Private equity – good for investing, slow for fund-raising

Source: EMPEA

Fund-raising for African private equity funds was slower in the first three quarters of 2016 compared to the previous year, but investing and deal-making activity was stronger. According to figures recently released by the Emerging Markets Private Equity Association (EMPEA), total fund raising by September 2016 was $1.1bn, only 31% of the capital raised in the same period in 2015.
Deal-making was also at $1.1bn according to the EMPEA figures, up 22% from the previous year when it was $0.9bn. However, analysis at Private Equity Africa suggests some $3bn in private equity deals went through in sub-Saharan Africa, using different metrics, suggesting a good year for deals.

Source EMPEA

Pension funds power Africa’s infrastructure

Here is my article on a critical area for Africa to develop, creating the right atmosphere for productive investments by Africa’s growing pension funds. It is published in African Banker magazine and you can access it on the africanbusinessmagazine.com website here:

The power of pension funds for African infrastructure
By Tom Minney
“Opening the elegant new six-lane toll bridge stretching cross Dar es Salaam’s Kigamboni Creek in April, Tanzania’s President John Magufuli called it “liberation” for citizens.
It represents a $135m investment by Tanzania’s National Social Security Fund, the state-run pension fund, and government. China Railway Construction Engineering Group built the 680-metre bridge with China Railway Major Bridge Group and say it is the longest cable-stayed bridge in East Africa.
It is also Tanzania’s first toll road – which residents say is worth paying for as it makes their lives easier. The development will lead to new residential housing and is hoped to boost tourism in the country.
The World Bank estimates Africa should spend $93bn – 5% of gross domestic product (GDP) – each year on infrastructure and the African Development Bank (AfDB) notes a $50bn financing gap to reach this. Local and international pension funds can help fill the gap.
The Bright Africa report by consultancy firm RisCura says that at the end of 2014 assets under management by pension funds across 16 major African markets amounted to $334bn. Some 90% of assets were concentrated in four countries: South Africa (with $258bn) Nigeria, Namibia and Botswana. Assets had grown more than 20% a year in East Africa and 25%–30% a year in Nigeria over the previous half decade.

Potential to drive growth
Pension funds mostly invest in local fixed-income bonds, with regulation a key driver of asset allocation. But as RisCura argues, pension funds are ideal to drive inclusive growth and social stability, including through investing in longer-term projects such as infrastructure: “Local institutional investors lend credibility and a measure of validation, and often serve as a catalyst for greater external interest. Local investors also allow global peers to leverage local knowledge and networks.
With longer investment horizons, pension funds can serve as anchor investors for infrastructure and social development projects,” says the report. South African pension funds lead the way, partly spurred by rules that allow them to invest 10% of assets through private equity.

Africa’s $111bn pension fund
The Government Employees’ Pension Fund (GEPF) with R1.6 trillion ($111bn) assets under management in March 2015 reported it had committed R62bn towards “unlisted and developmental assets” in the previous 12 months, including Touwsriver and Bokpoort solar power projects in South Africa; MainOne data and broadband telecommunications in West Africa; pan-African power generation through Aldwych Power; N3TC which operates and maintains 420km of South Africa’s N3 highway; and two hospitals.
Other investments listed include $21.6m into private airport concession TAV Tunisia through the Pan-African Infrastructure Development Fund (PAIDF) managed by Harith General Partners. GEPF invested $2.6bn into the first PAIDF fund by March 2015 and pledged up to R4.2bn for the second by 2020. Five other pension funds also invested in the $630m PAIDF I fund, which will last 15 years and invested into more than 70 African projects. PAIDF 2 recently announced first close after raising $435m, again with pension funds as key investors.
South Africa’s Eskom Pension and Provident Fund (EPPF) in 2014 invested $30m into infrastructure projects through private-equity house Abraaj, based in Dubai, as well as mobile-phone infrastructure through London’s Helios. EPPF chief executive Sbu Luthuli says “We have to diversify” and wants to put more than $100m into infrastructure projects – 1.2% of its total R120bn assets (as of June 2015). GEPF said that it had invested 1% of its assets into African equities outside South Africa at March 2015, compared to a target of 5% (R80bn).

New funds being created
Financial institutions and multilateral lenders are looking to speed up the process. For instance, the AfDB created the Africa50 fund with target capitalisation up to $10bn and says it has secured $500m. For the second round to $1bn it is targeting institutional investors, including African and global pension funds. Kenya’s government and parastatals such as Kengen are leading the way in selling local-currency bonds to finance infrastructure.
The network is growing. Harith works with Asset and Resource Management Company in Nigeria to invest in West African infrastructure and is setting up a $1bn COMESA Infrastructure Fund with PTA Bank for eastern and southern Africa.
In June Harith and its Aldwych arm announced links with Africa Finance Corporation (AFC) to create a $3.3bn power portfolio, supplying 30m people across 10 countries. Andrew Alli, president and chief executive of AFC, says: “By working together we can deliver tangible benefit for Africans, switching their lights on and stimulating positive economic growth on the continent.”

Politics and mistrust
But it’s not always that straight-forward. In February, Nigeria’s minister of power, works and housing, Babatunde Raji Fashola, called on the country’s pension funds, which manage some N5.8 trillion ($18.4bn), to invest more in infrastructure and other development projects. However, later in the year, newspapers reported that no infrastructure projects had been put forward that met the legal requirements of the 2015 regulations on investment of pension fund assets, including a minimum value of N5bn for individual projects and award through competitive bidding to a concessionaire with a good track record.
The Nigerian Labour Congress expressed members’ fears: “The thought of using our pension fund for investment in public-sector infrastructure development is highly frightening given the well-known penchant for mismanagement inherent in public-sector institutions in Nigeria … It is therefore immoral and careless to subject such fund which is the life-blood of workers to the itchy fingers of politicians, no matter how well intentioned.”
Despite the worries, confidence in governance is growing and attention is switching to building the supply of projects. As RisCura’s report notes: “In many countries, assets are growing much faster than products are being brought to market, limiting investment opportunities.”

Projects and stages
Projects typically go through several stages, starting with feasibility studies to create a “bankable” project; then building or developing the project; and finally operating it once it is established, for instance collecting the tolls on a highway and fixing holes. The last stage is usually the least risky and most suited for pension-fund investors.
The Africa50 fund follows other initiatives in funding early-stage projects in order to boost the supply and mobilise more financing for later stages. Kigamboni bridge took more than two decades. Africa’s fast-growing pension funds need a faster pipeline of investible and well-run projects.

Kigamboni Bridge, Dar es Salaam. Photo Daniel Hayduk, from Nairobi Wire

Conference: Pensions and Alternative Investments Africa 15-16 March

How fast-growing pensions can transform African economies

Africa’s pension and institutional savings industry is crossing the threshold into a major growth path. Channelled appropriately, they can transform Africa’s business and investment landscape and boost economies and savings.

Institutional savings – pension, insurance and other funds – are emerging as transformative forces for Africa’s economies. Industry leaders and others will discuss it at AME Trade’s Pension Funds & Alternative Investment Africa Conference (PIAFRICA), to be held in Mauritius from 15– 16 March.

The theme is “How can we leverage pension and investment funds for the development of Africa?” Pensions in 10 African countries were tallied at $379 billion in assets under management (including $322bn in South Africa). It is forecast that pension funds in the six largest sub-Saharan African markets will grow to $622bn in assets by 2020 and to $7.3 trillion by 2050.

The aim of the PIAFRICA conference is to debate whether the environment is being created for these funds to go into productive investments that will ensure their members get good returns and that contribute effectively to Africa’s growth. PIAFRICA will bring together the leaders of pension funds and institutional investors, policymakers, regulators, capital-markets, private equity and other stakeholders and is endorsed by the African Securities Exchanges Association (ASEA)

Discussions will focus on maximizing Africa’s pension fund and institutional investor opportunity, and will revolve around the following topics:
• Key trends, challenges and opportunities for Africa pension funds, Insurance, mutual and social security funds
• Africa’s growing funds and their potential to develop capital markets
• How to achieve long-term benefits through investing in infrastructure and other alternative assets, including real estate
• Private equity as an investment avenue for pensions
• For and against more latitude to invest across African borders?
• Best practices for sustainable growth and trust in funds
• Capacity building and support tools
• Technology, fund administration and member services
• Country profiles: African pension funds

Top speakers confirmed to date include:

  • Doug Lacey, Partner, Leapfrog Investments
  • Eric Fajemisin, Chief Executive, Stanbic IBTC Pension Managers
  • Mr PK Kuriachen, Chief Executive, Financial Services Commission
  • Ernest Thompson, Director General, Social Security & National Insurance Trust
  • Krishen Sukdev, CEO, Government Pensions Administration Agency
  • Richard Arlove, CEO, Abax Services

For more visit http://ametrade.org/piafrica/. For media accreditation and interviews contact Barbora Kuckova, Marketing Manager, AME Trade Ltd, Tel: +44 207 700 4949 Email: barbora@ametrade.org

Uganda Capital Markets Authority joins IOSCO MMoU Appendix A

Capital Markets Authority (CMA) Uganda has taken a big step forward for international links, after changes to Ugandan law. CMA been admitted by global securities standards setter International Organization of Securities Commissions (IOSCO) as a signatory to Appendix A of the IOSCO Multilateral Memorandum of Understanding (MMoU).

The MMoU provides an international benchmark for cross-border cooperation and offers securities regulators tools for combating cross-border fraud and misconduct. Uganda’s regulator will have increased access to knowledge and research through the IOSCO network.

The admission follows the recent amendment of Uganda’s CMA Act. The capital market regulator becomes the 112th member to append its signature to the memorandum, which was instituted in 2002.

Keith Kalyegira, the CEO of CMA, said in a press release: “This is a big step for CMA and Uganda in general and I must thank all the stakeholders that have been very instrumental in enabling us to reach this milestone including the CMA Board; our parent ministry of Finance, Planning and Economic Development; Parliament of Uganda; and the Ministry of Justice and Constitutional Affairs which has tirelessly worked with us to enhance our regulatory framework so that it can fit international standards.

“Our desire going forward is to transform Uganda’s capital market into one of the most efficient, and trusted centres for attracting capital and providing capital in Africa, and this could not easily be achieved without enhancing our regulatory framework to fully suit international standards by ensuring we comply with Appendix A requirements”.

CMA Uganda became a member of the IOSCO Appendix B in 2007 and has since been compliant with most of the international best practices in regulation. However, its participation, engagement and contribution to international dialogues was limited.

The IOSCO MMoU supports mutual cooperation, assistance and consultation among members to ensure compliance with, and enforcement of securities laws and regulations. It is a response to more international activity in securities and derivatives markets.

The formal signing ceremony will be held at the 42nd IOSCO annual conference due in Jamaica in May 2017. CMA first applied to IOSCO to become a signatory to the IOSCO MMoU in September 2007, and was assigned to Appendix B. The capital market regulator proactively started steps over several years towards legislative change to bring Uganda’s legislation into compliance with the MMoU. The reapplication was submitted to the IOSCO General Secretariat in July 2016.

East Africa regulator links

CMA is also a member of the East African Securities Regulatory Authorities (EASRA), which is instrumental in the development of the capital markets industry in East Africa. This includes some joint oversight activities, particularly for financial firms operating in more than one of the East African Community EAC countries. CMA Uganda also does joint inspections with its Kenyan counterpart.

Uganda’s growing capital market

CMA recently concluded its 5-year strategy, and expects to launch a 10-year capital markets development master plan by the end of March. This will map a growth plan for Uganda’s capital market which already includes 2 Ugandan securities exchanges. It will lay a strategy for increasing access to patient capital to finance the growth of commerce and industry in Uganda.

In Uganda, CMA cooperates with other government agencies in the financial sector including Bank of Uganda, the Insurance Regulatory Authority, the Uganda Retirement Benefits Regulatory Authority (URBRA), and the Uganda Registration Services Bureau. The Uganda Registration Services Bureau acts as the Registrar of Companies and implements the Companies Act, 2012 (Companies Act).

It also works with law-enforcement agencies such as the Office of the Attorney General, Director of Public Prosecutions and the Uganda Police. CMA, Bank of Uganda and the Uganda Insurance Commission (now the Insurance Regulatory Authority) signed a Memorandum of Understanding to facilitate cooperation and exchange information in the securities, banking and insurance sectors.

Trading of listed securities is conducted through the Uganda Securities Exchange (USE), established in 1998. There are 16 listed companies on the USE, of which 7 are from privatization of government parastatals. Trading of government bonds on the USE was introduced in 2004.

In July 2015, an automated trading system was introduced on the USE. The clearing and settlement period is 3 days (T+3). A computerized Securities Central Depository System (SCD) was put in place in 2010 following the enactment of the Securities Central Depositories Act (SCD Act) in 2009. The SCD has enabled the USE to automate the clearing and settlement process.

On 4 March 2014, CMA’s Board of Directors considered and approved the application of ALT Xchange East Africa Limited to operate as a stock exchange in Uganda in accordance with the CMA Act.

Kampala view (credit www.enjoyuganda.info)

Computers quieter,faster than open outcry

Another floor of shouting traders has just closed in New York, after CME Group (named after Chicago Mercantile Exchange) closed its open outcry trading pits. The trading floor still continues in pits on various commodities in the Chicago building that houses the Chicago Board of Trade, in an approach that dates back to when the building opened in 1930, writes The Economist magazine this week.
The Chicago exchange only has 9 pits, down from 32 in 2007, and closed one trading floor in 2015 that used to be very crowded and busy. Like the rest of the hyperactive world securities and commodities markets that used to heave with life, emotion, despair, greed, fear, ambition, deception and many other human conditions, gradually the computers have taken over.
The magazine writes: “In the end it was not scandal or terrorism that undermined open outcry; it was efficiency. Computers turned out to be quicker, cheaper and more precise than humans”.
It notes that CME Group was quick to understand that most business was in interest rates, stockmarket indices and currencies, not in traditional commodities. It picked up good volumes and made economies of scale in trading and clearing and then bought up other exchanges that ran into problems. Volumes continue to climb and a tumultuous year of surprising votes in UK and US have seen a big spike in activity and volatility. It provided US and UK traders with a record December and record-breaking volumes on exchanges such as the CME.
The Chicago Board of Trade was formed in 1848 and moved in 1856 to make space for 122 new members.

Chicago Board of Trade building, the figure on top is the goddess Ceres (photo Wikipedia)

Regional integration tops 2017 agenda for Africa’s exchanges

Stock exchanges across Africa should be working towards regional integration, says Prime Minister of Rwanda Anastase Murekezi. He was guest speaker at the 20th African Securities Exchanges Association (ASEA) annual conference. The conference’s action agenda would see the regulated stock exchanges driving industrialization and economic transformation.
Panel discussions highlighted the opportunities for African exchanges, provided they adapt to meet the needs and demands of local investors and issuers. They must also find the balance between local context and environment, and alignment with global best practices.
Government support and engagement are keys to the success of exchanges and to providing the capital to grow economies. Governments should continue to create enabling environments that encourage investment, economic growth and development. Regulation should follow market needs and focus on supporting development as favourable regulatory frameworks are essential for sustainable economic growth.
Other challenges the exchanges should continue to work on include: financial inclusion or letting more people access the capital markets for investing and for raising long-term risk capital for their enterprises; financial literacy and investor education; product innovation including using technology and creating innovative platforms for new products; and finding ways to finance the missing middle of small and medium enterprises (SMEs) in Africa.
Exchanges should encourage greater emphasis on environmental, social and governance components to enhance corporate transparency and performance.
Celestin Rwabukumba, CEO of the Rwanda Stock Exchange, said innovation and technology would enable Africa’s capital markets to harness resources to fuel structural transformation: “Currently, less than 5% of the African populace participate in the capital markets; this means that there is a huge opportunity to widen the base of African capital markets by incorporating new models based on technology and other creative innovations that target provision of direct linkages with the ordinary citizens in order to bring them in the loop of resource mobilization and utilization”.
The 20th ASEA conference brought together 300 delegates, including securities exchange CEOs, regulators, ministers, investors and others. It was held in Kigali on 28-29 November 2016. The theme was “Road to 2030: Making the African capital markets relevant to the real economy”.
Speakers included Claver Gatete, Rwandan Minister of Finance, and Prime Minister Murekezi delivered a message from the President of Rwanda, His Excellency Paul Kagame, in which he commended ASEA for its role in deepening the capital markets as a way of addressing the challenges that hampered Africa
Other speakers included Prof. Kingsley Moghalu, (former Deputy Governor of the Central Bank of Nigeria), Tonye Cole (founder of Sahara Group), Staci Warden (Executive Director, Milken Institute), Sandy Frucher (Vice Chairman of Nasdaq), Paul Muthaura (CEO Capital Markets Authority Kenya), David Grayson (Co-founder and CEO of Auerbach Grayson & Company), as well as CEOs from ASEA member exchanges.

Small African stock exchanges are likely to stay small

The Economist magazine says most African stock exchanges are small and likely to stay that way. It says few smaller, family-owned businesses, are keen to list on African stock exchanges and that liquidity or secondary trading is an “even bigger challenge” with few African exchanges achieving turnover (share value traded) of even 10% of market capitalization (the value of shares listed).

The magazine cites a recent paper by economists from Erasmus University, Rotterdam, and City University, London. They investigate 59 nascent stock exchanges around the world. They find that exchanges which start small, with few listings and low turnover, tend to remain so. The best chance for success comes from strong banks and growing savings, meaning that many African exchanges might need to wait until their economies grow.

Source: The Economist with figures from World Federation of Exchanges

Several African exchanges are big enough to move forward, including Johannesburg Stock Exchange with nearly $1 trn in market capitalization, Nigeria Stock Exchange and Kenya’s Nairobi Securities Exchange. The article also points to the successful regionalization project that is the Bourse Régionale des Valeurs Mobilières (BRVM), headquartered in Côte d’Ivoire and bringing together 8 national markets to create more investors and more listed stocks.

The article was written after the author attended last month’s 2016 African Securities Exchanges Association conference in Rwanda and watching the brokers in scarlet jackets at the trading board of the Rwanda Stock Exchange in Kigali. It says most African exchanges were created in the 1990s to help with the sale or privatization of state-owned enterprises. Many of these have been turned from loss making drains into high profit giants, driving economies, creating jobs and making investors including local institutions richer.

On the Uganda Securities Exchange, 7 out of 8 domestic listings are from privatizations, and many other exchanges tell the same story. Botswana’s national telco was the BSE’s biggest IPO when it came to market successfully this year. Others are forcing companies to list, for instance telecom companies and mining companies are key targets and listing can be forced through respective licensing of other regulations. Tanzania has reportedly ordered 8 telcos, including 3 offshoots of international companies, to float 28% of shares and MTN is likely to list on the Nigerian bourse in a deal with the telecoms regulator.

Meanwhile private equity continues to flourish in Africa. There could be a positive spin-off in terms of private equity funds using stock exchanges as exits to sell on to new funds and through IPOs. The article does not touch on one of the most interesting trends, the rise of African institutional investors and the effect they could have on capital markets development.

For the original Economist article, read here.

Africa IPO round-up

A roundup of some recent initial public offers (IPOs) of shares on Africa’s stock exchanges to raise capital

In early October, MTN launched plans to sell up to 35% of shares on the Ghana Stock Exchange. Ghana’s Securities and Exchange Commission Director General Adu Anane Antwi confirmed they had started the listing process and were working on the prospectus but no timeline had been given. According to local reports, MTN received its 15-year 4G licence in 2015 after spending $67.5m and on condition that it lists. It hopes to raise up to $500m.
MTN Nigeria is also working on plans for an initial public offer (IPO) of shares on the Nigerian Stock Exchange in 2017 which could raise up to $1bn. Nigeria is among several African governments encouraging telcos to list on local bourses and listing is among conditions to settle a record NGN330bn ($1.1bn) fine for failing to disconnect 5.1m unregistered subscribers. Nigeria contributes a third of sales and profit for the Africa’s biggest phone company, which is listed in Johannesburg with market capitalization of ZAR212.8bn ($15.3bn) in early October.
Listings and capital-raising momentum has been maintained on the Nairobi Securities Exchange. Deacons Kenya is the first listed fashion retailer, after joining the Alternative Investment Market Segment (AIMS) of the NSE on 2 August. CEO Muchiri Wahome said the extra funds were to fund expansion into towns with “a vibrant middle class” across Kenya, spurred Kenya’s rapid and ambitious devolution and setting up 47 counties under its 2010 Constitution. Deacons is also eyeing opportunities in neighbouring Rwanda and Uganda. It will also help existing shareholders who want to sell. The retailer listed about 123m shares at an opening price of KES15 ($0.15) each, but by early October the price had slumped to KES8.55.

 

Nairobi centre (credit www.kenya-advisor.com)

Nairobi centre (credit www.kenya-advisor.com)

In June, leather and shoe retailer Nairobi Business Ventures, which operates the brand KShoe, had become the fifth listing on the NSE’s Growth and Enterprise Market Segment aimed at smaller businesses. It was listed through introduction and valued at KES118m ($1.2m). Previous 2016 share issues included Longhorn Publishers in May. In June power generator Kengen succeeded in the Kenyan bourse’s largest rights issue, raising KES26.4bn ($262.1m) by offering 4.4bn new shares at KES6.55 each, with a 92% subscription rate. Kengen has projects to generate another 700MW of power, of which 605MW is geothermal.
However, Fusion Capital had to cancel its IPO despite extending twice after only getting 38% uptake and four investors for its KES2.3bn offering and failing to meet the minimum threshold.
The Johannesburg Stock Exchange had its second private equity listing. Universal Partners raised R1.3bn ($93.7m) in an IPO which was only open for 4-5 August and started trading on the Alt-X market on 11 August. The company was registered in Mauritius in April and also listed on the Stock Exchange of Mauritius. Its mandate is to invest in properties across Europe, at £10m-£30m ($12m-$37m) each and it aims to start investing within six months. The IPO was for 72m shares at R18.07 each. Several companies aiming to raise capital for African and international investments have dual-listing on the Mauritius and Johannesburg exchanges.
Liberty Holdings is likely to follow up its Kenyan IPO success with a South African Real Estate Investment Trust (REIT) called Liberty Two Degrees in December. This will include some ZAR6bn of its existing portfolio, including iconic malls around Gauteng, and ZAR4bn of new money. As in Kenya, the property investments are managed by Stanlib.
West Africa’s integrated regional stock exchange, Bourse Regionale des Valeurs Mobilieres (BRVM), based in Abidjan, Côte d’Ivoire, plans to build a platform for listing mining shares and raising capital locally. The exchange is talking with Canada’s Toronto Stock Exchange (TMX Group), a favourite bourse for early-stage mining entrepreneurs. BRVM General Manager Edoh Kossi Amenounve says it could open by 2018 and will be for companies exploring or operating mines in the region. There is likely to be a waiver to the usual requirement for 2 years of trading history. The BRVM links eight West African countries, including gold exporters Mali, Burkina Faso and Côte d’Ivoire, and fourth-largest uranium producer, Niger.
Egypt’s Minister of Investment Dalia Korshid says the Government aims to raise up to $10bn over the next three to five years with IPOs of government-owned companies in the oil sector but will start with restructuring state-owned electricity companies.

SADC stockbrokers linking for cross-border investment

Stockbroking firms across Southern Africa are invited for networking on 7 December 2016 to learn more about investment opportunities in neighbouring capital markets. The Committee of SADC Securities Exchanges (CoSSE) aims to implement SADC ideals of close linkages between the region’s capital markets and to support cross-border capital-raising and investments.
First steps are to encourage information flow between the markets and to establish networks so that brokers can route trading to other local exchanges by working with a local broker in the target exchange.

cosselogo_about-cosse

On the agenda for the 1st SADC Brokers’ Network Session will be to facilitate and provide a platform for SADC brokers to meet each other, agree to enter into a SADC database, agree on a standard counter-party agreement which will be used when brokers trade for each other in their respective jurisdictions, and share information about their respective markets.
Every firm is invited to send representatives to meet other broking firms and learn about their activities. After the networking session, brokers will be encouraged to keep each other informed on local opportunities such as initial public offers (IPOs) which brokers in other countries and their clients may be interested in. Brokers will be able to share trading commissions on such deals when two firms are working together.
There are increasing linkages between the financial systems in the region’s capital markets, including the SADC Integrated Regional Electronic Settlement System (SIRESS) which was successfully launched in 2013 and has been growing fast since then.
The networking session will last all day from 8-5 and it will be at the Johannesburg Stock Exchange in Sandton, South Africa. It will be followed by a cocktail. Brokers wishing to attend should contact their national stock exchange.
Other information can be obtained by emailing CoSSEBrokerSession@jse.co.za.

New South African stock exchange ZAR X to start 3 October

Trading is to start on South Africa’s new ZAR X securities exchange on 3 October. It gained a licence on 2 September and the first listings will be Senwes and  Senwes Beleggings, with up to 5 listings planned for first week October.

Another exchange is also being readied, 4AX also called 4 Africa Exchange (see story below).

South Africa’s regulator, the Financial Services Board, announced on 2 September that it had granted licences to ZAR X and 4 Africa Exchange Licences. It said: “The Registrar of Securities Services.. received and considered applications for exchange licences from ZARX (Pty) Ltd (“ZAR X”) and 4 Africa Exchange (Pty) Ltd (“4AX”) and has, in terms of section 9(1) of the Act, granted ZAR X and 4AX exchange licences with conditions after careful consideration of objections received as a result of a notice referred to in section 7(4).”

Initially FSB gave ZARX a conditional licence but in August a court ruled in favour of an application by the JSE, which had argued there was no provision for conditional licensing. JSE CEO Nicky Newton-King said at the time there were concerns about the complexity and the potential for systemic risk that multiple exchanges could bring.

ZAR X has a different level of risk as it requires to be pre-funded, which means that participants must lodge scrip and cash before they trade and settlement is then the same day (T+0). In July the JSE and other market participants moved their market from T+5 settlement to T+3 without any problems. Most institutional investors prefer transferring stocks or money after they have traded, when they know the exact amounts to transfer.

Etienne Nel, CEO of ZAR X, said: “We need to create a level of co-operation within the market space to make it as simple as possible for all participants to coexist”.

Speaking to Business Day TV, he said: “..we are very happy, obviously, delighted since it’s been a long time coming. To give you some context around the conditions, it’s obviously what we applied for. We initially said we were not going to be offering derivatives to the market and obviously as a result one of the conditions is we may not offer derivative trades on our market. Similarly, we cannot offer shares already listed on another exchange, but that was never in our application so we are obviously delighted with the licence that we finally got.”

Nel said in September they were busy getting brokers on board and putting investors through necessary screening and checks of the Financial Intelligence Centre Act (38 of 2001 “FICA”)

Nel says ZAR X has less onerous rules on admitting companies for trading (listing requirements): “In our approach to listings.. we will have a conversation with the issuer and we are taking what is called a principles-based approach to listing rather than rules-based. Now what that achieves is if we get the slightest inclination that something is awry within a company we would actually rather walk away rather than doing the listing.. A rules-based environment .. becomes a tick-box exercise and in that environment you would end up with a situation where people end up finding loopholes, which a principles-based approach does not allow for”.

It breaks over 100 years of monopoly Africa by the Johannesburg Stock Exchange, as the JSE was founded in 1887 but there were several stock exchanges around during the first South African gold rush. Speaking after the licence was issued, 4AX CEO Fay Mukaddam said in a press release: “We are delighted to have secured our licence. South Africa is a vibrant, growing market with enormous potential and we are confident that there’s a strong appetite for an additional licensed exchange to further develop and deepen the capital markets in the country.. 4AX can stand as a vehicle for diversity, which in turn, will drive real economic inclusion”. It will be an “empowered exchange” and will aim at retail investors but also attract institutional trading.

Both ZARX and 4AX will use Strate as their central securities depository (CSD).

 

Etienne Nel, CEO of ZAR X (credit timeslive.co.za)

Etienne Nel, CEO of ZAR X (credit timeslive.co.za)