, was not sustained in 2018 despite the strong market indications at the beginning of the year.

“While 2018 started with several landmark IPOs and FOs, as the year progressed, companies retreated from the capital markets or suspended listing plans as uncertainty and volatility increased across Africa and the globe.”

In 2018, $2.2 billion was raised in 17 IPOs compared to $3.1 billion raised via 30 IPOs in 2017, representing a year-on-year decrease of 43% and 27% in volume and value of IPOs, respectively. FO activity also declined both in volume and value; $6.1 billion was raised in 77 FO deals in 2018 compared to $10.7 billion raised in 95 deals in 2017.

The financials sector constituted 53% of the total number of IPOs recorded in 2018, followed by the consumer services sector with 17%. With regard to FO activity, the financials sector dominated both the number of deals and proceeds recorded, contributing 41% and 47%, respectively.

African IPO market

South Africa continues to lead African capital markets activity despite the challenges facing the country’s economy. Since 2014, capital raised from 43 IPOs recorded on the JSE was $5.9 billion, representing 57% of total African IPO capital raised, and 34% in terms of transaction volume.

During 2018, four of the top ten IPOs by proceeds were launched on domestic exchanges in North Africa, three on the Egyptian Exchange (EGX), and one on the Casablanca Stock Exchange. Three were launched on the Johannesburg Stock Exchange (JSE), and one each on the West African Bourse Régionale des Valeurs Mobilières (BRVM), the Ghana Stock Exchange and the Uganda Securities Exchange.

Over the five-year period, the JSE was followed in terms of volume and value of IPO transactions by the EGX with 17 issuances accounting for $1.6 billion. Third place in terms of volume was the Bourse de Tunis with 12 issuances, and third in terms of value was the Nigerian Stock Exchange with $571.1 million.

Over the past five years, there have been 130 IPOs by African companies on both African and international exchanges, raising $10.7 billion, a 14% increase in capital raised over the preceding five-year period, 2013-2017.

African FO market

South African companies also continued to dominate FO activity in 2018, accounting for 63% of FO proceeds and 49% of FO volume. The nature of these FOs reflect a mixed landscape, with a significant portion of funds raised for debt refinancing and expansion strategies.

Over the past five years, there have been 413 FOs by African companies, raising $44.7 billion on both African and international exchanges, a 2% increase in capital raised over the preceding five-year period, 2013-2017.

“This is indicative of the change in the global investment climate and the political uncertainties witnessed across major African economies in 2018,” comments Bolanle Adekoya, Partner in PwC’s Capital Markets practice in Nigeria.

African inbound, outbound, domestic and cross-border activity, 2014-2018

Domestic activity represents the majority of total ECM activity in 2018, with 81% of both total ECM volume and value, driven by significant activity on larger exchanges such as the JSE and EGX.

Cross-border ECM activity experienced a decline in volume and value of 86% and 88% respectively in 2018, compared to 2017, while outbound ECM saw a rebound in terms of proceeds in 2018, after a steady decline recorded over the prior four years, with $225.4 million raised in 11 transactions. While volume in 2018 decreased by 21% compared to 2017, proceeds raised from outbound activity saw a significant increase of 189%.

African debt markets

Our analysis of the African debt markets focuses on non-local currency-denominated corporate debt issued internationally, as well as a brief discussion of sovereign and supranational issuances.

Over the past five years, 437 non-local currency debt transactions have been conducted by African issuers on international markets, raising $140.3 billion, of which 81% was raised in US dollars. As expected, sovereign and supranational issuers accounted for 80% of the total value raised.

Non-local currency debt raised by African countries peaked at a five-year high in 2018 with $26.2 billion raised, indicating strong investor appetite for the relatively high yields still offered by African sovereign issuers.

The year ahead

A weakening economic outlook, significant geopolitical uncertainty and reputational challenges for new entrants brought on by recent listing failures will shape future capital markets sentiment. Accordingly, we can expect the low level of activity seen in the African markets in 2018 to persist in 2019, despite the pipeline of announced and expected local and cross-border listings.

“Now more than ever, with increased scrutiny around the quality of new listing candidates and their ability to meet expectations of investors and regulators post-listing, adequately preparing for an offering is vital,” Del Boccio concludes.

 

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