African exchanges notch up $1trn in market cap

Harare - Investor interest in African markets is rising, with market capitalisation on African exchanges rising to $1trn by the end of 2015, PwC said on Monday, emphasising that "untapped value remains in Africa's capital markets".

PwC said as much as $12.7bn was raised in equity capital markets (ECM) activity across the continent in 2015, while there have been 441 African ECM transactions raising $41.3bn in the past five years.

The JSE, shows the report, is the leading Initial Public Offering (IPO) market in Africa, with transactions and capital raised topping $2.7bn in the past five years. The World Economic Forum’s Global Competitiveness Report 2015 to 2016 ranks the JSE second in the world for exchange regulation and also gives it a high score for ease of raising debt and equity capital.

“At 31 December 2015, African exchanges had a market capitalisation of about US$1trn, with 23% 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,” said Nicholas Ganz, capital markets leader for PwC.

A “steady overall increase” in IPOs of 12% in terms of transaction volume and 17% in terms of value was registered in 2015. However, most of the IPO activity in Africa was transacted during the first half of 2015, reflecting “relatively higher levels of consumer confidence” compared to the second half period of the year when economic fundamentals started to weaken and worsen in some cases.

The top 10 African IPO markets in terms of value were South Africa, Egypt and Morocco, with about 105 continental companies raising up to $6.1bn through IPOs. However, the value raised by companies on the JSE through IPOs in 2015 decreased by 11%, says PwC, largely due to the weakening of the South African rand during the year.

“The rand value of IPO capital raised on the JSE in 2015 increased by 11% over 2014 levels. Capital raised from IPOs by companies on other African exchanges in US dollar terms increased slightly by 3% as compared to 2014.”

Darrell McGraw, an expert at PwC said 2016 presents an opportunity for the continent’s debt markets, especially in markets such as Nigeria, where companies will likely be re-assessing their strategies.

“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,” he said.