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, while the first half resulted in the highest levels of both equity capital markets transactions and proceeds raised in the past five years.
PwC’s 2015 Africa Capital Markets Watch publication analyses equity and debt capital markets transactions that took place between 2011 and 2015 on exchanges throughout Africa, as well as transactions by African companies on international exchanges. Equity capital markets’ (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.
Nicholas Ganz, PwC Africa Capital Markets Leader, says: “At 31 December 2015, African exchanges had a market capitalisation of about US$1 trillion, with 23 percent of this value residing on exchanges outside of South Africa. Though statistics cannot 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.”
African IPO market highlights
Overall, $12.7 billion was raised in 2015 in ECM activity across the continent. Over the past five years, there have been 441 African ECM transactions raising $41.3 billion.
2015 showed a steady overall increase in IPOs of 12 percent in terms of transaction volume and 17 percent in terms of US dollar denominated value, as compared to 2014. However, nearly three-quarters of 2015 IPO value and more than half 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.
Over the past five years, there have been 105 IPOs raising $6.1 billion by African companies on exchanges worldwide and non-African companies on African exchanges. The top 10 African IPOs by value in 2015 took place in South Africa and North Africa, namely Egypt and Morocco.
Since 2011, capital raised from IPOs by companies on the JSE represented 45 percent of the total African IPO capital and 33 percent 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 percent of total value and half of the total volume, followed by industrial, health care and consumer goods sectors in terms of value.
African debt markets
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 $110.2 billion, of which 72 percent was US dollar-denominated. The average of proceeds raised in 2015 was $411 million per transaction, $85 million higher than 2014’s average of $326 million and 83 percent higher than the average per transaction over the past five years of $225 million.
Darrell McGraw, PwC Nigeria Capital Markets Partner, commented: “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 concluded: “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.”