Capital markets both weak and strong
JOHANNESBURG, South Africa, 01 February, – In line with global trends, 2015 was a challenging year for African capital markets in the wake of market volatility and the emergence of renewed global economic uncertainty in the latter part of the year. The first half, however, resulted in the highest levels of both equity capital markets transactions and proceeds raised in the past five years.
PwC released its 2015 Africa Capital Markets Watch earlier this week analysing equity and debt capital market transactions that took place between 2011 and 2015 on exchanges throughout Africa, as well as transactions by African companies on international exchanges.
Nicholas Ganz, PwC Africa Capital Markets Leader, said “At 31 December 2015, African exchanges had a market capitalisation of about US$1 trillion, with 23% of this value residing on exchanges outside of South Africa. Though statistics can not be interpreted in isolation, certain metrics commonly used to analyse global market performance, such as the market capitalisation-to-GDP ratio, suggest that untapped value remains in Africa’s capital markets.”
2015 showed a steady overall increase in IPOs of 12% in terms of transaction volume and 17% in terms of US dollar denominated value, as compared to 2014. However, 72% of 2015 IPO value and 54% of IPO volume was carried out during the first half of the year, reflective of the relatively higher levels of consumer confidence as compared to the second half of 2015.
In 2015, capital raised from IPOs by companies on the JSE in US dollar terms decreased by 11% compared to 2014, largely due to the weakening of the South African rand during the year. Noteworthy is that the rand value of IPO capital raised on the JSE in 2015 increased by 11% over 2014 levels. Capital raised from IPOs by companies on other African exchanges in US dollar terms increased slightly by 3% compared to 2014. In terms of volume, the JSE saw a 33% increase in the number of IPOs as compared to 2014, and listings on the JSE’s AltX more than doubled.
Over the past five years, the JSE has led African exchanges in terms of IPO transactions and capital raised, at US$2.7 billion. In second place by number of IPOs was the Bourse de Tunis with 23 issuances, while in second place by capital raised was the Egyptian Exchange with US$861 million. In third place in terms of volume was the Casablanca Stock Exchange with 7 issuances, and third by capital raised was the Nigerian Stock Exchange with US$751 million.
Since 2011, capital raised from IPOs by companies on the JSE represented 45% of the total African IPO capital and 33% of the total transaction volume. Coenraad Richardson, PwC South Africa Capital Markets Partner, said: “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.”
On a sector basis, the financial services sector continued to dominate the African IPO market during 2015 at 46% of total value and 50% of total volume, followed by industrial, health care and consumer goods sectors in terms of value.
Over the past five years, there have been 336 FOs raising US$35.2 billion by African companies on both African and international exchanges. “Though the growth rate of 2015 FO activity did not match that of the prior year, the trend remained distinctively positive,” said Andrew Del Boccio, PwC Associate Director, Capital Markets, South Africa. During 2015, FO activity increased by 20% in terms of transaction volume and by 13% in terms of US dollar value as compared to 2014.
In 2015, capital raised from FOs by companies on the JSE, specifically, increased by 17% (in US dollar terms), whereas proceeds from FOs on other African exchanges decreased by 30% from US$1.2 billion in 2014 to US$827 million.
African DCM activity has declined since its peak in 2013. Over the past five years, 489 debt transactions took place on African debt markets or, more commonly, by African companies on international markets, raising US$110.2 billion, of which 72% was US dollar-denominated. The average of proceeds raised in 2015 was US$411 millio per transaction, US$85 million higher than 2014’s average of US$326 million and 83% higher than the average per transaction over the past five years of US$225 million. Darrell McGraw, PwC Nigeria Capital Markets Partner, said: “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. 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 US dollar denominated bonds is likely to taper.”
Richardson commented “Growth across the African continent will require continued investment in various sectors including infrastructure, agriculture, financial services, and telecommunications, alongside other industries more traditionally associated with Africa. In 2015, the capital markets reflected this continued need for investment and continued appetite from investors with key portfolio allocations targeted toward emerging and frontier markets.”
“Though this upward trend in activity has been observed over the trailing five-year period, we recognise that uncertainties in the market and economic trends may indicate a more challenging 2016 ahead.”