Category Archives: South Africa

Why African firms list at London

“Fundraising via small cap IPO” was the title of a webinar last week, that was hosted by Jonathan Nelson of HF Capital and which featured Gokul Mani and Ope Sule, both of the London Stock Exchange (LSE).

In nine months of 2021, London has had 81 IPO deals that have raised $20 billion. It is one of the top 3 global exchanges after the USA and Hong Kong, but London is the largest international market (of the 2,000 listed firms, 700 are not from the UK), while the others mainly comprise local firms. 

There are 160 African firms on the LSE and these include Airtel Africa,  Vivo, Jumia and Acorn.

Why list at London?

  • Firms will get the right price: With $100 million assets, a company can raise $35-40 million
  • A listing makes it easier to raise more money; when a company is private it can spend 6 months raising money. But once listed on the LSE, it can raise $30-40 million overnight 
  • 30% of LSE firms are listed on 2 or 3 other exchanges.  London partners with Nigeria and South Africa exchanges so if a company lists in London, it doesn’t have to provide too much additional information to list on South Africa with a bit more in Nigeria.  
  • To list at London, a company should be valued at about $50-70 million for the Aim board and $150-200 million for the Main one. 
  • Compare this to the US where a company needs to aim for a $5 billion valuation. If this is lower than $3-4 billion, the US is not for them, but London will give that investor appetite. 
  • London is primarily institutional and by fundraising there, companies are dealing with professional money managers while China is mainly retail (45-50%)  as well as the US (30-45%), London retail is 10-12%.
  • London can value technology firms, unlike (African) local markets – and most of the technology firms raising money this year are loss-making, but the market can still price them.

What firms will need to do? 

  • It costs a lot to raise money in terms of the time to meet investors and do roadshows. 
  • To raise $10-20 million, the fundraising cost is 5-6%, but for a larger target of $100 million, it would be 2.5-3.5%. 
  • Firms are advised to hire a public relations (PR) as well as investor relations (IR) firms that are based in London – spending $200,000 a year for these.

KQ & DRC

This was a significant week for Kenya Airways and its regional flight partnerships. Their JamboJet subsidiary started flights to Goma, in the eastern part of the Democratic Republic of Congo (DRC). JamboJet also resumed flights to Lamu on Kenya’s coast after four years.

Then Kenya Airways handed over two Embraer 190’s in a wet-lease to state-owned Congo Airways. This means it will be operated by Kenya Airways staff. The airline also launched a direct cargo flight between Lubumbashi and Johannesburg South Africa

In November 2020, KQ launched a Southern Africa cargo service, operating freighter flights from Johannesburg to Dar es Salaam (Tanzania), Harare (Zimbabwe) Lilongwe (Malawi) Lusaka (Zambia) and Maputo (Mozambique) Previously all freighter flights would have to operate through Nairobi.

The cargo business is still low but its significance will grow as passengers traffic is not expected to pick up for at least another year. Now Lubumbashi has been added to the KQ Southern Africa cargo network.

Absa AFM Index shows African countries improve in investor readiness

The 2019 Africa Financial Markets Index report that was released in October, found that several countries had closed gaps to perennial leader South Africa, improving on several measures such as financial transparency, local investor capacity, legal protection and macroeconomic opportunity.

Showing just how much African countries have made progress, while only six had scored better than 50 (out of the maximum 100) in the first index in 2017, last year ten countries did that, and in 2019, thirteen countries scored better than 50 points.

The ranking of countries in the Absa 2019 Africa Financial Markets Index and some of the market/investor activities highlighted in the report include:

1 South Africa (and also number 1 in the last index): Is the top country in 5 pillars after it regained the lead from Kenya on the foreign exchange one. The JSE also launched a Nasdaq clearing platform.

2 (4) Mauritius: Has diversified its economy from sugar and textiles to tourism and financial services. It leads the continent in pension assets under management of $4,331 per capita. It has also established a derivatives trading platform.

3 (3)Kenya: More detail on Kenya’s ranking and investor initiatives here.

4 (6) Namibia: Bank Windhoek issued a green bond in the year. One concern is that the country lacks sufficient financial markets experts.

5 (2) Botswana: The country’s exchange has large market capitalization, but this is mostly due to dual-listed mining companies that have low trading volumes. They also formed a financial stability council to coordinate different regulators and plan to launch a mobile phone bond product like Kenya’s M-Akiba.

6 (5) Nigeria: Showed big improvement as they have liberalized their exchange rate and built up reserves. Pension funds were freed up to invest in infrastructure, bond, and Sukuk funds.

7 (15) Tanzania: Created a tax ombudsman and also repealed an amendment that had made it illegal to publish statistics that were not approved by the Government.

8 (8) Zambia: Improved budget reporting. But reserves dropped due to high interest payments on external debt as mining production has declined.

9 (11) Rwanda: Share of exports grew, and an agreement was reached with the IMF to accelerate urbanization and financial markets.

10 (10) Uganda: Market trading activity dropped from $25 million to  $11 million and one of the largest stockbrokers opted not to renew their operating license.

Others were:

11 (16) Egypt: Topped the pillar of macro-economic opportunity due to export gains and declines in non-performing loans. Moody’s also upgraded their banking system ratings.

12 (9) Morocco: Now publishes monetary policy announcements and data releases. Has an active financial market but limited availability of financial products. It plans to launch an agricultural commodities exchange.

13 (7) Ghana: Is seeking to cap foreign holdings of government debt. The Bank of Ghana merged small banks and revoked licenses of others that did not meet minimum capital requirements.

16 (13) Ivory Coast: Enabled more-accessible budget reporting and plans to launch an agricultural commodities exchange for 2020.

20 (20) Ethiopia: Announced plans to launch a stock exchange for 2020, with aims to have significant privatization events including the listing of telecommunication companies. Local banks are also adopting international financial reporting standards. But the requirement that their pension funds can only invest in government securities is considered an impediment.

Also on the index are Seychelles (ranked 14), Mozambique (15), Angola (17), Senegal (18) and Cameroon (19). The 2019 AFM Index report was produced by the Absa Bank Group and the Official Monetary and Financial Institutions Forum (OMFIF) and it can be downloaded here.

Multichoice Group Spinoff and Listing

On February 27 Multichoice listed on the Johannesburg Stock Exchange, in a spinoff move by its parent company Naspers. The listing is expected to unlock value for Naspers shareholders and create an empowered African entertainment pay-TV business with strong financials and no debt to deliver returns for its shareholders.

The new company called Multichoice Group includes MultiChoice South Africa, MultiChoice Africa, Showmax and Irdeto a digital security company. It serves 13.5 million households around Africa and had a trading profit of R6.1 billion last year. Naspers itself has $20 billion revenue, and owns 31.2% of Chinese giant Tencent and large stakes in other e-commerce firms in Russia (Mail.Ru) and India (MakeMyTrip).

In 2006 Naspers facilitated the sale of a 20% stake in Multichoice South Africa to investors in a black economic empowerment program initiative and about 90,000 individual and companies bought the shares through a vehicle called Phuthuma Nathi (PN) that now owns 25% of Multichoice South Africa.  Over the years, PN’s shareholders are estimated to have got 17 times return on their investment through capital growth (from R10 per share to R130) and dividend payments.

In the listing, an additional 5% of Multichoice South Africa will go to Phuthuma Nathi at no cost and thereafter, Naspers will facilitate the exchange of a quarter of PN’s shareholding in Multichoice SA for shares in Multichoice Group.
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Similarly, in Kenya, the Group has implemented a transfer of 30% of the shares held by the Group in GOtv Kenya to a qualifying local nominee (whilst maintaining the beneficial interest in the stake) in order to comply with local ownership requirements.

Ten years ago, Multichoice’s Dstv regained the English premier league soccer rights they had briefly lost to GTV.

Societe Generale and Absa partner to grow across Africa

Societe Generale (SocGen) of France and Absa have entered two deals; one for a Pan-African wholesale banking partnership and another for the sale of selected SocGen’s businesses in South Africa to Absa. 

SocGen bills itself as the number one bank in French-speaking Sub-Saharan Africa with a presence in 19 countries, mainly in Western and Northern Africa, while Absa is in 12 countries mainly in Southern and Eastern Africa, as a rebrand of Barclays across Africa.

The partnership will be a non-exclusive one that will allow the banks to sell each other’s products and services. It will also extend to providing dedicated services to Chinese multinational businesses, leveraging on SocGen’s presence in China.

The second agreement relates to the sale by SocGen of its custody, trustee and derivatives clearing services in South Africa to Absa and will result in the transfer of clients, employees, and IT services. The deal enables Absa to re-enter the custody and trustee business. It does not include SocGen’s securities lending services which will end in March 2019 leaving SocGen in South Africa to operate corporate and investment banking.

Barclays is the fourth largest bank in Kenya while Societe General has a Kenya Representative Office in Nairobi. SocGen’s digital banking journey includes ventures in mortgages, insurance technology, and auto leasing. Another is  YUP, a mobile money wallet launched in 2017 after acquiring a stake in TagPay, that is now in four African countries and has 300,000 clients.