Johannesburg. 2016 marked a challenging year for African equity markets in the wake of lower economic growth and political upheaval around the globe, largely as a result of the US elections cycle and the Brexit vote, a new report shows.
African equity capital markets (ECM) broke a streak of three successive years of growth, recording a decline in overall ECM activity of 28 per cent from 2015 in the number of transactions and 33 per cent from 2015 in terms of capital raised, according to a new report by the PwC.
In its 2016 Africa Capital Markets Watch publication which was issued yesterday, PwC analyses 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. ECM transactions included in the analysis comprise capital raising activities, whether initial public offerings (IPOs) or further offers (FOs), by African companies on exchanges worldwide, as well as those made by non-African companies on African exchanges. Debt capital markets (DCM) transactions analysed include debt funding raised by African companies and public institutions.
The Lagos based PwC Capital Markets Partner, Darrell McGraw, 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 per cent in terms of capital raised over the previous five year period 2011-2015.
Overall, $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 $6.5 billion by African companies on exchanges worldwide and non-African companies on African exchanges.
In 2016, capital raised from IPOs by firms listed on the Johannesburg Stock Exchange (JSE) increased by 25 per cent 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 SA’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.