THE continent may have been lower on the agenda than it would have liked at the recently-concluded Davos economic meeting, but African companies are not waiting for external love, with new research showing that firms in the region will this year go public at their fastest rate ever.
Baker & Mckenzie, the Chicago-headquartered global law firm and the world’s largest by revenues, says that 30 initial public offerings (IPO) by African-domiciled firms have already been announced, a jump by a quarter from last year’s number.
More listings could be announced, the majority on domestic exchanges, further opening up investment opportunities to both local and international investors who analysts say often cite a lack of depth and liquidity in the region’s current listed opportunities.
“While there have been several false dawns for capital markets across Africa’s diverse
economies and making predictions is notoriously difficult, we do see a more sustainable trend developing,” said Koen Vanhaerents, the firm’s global head of capital markets.
If just the deals announced so far mature, it would represent the highest IPO volume yet for the region, the firm, which specialises in corporate law, said. Last year there were 24 public listings by companies domiciled in Africa, itself a rise of 33% in volume from offerings in 2013, it added.
Some serious value
This also represented a 222% increase in value from 2013, with just over $2 billion raised; a recent trend driven in part by investors fleeing the global financial crisis, but also by better corporate governance in the continent, blossoming economies and better regulation.
Those investors, including in private equity, are seen to be implementing exit strategies this year, with South Africa, Nigeria and Kenya projected to have the highest IPO value, while Mauritius and a recovering Egypt are also expected to be active.
In a further pointer of the renewed appetite, 2014 saw only one cross-border listing by an African-domiciled firm; this year there are already six planned.
The trend would be good news for African stock markets, which according to data from Morgan Stanley Capital International lost 14.5% of their value last year, despite notching up an overall positive gain over the last three years. (Read: Africa’s stock markets in 2014: The hot, the so-so, the surprise, and the forgettables)
It would also push calls for more regional solutions, as World Bank data showed that both foreign direct investment and portfolio investment into the region declined last year, despite African governments going to great lengths to court foreign investors.
Risks still in
However, while a solid start, this rosy outlook is not devoid of its risks, Baker & McKenzie, which counts IMF boss Christine Lagarde among its past executive chairs, says.
Last year, the low-interest international environment and subdued volatility strengthened the region’s capacity to issue bonds as sovereign spreads, which are a measure of country risk, generally fell across the region.
But more recent factors such as a plunging oil price and a strengthened US currency could portend volatility in global markets, to which Africa has “disproportionate exposure”, the firm says. This could raise risk premiums for the region, hurting countries that are more intimately wired to outside markets, such as South Africa. (Read: The African economy: What we learnt in 2014, and the still sexy outlook for 2015)
Baker & Mckenzie called for a building of resilience and deepening sub-Saharan African in markets, even if current weak links have ironically so far been a bulwark against external distress and contagion.
The region’s resilience was illustrated by recent data which showed that only China grew faster than Africa of all developing regions. But while sub-Saharan Africa is very resilient to outside shocks it is highly vulnerable to domestic ones such as drought and conflict.
While the upbeat note could be a way of drumming up interest in the law firm’s African business—only three of its 77 offices are in the region (and only one in sub-Saharan Africa)—its message could echo that carried by recent growth forecasts by the Bretton Woods institutions.
The International Monetary Fund projects a 4.9% growth rate for sub-Saharan Africa this year, a cut from a previous projection made in October but still more optimistic than the World Bank’s, which has forecast a 5.8% economic growth rate.