African IPO: Low Liquidity Keep Capital Out Of African Bourses
The lack of liquidity on most African stock exchanges has limited the value and number of listings on the continent and prompted many businesses to opt for a London listing instead.
In the past five years no foreign company has listed on an African exchange, but in that time 12 African companies have completed stock market launches on non-African exchanges, seven of them in London.
Maria Pinelli, global vice chair for strategic growth markets at EY, said part of the reason African new listings make up such a small proportion of total capital raising — even while global initial public offering (IPO) markets are the strongest they have been in many years -is liquidity.
“IPOs are attractive as a vehicle to raise capital quickly, in large amounts, which can be deployed. That’s perfect for an industry which is at an inflection point — it allows companies to move quickly,” she said.
“The market is strong right now because IPOs are performing between 15% and 20% post-IPO, which is above other yields in some markets.
“But you need the ability to trade after reaching the market -you need liquidity. In developing markets, there isn’t enough of an investor pool.”
Africa’s contribution to global IPO figures remains a mere 1.5% of all companies floating on exchanges. This is just 0.7% of all capital raised through listing. South Africa led the way in Africa in the past year, followed by Nigeria and Tunisia.
The materials sector produced 23.5% of IPOs of African companies, but the researchers said there was a healthy pipeline of IPOs waiting to come through, including in real estate and financial services.
African IPO activity traditionally lags behind that of mergers and acquisition deals, but African IPOs in the first half of 2014 have already surpassed 2013 full-year totals in cumulative value.
The top 10 African IPOs ranked by value over the past five years is topped by Life Healthcare’s debut on the JSE in 2010, and includes Royal Bafokeng Platinum, Rebosis Property Fund, Dipula Income Fund, Optimum Coal Holdings and Holdsport.
South African listings made up six of the top 10 IPOs over this period.
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