In the wake of lower economic growth and political upheaval around the globe, 2016 marked a challenging year for African equity markets, according to a PwC report.
African equity capital markets (ECM) broke a streak of three successive years of growth, recording a decline in overall ECM activity of 28% from 2015 in the number of transactions and 33% from 2015 in terms of capital raised.
PwC’s 2016 Africa Capital Markets Watch analysed equity and debt capital markets transactions that took place between 2012 and 2016 on exchanges throughout Africa, as well as transactions by African companies on international exchanges.
Darrell McGraw, PwC Capital Markets Partner based in Lagos, said: “Many African economies, in particular those dependent on resources suffered in a low growth environment, significantly reducing ECM activity, and a continued lack of clarity around foreign exchange risk in Nigeria further discouraged foreign investment.”
“Although overall ECM activity decreased in 2016 in terms of both transaction volume and value as compared to 2015, there was a significant increase in ECM activity, particularly IPOs, in the second half of the year, indicating the cautious optimism of issuers and investors as the year progressed,” he said.
Since 2012, there have been 450 African ECM transactions raising a total of $44.9bn, up 8% in terms of capital raised over the previous five year period 2011-2015.
According to PwC, $1.5bn was raised in IPO proceeds in 2016, and while 2016 saw a decrease from the prior year, there has been an overall upward trend in IPO activity over the five year period.
Over the past five years there have been 110 IPOs raising $6.5bn by African companies on exchanges worldwide and non-African companies on African exchanges.
In 2016, capital raised from IPOs by companies listed on the Johannesburg Stock Exchange (JSE) increased by 25% in US dollar terms as compared to 2015, mainly driven by a comparatively stronger rand and three large listings by Dis-Chem, the Liberty Two Degrees real estate investment trust (REIT) and one of South Africa’s largest private equity firms, Ethos.
It was also a record year for the JSE’s AltX, which saw the secondary listing of the fledgling Mauritian private equity investor, Universal Partners, generate proceeds of more than five times greater than in 2015.
Coenraad Richardson, PwC Capital Markets Partner based in Johannesburg, said: “The JSE retains the leading position in the African capital markets, with capital raised from IPOs by companies on the JSE representing 42% of the total African IPO capital and 34% of the total number of transactions since 2012.”
Capital raised from IPOs by companies on exchanges other than the JSE decreased by 22% as compared to 2015, largely driven by relatively smaller Egyptian IPOs in 2016.
IPO activity on the Egyptian Stock Exchange (EGX) decreased significantly – by 72% in terms of value of IPO proceeds – as companies delayed listing plans in anticipation of an improved economic outlook following the August 2016 announcement of a potential stabilisation programme by the IMF and the free float of the Egyptian pound in November 2016.
Elsewhere on the continent, there were some significant increases in IPO capital raised on exchanges in Ghana, Morocco and Botswana compared to 2015, due to partial privatisations of state-owned entities.
In terms of value over the past five years, the next-largest value of IPO proceeds raised was on the EGX at $1.1bn, followed by the Nigerian Stock Exchange at $751m.
On a sector basis, the financial services sector continued to dominate the African IPO market during 2016 with 45% of total value and 55% of total volume, followed by consumer goods and industrials with a total value of 31% and 13% respectively.