IPO activity in SA declines on economic and political uncertainty

Capital raised by African issuers declined by 28% year on year to $341 million in the first half of 2019 (H1 2019), compared with $472 million in 2018.

The decline is attributed to the 80% drop in domestic capital raising in Africa – standing at only $85 million from four IPOs, compared with $419 million from the same number of IPOs in H1 2018.

This is according to Baker McKenzie’s latest Cross-Border IPO Index for H1 2019, using data sourced from Refinitiv.

According to the Index, the largest IPO to come out of the region so far in 2019 is Carbon Holdings Ltd, which is expected to raise as much as $250 million in London and Egypt sometime in June. Egypt is generating buzz around its pipeline of IPOs with some speculating this could be the busiest year for listings in Cairo since the uprising in 2011.

Wildu du Plessis, head of capital markets at Baker McKenzie in Johannesburg said: “The drop in African IPO values in H12019 was mostly because of political and economic uncertainty on the continent. Investors wanting to raise capital in Africa are thinking twice and waiting for political and economic stability to return before going ahead.

“Also eroding investor confidence in Africa are the escalating global trade tensions, which have culminated in, for example, the so-called United States (US) China trade wars and the possibility of a “no deal Brexit” – both have the potential to impact African economies significantly.”

In South Africa, du Plessis said that capital raising has decreased substantially in recent years, also due to economic and political uncertainty.

“Political stability will hopefully begin to return now that country’s elections are over, but there is still a lot of work to do to stabilise the economy. The World Bank recently downgraded South Africa’s growth rates and I think there is at least another year of hard work before the economy starts to recuperate and capital markets in South Africa recover.”

There is however, good news in other jurisdictions in Africa.

“In addition to the healthy pipeline of IPOs in Egypt, there are also signs of life returning to Nigeria’s capital markets. Political instability was also to blame for a big collapse in capital raising in Nigeria in recent years, but the country looks to be recovering and, according to Baker McKenzie’s recent Global Transactions Forecast, there is a predicted return of IPOs in Nigeria in the next three years.

“A case in point, Airtel Africa announced recently that it is seeking to raise as much as $750 million in London and Nigeria, but the company has yet to release more information about when it plans to go public this year.

“Hopefully this is the start of a long upswing in capital raising activity in the country,” said du Plessis.

Capital raising in global IPO markets fell by 37%, with volume dipping 34% in the first half of the year compared to the same period in 2018. A total of $69.8 billion was raised across 514 IPOs, which is the lowest for value and volume since 2016.

The US Federal government shutdown, continuing trade tensions between the US and Beijing, the ongoing Brexit saga and the decline of mega IPOs all contributed to a slower market performance, the advisory service said.

With fewer IPOs in the market, competition among exchanges is growing, as some listing locations make strategic changes to entice public offerings. The introduction of China’s Science and Technology Innovation Board looks set to shake up the market and challenge New York and Hong Kong for tech listings, Baker McKenzie said.

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IPO activity in SA declines on economic and political uncertainty