The value of African shares issued through initial public offer (IPO) increased by $2 million in 2017 to $1.4 billion from the $1.2 billion issued in 2016. This is against $206.6 billion raised globally by 1,694 companies, according to the latest Global Cross-Border Index from law firm Baker McKenzie.
The index, however, indicated that a number of domestic African IPOs in the review period dropped to seven, from 15 in 2016 and that the number of cross-border Initial Public Offerings (IPOs) in Africa was two apiece each year.
Specifically, African issuers raised a total of $1.4 billion, representing 19.5 percent more capital in 2017 than in 2016, while worldwide, issuers increased IPO activity by 44 percent to $206.6 billion in 1,694 new listings, representing a growth of 31 percent.
Swiss issuers accounted for both cross-border IPOS in Africa in 2017. Aspire Global Plc listed on the Nasdaq First North Exchange, raising $38.96 million, and Rainbow Rare Earths Ltd raised $8.22 million when it listed on the London Stock Exchange. The total they raised was $47million, compared to $246 million raised through cross-border IPOs in 2016.
Wildu du Plessis, partner and head of Africa at Baker McKenzie in Johannesburg, said Africa’s uneven foreign direct investment (FDI) picture reflects the global uncertainty, but local challenges aggravated 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,” he noted.
He said that African economies have also engaged in re-pricing in the review period, which manifested in rapid fall in some currencies as export revenues slid that 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. However, currency falls, can also create longer-term opportunities, because assets become cheaper,” he pointed out.
Du Plessis added that he expected in coming years that more governments across Africa will privatize state-owned entities through listings, which would boost development of regulatory frameworks. In turn, this will inspire market confidence in African bourses. Privatizations can be partial or full.
“In addition, removing barriers to cross-border investments through regional integration would harmonize regulations and increase cross-border investments. This would provide more choices of financial products for investors in future,” he noted.
According to the index, cross-border deals globally jumped by 60 percent 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 percent in value. This led to a slight decline in Baker McKenzie’s Global Cross-Border Index.
“The IPO market in 2017 has put in its best performance in 10 years. 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,” Koen Vanhaerents, global head of capital markets at Baker McKenzie, said, adding that with key risks to the global economic outlook easing, IPOs are expected to hit a new post-financial crisis high in 2018.
“We recently forecast that domestic IPO activity will continue to rise, to a peak of over $220billion in 2018,” he stressed, adding that Baker McKenzie helps clients overcome the challenges of competing in the global economy.