2 February 2015
African equity capital markets (ECM) posted their highest level of activity in the past five years in 2014, with a significant increase in both transaction volume and capital raised compared to the previous year, according to a report issued by financial services firm PricewaterhouseCoopers (PwC) on 2 February.
PwC’s inaugural publication, IPO Watch Africa 2014, found that $11-billion (about R128-billion) was raised in 2014 in equity markets across the continent, almost equal to the $11.1-billion raised in the whole of 2012 and 2013. During 2014, initial public offering (IPO) activity also increased overall in number from 20 to 24 IPOs, and doubled in terms of capital raised to $1.7-billion from $0.8-billion in 2013.
The report analyses equity capital market transactions that took place between 2010 and 2014 on exchanges throughout Africa, as well as transactions by African companies on international exchanges.
“The performance of African markets was strong in 2014, with an increase in equity capital market activity of 40% in terms of volume of offers and 100% in terms of capital raised when compared with prior year activity,” said Nicholas Ganz, PwC Africa capital markets leader.
“We noted a few instances of management following a dual-track approach aimed at maximising value for existing shareholders, and consistent with the growth in other forms of capital raising activity across Africa.”
The report shows a significant share of capital was raised in markets outside South Africa, with Johannesburg Stock Exchange (JSE) listings accounting for only 32% and 44% of total IPO capital raised in 2013 and 2014, respectively, a notable departure from its more prominent position in prior years.
Coenraad Richardson, PwC South Africa capital markets partner, noted a counterpoint in respect of further offers (FOs): “While IPO activity across the continent increased its share vis-a-vis the JSE, FOs remained dominated by capital raising in South Africa, which accounted for 87% of proceeds in 2014.
“This is a reflection of the depth and stability of the South African listed company and investor base, underpinned by a securities exchange regulatory framework ranked number one in the world by the World Economic Forum’s 2014-2015 Global Competitiveness Report.”
Overall, further offers activity during 2014 increased by 50% in terms of the volume of transactions and doubled in terms of capital raised to $9.3-billion from $4.6-billion in 2013.
On a sector basis, the financial services sector (which includes property), industrial products and services, and consumer products dominated the market, with the financial services sector representing 57% of combined IPO and further offers volume during 2014. Growth in these sectors reflects shifting economic and social demographics, namely an increase in urbanisation and an emergent middle class across the African continent. By contrast, the resources sectors collectively represented a comparatively smaller proportion of 2014 activity.
In addition, a total of $1.2-billion of further offers capital was raised by African companies on international exchanges since 2010. In this context, these include those companies seeking to expand their investor base by way of a secondary listing, as well as those raising further funds from existing international listings.
The JSE safely retained its position in 2014 as the most active African market in terms of both total equity capital markets transaction volume and proceeds. The Tunis and Nigerian stock exchanges held the second position in terms of volume and proceeds raised, respectively.
Building on the strong performance of the previous year, 2015 is expected to be a positive year for equity capital markets activity in Africa. This is driven largely by a combination of expectations for continued exits by private equity investors, reforms to certain capital markets legislation, and growing investor confidence in and familiarity with African markets.