Domestic IPOs by African issuers increases for second year running - Baker McKenzie research
Capital raised in domestic listings by African issuers increased for the second year in a row, according to research in the latest Global Cross-Border Index from Baker McKenzie. While there were fewer domestic listings in Africa in 2017, domestic capital raising increased by 19.5% year-on-year to USD 1.4 billion.
There were seven domestic Initial Public Offerings (IPOs) in Africa in 2017, compared to 15 in 2016. However, the value of domestic IPOs was higher in 2017 – USD 1,379 million - compared to USD 1,154 million in 2016.
There were two cross-border IPOS in Africa in 2017, both by Swiss Issuers. Aspire Global Plc listed on the Nasdaq First North Exchange, raising USD 38.96 million and Rainbow Rare Earths Ltd raised USD 8.22 million when it listed on the London Stock Exchange in 2017. There were also two cross-border IPOS in Africa in 2016. In 2016, USD 246 million was raised through cross-border IPOs, compared to USD 47 million in 2017.
“Africa’s uneven FDI picture reflects the global uncertainty, but local challenges aggravate the unevenness. IPO activity is highly dependent on political and economic instability, particularly in the key markets of South Africa, Kenya, and Nigeria. In 2016, more FDI flowed to the hub economies, with new East and West Africa clusters emerging. This trend also dominated in 2017, and while South Africa has the most attractive exchange for issuances, the new clusters are shaping up to drive the IPO landscape going forward,” said Wildu du Plessis, Partner and Head of Africa at Baker McKenzie in Johannesburg.
“African economies have also engaged in repricing. The most tangible manifestation of this repricing has been rapid fall in some currencies as export revenues slid. This has created shortages of foreign exchange. The currency slide, has in turn, led to an increase in consumer prices, which impacted the retail, logistics, and other consumer-oriented sectors. Currency falls, however, can also create longer-term opportunities, because assets become cheaper," he said.
Du Plessis noted further that as more governments across the continent engaged in the privatisation of state-owned entities and listings in the coming years, regulatory frameworks would be developed that would inspire market confidence in African bourses.
“In addition, removing barriers to cross-border investments through regional integration, would harmonise regulations and increase cross-border investments. This would provide more choices of financial products for investors in future,” he noted.
Globally, IPO volumes in 2017 reached the highest level since 2007. Momentum built through the year with an acceleration in both volume and value of capital raised in the second half. In total, 1,694 companies raised USD 206.6 billion from IPOs, a jump of around a third in both value and volume on 2016. Both cross-border and domestic activity grew.
Cross-border deals jumped by 60% in volume, growing in all regions, including Latin America, which saw its first cross-border listing in 10 years. However, growth in cross-border capital was once again outpaced by growth in domestic capital raising, which rose 55% in value and this resulted in a slight decline in our Global Cross-Border Index.
“The IPO market in 2017 has put in its best performance in 10 years," said Koen Vanhaerents, Global Head of Capital Markets at Baker McKenzie. "A more stable political environment in some of the key markets, combined with strong economic growth, has boosted both the number of listings and the volume of capital raised.”
"With key risks to the global economic outlook easing, we expect IPOs to hit a new post-financial crisis high in 2018," he added. "We recently forecast that domestic IPO activity will continue to rise, to a peak of over USD 220 billion in 2018."