London/Johannesburg - When Zambian farming firm Zambeef
Products began considering a dual listing of its stock, it looked at both the
Johannesburg exchange and London's AIM market.
Although Johannesburg was closer to home for Lusaka-based
Zambeef, the London Stock Exchange's higher profile won in the end. In June the
company became the first Zambian firm to list on the AIM, a market for smaller
"It was a tough decision," said Zambeef executive
director Yusuf Koya, which was taken after plenty of internal debate.
"A key factor in the decision process was London's
reputation as the world's financial centre, which allows us to access a
potentially wider range of investors and liquidity."
As African companies increasingly look to do dual listings
many, like Zambeef, opt for London over Johannesburg, challenging the
Johannesburg Stock Exchange's aim to become the gateway to Africa's capital
A total of 104 African companies are listed on the London
exchange, with the majority on AIM. The combined market value of African
companies listed in London is now bigger than every African exchange except
Just under $2.1bn was raised by African companies on the
London bourse in 19 transactions in 2010, representing about 90% of all equity
capital raised by Africa-focused companies in 2010, said Ibukun Adebayo, the
LSE's head of equity primary markets
Dual listings are critical for companies that outgrow their
home exchanges, where thin liquidity keeps large investors out.
Big bourses such as London and Johannesburg also boast
tougher disclosure requirements, reassuring investors concerned about Africa's
London-based investors tend to have a bigger appetite for
emerging market assets than their South African counterparts, bankers say.
"South African investors don't understand Africa risk
in the same way UK investors do," said one Pan-Africa private equity
London-listed companies may also be easier to sell,
especially to investors in Asia or North America, who are not as familiar with
the Johannesburg exchange.
"London has built a status for itself. When you're
going to market a company listed in London versus a company listed on the JSE,
people understand London, despite whatever jurisdiction you're going to,"
said one veteran capital markets banker based in Johannesburg.
Smaller companies, especially those with a niche focus, are
more likely to have more industry peers on the AIM, making valuations more
accurate, the banker said.
"People understand valuation of medium-sized, growing
companies on AIM. They get more fairly analysed if they go to AIM. Their peer
group is a bigger peer group on AIM."
Nicky Newton-King, the incoming CEO of exchange operator JSE
Ltd [JSE:JSE], recognises that Johannesburg faces a tough challenge from London. However,
she points out that Johannesburg offers a world class standard of disclosure
for a lower price and less hassle than its rival.
"You can come to the JSE, you can raise the money here,
and your shares will be traded in a very liquid environment, a very respected
environment. Without going through the costs and the hoops of listing in
London, but with exactly the same standards," she said.
With about 30% to 40% of trade on the JSE done by foreign
investors, African firms should have no problem reaching overseas investors
from Johannesburg, she said.
Not a backwater
While not as high profile as London, the JSE is hardly a
backwater: the bourse is one of the world's 20 largest by market value, and was
ranked No 1 for regulation in 2010 by the World Economic Forum, beating global
heavyweights including London.
About 20 African companies are listed on the exchange,
excluding South African firms. The JSE's Africa board has managed to attract
just two listings since its 2009 launch.
Newton-King is optimistic that a regulatory change this
month allowing foreign firms to be included in tracking funds should help draw
more overseas companies.
It may be that Johannesburg's biggest hurdle is something
hard to quantify: prestige.
"It's far more prestigious as a company to have a
London listing than a JSE listing," said the private equity banker.
Nigeria's Guaranty Trust Bank became the first Nigerian
company and the first African bank to be listed on the London Stock Exchange
when it issued $750m worth of global depositary receipts in July 2007.
"With most of the customers back home it gives you an
edge to know that we have international standards. When we go marketing
offshore it also pays," said Ade Adebiyi, the bank's managing director in