Mobile phone app for trading on Zimbabwe securities exchanges

Investors can check their portfolios and send orders to their stockbrokers on their smartphones in Zimbabwe with an app called C-Trade from today (4 July). C-Trade is an online and mobile trading platform for shares on the Zimbabwe Stock Exchange (ZSE) and the second licensed exchange, the Financial Securities Exchange (FINSEC).

According to an article in the Herald newspaper, C-Trade is for financial inclusion in Africa: “The platform will enable investors, both local and foreign to purchase securities from anywhere in the world anytime, using mobile devices. The initiative is being led by capital markets regulator, Securities Exchange Commission of Zimbabwe (SECZ), and seeks to promote financial inclusion by encouraging participation by the smallest retail investor.”

The Herald newspaper reported SECZ chief executive Tafadzwa Chinamo saying that President Emmerson Mnangagwa had agreed to launch the programme. “After that what you will be seeing more of is our campaign as SECZ to educate the public on what investing on the capital markets is about.”

“We have taken the issue of deepening and broadening the capital markets very seriously, to the extent that we added a new committee to our board of investor education.” In July 2017 Chinamo said SECZ had committed $300,000 to a campaign to get more people engaged in the capital market.

Escrow Systems headquartered in Zimbabwe has created the C-Trade programme to trade bonds and shares, using the same technology as Kenya’s world-first M-Akiba mobile Government bond sold on mobile phones to small investors in Kenya, from minimum denomination of $30. Here is our post on M-Akiba from October 2015 and a Reuters story on the eventual M-Akiba launch in March 2017.

According to a report in Newsday, Escrow Group chief executive officer Collen Tapfumaneyi said: “C-Trade is a mobile trading platform and is combination of a number of systems that enable investors to access the securities market or capital markets popularly known as the stock to enable people buy shares and all that. It comes in three forms, USSD application which can be utilised by mobile network subscribers. We have Econet and Telecel, but we are about to finalise with NetOne as well so within a few days all three will be on board,” It is not restricted to local mobile operators to enable foreign investors, including those in Diaspora.

Trading is still through a stockbroker, as before, says Chinamo of SECZ: ”This application is essentially sold to a stock broker to give the brokers clients access to the market. Rules of the exchange are still valid. For your trade to go through, it needs the authenticity of your broker so the broker is still liable for your trade, settlement, clearing and feed.”

The platform allows easier access for smart-phone users to manage their portfolios when they are away from a desktop/laptop.

Escrow is offering it on revenue-sharing basis to users with “minimal or no costs to market participants” according to an older news story in Financial Gazette.

According to an article today in Newsday, there are 13 licensed stock-broking firms in Zimbabwe, of which 3 signed up to use C-Trade. Escrow’s Tapfumaneyi said they were still talking about sharing fees: “C-Trade acts as an agent for the broker. The broker will still earn his full revenue according to the fee charged. However, the brokers pay a fee to use the platform which is negotiable.

“What we are basically doing is get business for them and they keep their traditional business. But, if we get people registering online and placing orders online, all that traffic is being channelled through to the brokers which then gets channelled to the exchange. So we are basically an extension of the brokers,” he said.

“These orders, when they come to the brokers, is also the issue of evaluation and trading is not just picking an order from a client and sending it through. You have got to analyse the market and advise the client what the pricing should be and all that. So we still have that interface.”

The target for C_Trade is about 20,000 individual participants by year-end and an ultimate goal of 2 million people.

Meet FINSEC, Zimbabwe’s second securities exchange

Zimbabweans have a second option for trading securities, with an emphasis on financial inclusion and economic empowerment through capital markets. Financial Securities Exchange (Private) Limited (FINSEC) is licensed by the Securities and Exchange Commission of Zimbabwe as a securities exchange (alternative trading platform).

It was launched in December 2016 and is part of Escrow Group, which has interests in financial services and technology. According to Escrow website, it has offices in Kenya and Zambia. The group includes Corpserve Registrars, which is a share registrars company set up in 1997, with operations in Zimbabwe, Zambia, Malawi, Kenya and Tanzania.

According to the website: “FINSEC is a pioneer in the provision of alternative trading solutions aimed at automating activities of previously sidelined OTC (over-the-counter) markets. It offers a complete suite comprising Order Management, Matching Engine, Clearing, Settlement and Delivery. FINSEC is transforming markets with activities so far in Kenya, Uganda and Zimbabwe.”

FINSEC Zimbabwe reported record turnover of $1.2 million in November 2017, with total equity turnover of $3.1m from launch to early December 2017. Listings include bonds issued by Infrastructure Development Bank of Zimbabwe (IDBZ), and class B shares of Old Mutual Group. CEO Collen Tapfumaneyi forecast that bringing in mobile technology would boost volumes.

Microfinance company Untu Capital Ltd has raised $5m in medium-term notes on the platform, which it will use to finance micro, small and medium enterprises (MSMEs) in Zimbabwe. According to a story in Herald newspaper. It started with a $1m issue, followed with $2m and again with $2m in May-June 2018, which listed on FINSEC on 11 June 2018, paying a fixed coupon of 10% a year. The bonds are a financial inclusion tool, called “U-Gain” and partnered with Telecash and EcoCash to offer a minimum $50 issue, maturity date 10 June 2021, paying interest every 6 months. Untu was set up in 2009 and provides finance to MSMEs, including working capital, capital and investment and value added services.

According to a story on the Daily News website, the class B shares were created in 2011 when Old Mutual surrendered 25% of its issues shares to indigenous investors as part of the indigenization laws, including 11% to employees, 8% to pensioners and 3.5% to strategic investors and 2.5% to a special youth fund. On 25 June FINSEC announced that the shares were liberalized and could be bought and sold by investors who were not indigenous Zimbabweans, including foreign investors and all capital market participants.

FINSEC does electronic trading of different types of securities, and the FINSEC website reads: “..(it) integrates all market participants in real time via a robust and state-of-the-art web based technology. The market participants include but are not limited to securities dealers, custodians, asset managers, issuers, settlement banks, market makers, transfer secretaries and regulators.

“FINSEC offers an integrated market-place solution covering; order management; order routing; order matching; clearing and settlement; securities delivery; trade risk management; data analysis; surveillance; mobile trading; online trading and full reporting.” FINSEC manages the full cycle from investor creation to trade settlement with the involvement of custodians and settlement banks.

According to the FINSEC website, it hopes to focus primarily on retail investors. It says its alternative trading platform “emphasises that all investors make informed investment decisions based on thorough research, which includes evaluating a company’s disclosures and financial reports as well as the prices and market for the company’s securities”.

Trading is through stockbrokers and investor accounts have to be opened through stockbrokers and custodians. The only mentioned custodian is Three Anchor Investments, trading as Old Mutual Custodial Services and the only mentioned bank is CABS, a financial institution and subsidiary of Old Mutual.

FINSEC says it also has an investor relations portal where individuals can monitor their portfolios, update know your client (KYC) information and check inquiries. It provides online and mobile access.

Victoria Falls

Why Ethiopia needs a stock exchange as it liberalizes

One of Africa’s biggest economies. Ethiopia, is launching a giant privatization campaign that could be lead to transformation, growth and liberalization. But there is no Ethiopian securities exchange, meaning citizens and domestic savings institutions may not be able to participate and the economy will continue to suffer inefficiencies and lack of transparency.

On 5 June Prime Minister Abiy Ahmed and the ruling party EPRDF set headlines alight by announcing a decision to sell stakes in the telecoms monopoly, long a cash cow for the Government. Investors will also be invited to buy stakes in Ethiopian Airlines, one of Africa’s fastest-growing and best-run airlines.

Zemenedeh Negatu, chairman of Fairfax Africa Fund LLC, a U.S.-based investment firm, and a former Managing Partner of EY in Ethiopia, commented in the Wall Street Journal newspaper: “The new leadership in Addis is smartly modifying and adopting policies and strategies that will sustain Ethiopia’s growth. I also strongly believe that these enterprises should be privatized by listing their shares in a local stock market, which should be established as soon as possible.”

Ethiopia was the world’s 2nd fastest growing economy in 2017 with 10.9% growth, according to the International Monetary Fund, which forecasts 8.5% growth in 2018, after a decade of growing at nearly 10% a year.

According to a Reuters report by Aaron Maasho: “It is unclear whether the Government would consider licensing foreign mobile operators. Interest might be limited if the only option is a minority stake in the monopoly.

“Analysts have said the government’s move falls far short of enabling full competition by multinationals. They note that by selling minority stakes the EPRDF is underscoring its view that the state should be a key player in the economy.” However, he notes “the step is still radical for the EPRDF.. and could indicate how 41-year-old Abiy plans to steer the country.”

Abiy Ahmed took office in April. The announcement also included a peace deal with neighbouring Eritrea in line with a decision in year 2000 that would cede disputed territory.

Both Africa’s telecom giants MTN and Vodacom told Reuters they are interested. MTN says Ethiopia “would be a natural fit for MTN’s existing pan-African footprint.” And Vodacom said “Ethiopia is an attractive market so it follows that there would be interest”.

A statement after a day-long meeting of the EPRDF’s executive committee said economic reforms are needed to sustain economic growth. It referred to foreign exchange shortages that mean there are too few goods in shops. Economists estimate that foreign reserves cover less than 2 months of imports.

Much of Ethiopia’s growth and successes at rolling back poverty are linked to the ambitious road, rail and electricity infrastructure investment and building projects run by the Government, which pours revenues from its telecoms, airlines and other monopolies to this. There is an ambitious strategy to transform a nation, which on farming, into an industrialized nation where manufacturing provides expert earnings.

On 6 June, Abiy warned of the risks: “”It is progressive. This new economic decision will afford us the opportunity to resolve widespread unemployment, ease foreign currency shortages, and reduce weaknesses in market connectivity. However, unless implemented with skill, knowledge and focus, it can lead to a repeat of the pervasive theft seen in many African countries and a destruction of Ethiopia’s wealth.”

Charlie Robertson, global chief economist at Renaissance Capital, told Reuters: “”The Government is still deeply sceptical about capitalism and speculative investors.”

OPINION – A well run stock exchange is vital in Ethiopia’s successful privatization and transformation

The capital market will bring many benefits to Ethiopians and the economy. A stock exchange enables enterprises to raise capital to create growth, jobs and fight poverty through issuing shares (equity) to long-term investors who are ready to share the business risks. It provides a transparent and efficient market for raising hundreds of millions of long-term debt, including bonds for housing and infrastructure, as in neighbouring Kenya. It would amplify efforts by Ethiopia’s Government and banks to finance the ongoing giant growth potential.

A regulated stock exchange encourages savings and help investors channel these into the most productive enterprises, boosting market size and efficiency. It boosts transparency by requiring companies to publish audited trading information promptly and widely, sharing similar information benefits with smaller investors as the Ethiopian Commodity Exchange (ECX) brings to farmers – any by encouraging professional analysts.

Individual Ethiopians are very keen for additional places to grow their savings, some of which are held in cash or low yielding bank deposits. Like other African countries, Ethiopia has fast growing domestic investment funds at pension and insurance institutions, and these need a much wider choice of productive assets to invest into, offering diversification and growth while seeking to maintain the overall safety of the members’ funds.

There are many Ethiopians both at home and abroad with the skills and character to ensure that any Ethiopian exchange will be one of the best and biggest in Africa. Although speculative trading is expected, it is also a key contributor to market liquidity and efficiency, and ensuring a large and active enough domestic base will counter much of the overall market volatility. Regulation is also needed to protect investors by ensuring that only well run businesses with a good track record and management can offer shares to the public, contrary to many unregulated initial public offers that have happened.

A well run stock exchange is what Ethiopia needs to transform its economy, boost participation, investment and the private sector, and to encourage efficiency and jobs.

DISCLOSURE – The author has worked on proposals on a stock exchange in Ethiopia, including when he worked at EY, and has studied the background and potential of the capital market there.

Addis Ababa (photo credit Horn Affairs)

Africa-focused Vivo Energy soars after £548m IPO on London SE

Africa’s £1.98 billion ($2.68bn) megalisting Vivo Energy (VVO) soared in its first 2 days of trading on the London Stock Exchange (dual-listed on the Johannesburg Stock Exchange) at the close of last week. After a successful initial public offer (IPO) of shares at 165.00 pence per share for 323.3 million shares, 27.7% of the company, it listed on the LSE on 10 May and traded up 11% on Thursday to 183.20p, before soaring as high as 198.10p on Friday 11 May and then closing at 185.0p.

Vivo raised £548m ($742m) in the share offer, which was the largest UK-listed African IPO since 2005, when Telecom Egypt raised about £650m, and the biggest IPO in London so far this year.

It listed on the Premium Segment of the LSE Main Market. Global coordinators of the deal were Citigroup, Credit Suisse and JP Morgan.

According to the LSE press release, Christian Chammas, CEO of Vivo Energy: “We have been extremely pleased with the investor response to our offer, in what has been a challenging period for the wider markets. Vivo Energy’s differentiated business model, strong track record, exposure to Africa and the growth opportunity it represents has been well understood by investors. We are excited about the momentum in the business and are looking forward to delivering further growth and success as a London listed company.”

In an article in Financial Times Chammas described Vivo as offering international investors exposure to a diverse group of mostly fast-growing African economies with rapidly expanding urban populations: “We are at the heart of the growth story, the growth of Africa’s population and consumer demand.”

Vivo is a retailer and marketer of Shell-branded fuels and lubricants in Africa, operating about 1,800 service stations across 15 African countries, with Morocco its biggest market. It is expanding fast, and is second in Africa after Total. It is owned 55% by oil trader Vitol Group SA of Switzerland, and 44% by private equity group Helios Investment Partners and 1% by management. Last year earnings before interest, depreication and amortization (EBITDA) was $326m. In December it announced a ZAR3.5bn ($256m) share swap transaction with Engen, South African unit of Malaysia’s Petroliam Nasional Bhd, which would add 9 more countries and 300 more service stations, which was awaiting regulatory approval.

According to another article in the Financial Times: “People close to the deal said that investor appetite was strong and the listing was more than two times subscribed. The transaction could unlock other African-focused IPOs that had been waiting until a company successfully tested the market.”

Nigeria’s Dangote Cement, which operates across more than 10 African countries, could be planning to raise between $1.2bn and $2bn by floating 10%-15% of the business, according to chairman Aliko Dangote. In May it announced the appointment of non-executive directors Mick Davis (former Xstrata chief executive) and Cherie Blair (lawyer and wife of former UK prime minister Tony Blair).

Another potential large African listing on the London Stock Exchange in 2018 is Liquid Telecom, which describes itself as: “the leading independent data, voice and IP provider in eastern, central and southern Africa. It supplies fibre optic, satellite and international carrier services to Africa’s largest mobile network operators, ISPs and businesses of all sizes. It also provides payment solutions to financial institutions and retailers, as well as award winning data storage and communication solutions to businesses.”

In March Africa-focused mobile phone tower firm Helios Towers, dropped plans for an IPO because of weak investor appetite. Regional rival Eaton Towers had also been considering a listing.

Vivo Energy (photo credit Vitol)

London Stock Exchange financing African growth

African companies listed or trading on the London Stock Exchange have a total market capitalization of over $200 billion ($271bn), and in the last 10 years have raised more than $16 bn on London’s markets. The 108 African companies is more than any other international market, according to a press release from the LSE.

There are 9 African sovereign bonds listed in London, from: Gabon, Ghana, Namibia, Nigeria and Zambia

According to Tom Attenborough, Head of International Business Development, London Stock Exchange, in an LSE press release: “The success of Vivo Energy’s IPO is a strong statement of international investor interest in building exposure to Africa. As a London-listed company, Vivo Energy, will gain access to the world’s most international market, as well as an unrivalled source of deep liquidity and new investors.

“London is a strong partner to African companies seeking to attract international investment.”

Paternoster Square with London Stock Exchange at right (credit: Wikipedia)

  • Also this month, May 2018, Angola launched a $3bn Eurobond on LSE, the country’s biggest international bond and the first international issuance since 2015.
  • In April the LSE Group, the Nairobi Securities Exchange and non-governmental organization FSD Africa signed a memorandum of understanding to explore the launch of LSEG’s business support and capital-raising programme, ELITE. In May, the first Kenyan company, Olsuswa Energy, joined the programme. So far 850 companies have joined the ELITE programme.
  • In November 2017, the LSE, Casablanca Stock Exchange and the Bourse Régionale des Valeurs Mobilières (BRVM) signed an agreement to roll out ELITE across West African markets, in a signing ceremony presided by Amadou Gon Coulibaly, Prime Minister of Côte d’Ivoire.
  • In June 2017, Nigeria raised $300m through its first Diaspora Bond on LSE, a retail bond aimed at Nigeria’s global expatriate community seeking to invest in their home country’s development. It was the first bond of its kind from sub-Saharan Africa.
  • In March 2017, LSE published its first “Companies to Inspire Africa” report, identifying hundreds of the fastest-growing and most dynamic private businesses across Africa. Vivo Energy is the first company in that report to follow up by listing on LSE.
  • In March 2016, LSEG established an Africa Advisory Group, bringing together 12 distinguished business leaders, policymakers and investors from across Africa, to discuss the challenges and opportunities presented by the development of the continent’s capital markets.
  • In November 2014, London Stock Exchange Group and The Nigerian Stock Exchange signed a capital markets agreement to support African companies seeking dual listings in London and Lagos. The agreement followed the implementation earlier in 2014 of a unique new cross-border settlement process between the UK and Nigeria.
  • In June 2014, LSEG signed a strategic agreement with Casablanca Stock Exchange to share its expertise on the full exchange business chain, from listing to trading, and from clearing to settlement and custody with a commitment to position Casablanca’s capital markets and financial infrastructure as a regional hub.
  • In April 2014, Nigerian oil and gas group Seplat was the first Nigerian company to simultaneously dual list equity shares in London and Nigeria and raised $500m in an IPO.

LSEG market infrastructure technology, supplied by Millennium IT of Sri Lanka, is deployed in more 12 African markets, including Botswana, Casablanca, Namibia and Johannesburg stock exchanges.

African Banker award 2018 – here is the shortlist

The organizers of the African Banker Awards have announced the shortlisted nominees in the different categories. The African bank excellence awards are hotly contested and will be made on 22 May, during the annual meetings of the African Development Bank (AfDB) in Busan, South Korea. The awards are organized by African Banker magazine, published by IC Publications Group.

Chair of the Awards Committee, Omar Ben Yedder, the Group Publisher and Managing Director of IC Publications Group, says he is again impressed by the quality and breadth of entries: “We saw McKinsey earlier in the year releasing a very positive report analysing the banking landscape in Africa. The entries reaffirm their findings when they say Africa’s banking market are amongst the most exciting in the world.

“The categories that caught my eye were innovation in banking – and this year’s entries reflect the transformative role of fintech and also blockchain technology – as well as deal of the year, which is every year a very competitive category. Equity markets were a little slower in 2017, but we saw some interesting deals on the debt side and also transformative infrastructure financing structures. The quality of the entries, and sophistication of the solutions being presented, reflect a buoyant sector in continuous evolution.”
reflects another strong year in African banking, driven by innovation and resilient markets

The shortlist reflects another strong year for banks from Morocco, Nigeria and Kenya. Banks which have a large footprint across Africa, such as Ecobank, Standard Bank and Standard Chartered, also feature across several categories.

The African Development Bank is the patron and the awards are sponsored by The African Guarantee Fund, Banco Nacional de Investimento (BNI), Groupe Crédit Agricole du Maroc and The Bank of Industry. Ecobank will be the hosts of the African Banker Awards cocktail reception prior the awards. The Gala Dinner and Awards presentation will take place at the Paradise Hotel, Busan.

Shortlisted entries are:

African Banker of the Year:

  • Mohamed El Kettani – Attijariwafa Bank, Morocco
  • James Mwangi – Equity Group Holdings Plc, Kenya
  • Joshua Oigara – KCB, Kenya
  • Segun Agbaje – Guaranty Trust Bank, Nigeria

African Bank of the Year:

  • Attijariwafa Bank, Morocco
  • Equity Group Holdings, Kenya
  • Guaranty Trust Bank, Nigeria
  • The Mauritius Commercial Bank, Mauritius
  • Standard Chartered

Best Retail Bank in Africa:

  • Barclays, Zambia
  • Ecobank
  • KCB, Kenya
  • Millennium BIM, Mozambique
  • SBM Holdings, Mauritius

Investment Bank of the Year:

  • Barclays Africa Group
  • Exotix
  • FNBQuest Merchant Bank, Nigeria
  • Standard Bank
  • Standard Chartered

Award for Financial Inclusion:

  • Fourth Generation Capital Limited, Kenya
  • Groupe Crédit Agricole du Maroc, Morocco
  • Baobab Group, France
  • Equity Group, Kenya
  • JUMO World, South Africa

Award for Innovation in Banking:

  • Agricultural Finance Corporation, Kenya
  • Ubuntu Coin
  • Banque Nationale pour le Développement Economique, Senegal
  • Ecobank
  • SBM Holdings, Mauritius

Socially Responsible Bank of the Year:

  • Barclays Bank, Zambia
  • BMCE Bank of Africa, Morocco
  • Equity Group, Kenya
  • First Bank of Nigeria, Nigeria
  • KCB Group, Kenya
  • Standard Chartered Bank Kenya, Kenya

Deal of the Year – Equity:

  • ADES IPO – EFG Hermes, Egypt
  • First Rand Acquisition of Aldermore PLC – Rand Merchant Bank, South Africa
  • GAPCO sale to Total – Standard Chartered, South Africa
  • Long4Life IPO – Standard Bank, South Africa
  • Steinhoff Africa Retail Listing – Rand Merchant Bank, South Africa
  • Vodacom Tanzania IPO – National Bank of Commerce and Absa CIB, Tanzania

Deal of the Year – Debt:

  • $300m Diaspora Bond – Standard Bank/FBNQuest Merchant Bank, Nigeria
  • $540 First Rand Asia Focused syndication – Standard Chartered, UK
  • Cape Town Green Bond – RMB, South Africa
  • Dufil Prima Foods – Standard Bank, South Africa
  • Nokeng Fluorspar – Fieldstone, South Africa
  • Viathan – Renaissance Capital, Nigeria

Infrastructure Deal of the Year:

  • Nigeria Infrastructure Debt Fund – Chapel Hill Denham, Nigeria
  • Nacala Railway and Port Corridor – Standard Bank SA / RMB, South Africa
  • FIRST – Rand Merchant Bank, South Africa
  • AEE Power Project – RMB, Namibia

Individual recognition will also be given in the categories for the Regional Bank winners, Central Bank Governor of the Year, Finance Minister of the Year, and Lifetime Achievement.

Will Brexit impact Africa-focused IPOs?

CONTRIBUTED POST

Brexit, the UK’s decision to leave the European Union, is having a global ripple effect as countries prepare to deal with the effects. Many African countries enjoy a close trading relationship with the UK. The United Nation’s Africa Renewal states Brexit will be a difficult time for Africa as the UK will no longer be able to help shape and lead some of its most important initiatives in the continent. Trade agreements usually take a long time to finalize, and the uncertainty of the UK economy could complicate things further for the African continent. Will Brexit affect initial public offerings (IPOs) in Africa?

While Brexit will have an impact on African businesses, the prospects for the continent look bright due to partnerships with other trading partners. For example South Africa is only one example of a country with excellent existing trade agreements with the EU, which will mitigate the effects, according to BusinessTech. Although the City in London is a key source of finance and financial support, there may be more interest to look at European partners in future when launching IPOs within the continent.

Brexit could also have a positive impact on Africa-focused IPOs with the UK pivoting away from the EU and refocusing their trade in Africa. UK Trade Commissioner for Africa Emma Wade-Smith spoke to African Business magazine of how African and UK trade relations are strong, and that Brexit means “[that] this is an exciting time to explore what this means for us [the UK] in Africa.” She noted that one area the UK was focusing on was oil.

Impact of Brexit on Africa-focused oil IPOs

Vivo Energy Investments B.V., a licensee of Royal Dutch Shell PLC in Africa, announced plans to launch an IPO that would increase the value of the company to over $3 billion, and recently confirmed it would be a premium London listing in May. The large investment shows that despite the economic turmoil predicted because of Brexit, there is still a lot of international interest in Africa. The Vivo Energy IPO represented a boost in Africa’s economic growth, a rebounding of the commodity prices, and a growing middle class, which will increase retail and fuel demand.

Africa’s oil industry has continued to grow. Economists agree that an increase in oil demand would also mean an uptrend for the commodity’s stocks. FXCM asserts that the correlation between oil and stocks isn’t always negative, as there are studies that prove that there’s no solid relationship between the inverse price movements of oil and stocks. When oil prices rise, so too do the stocks of companies that export or produce the fossil fuel. With Africa’s middle class increasing, this will have a positive knock-on affect on oil demand. Brexit could mean that the UK will be looking to increase its oil trade with Africa, which in turn will increase the number of oil IPOs being launched in the continent.

Other IPO issuers in Africa

In a previous article at African Capital Markets News, it was reported that African issuers raised approximately $1.4bn in IPOs in 2017.

This shows that Africa has many options apart from the UK if Brexit should have a negative effect on trading. While trade agreements may take a long time to finalize, and disrupt current deals with the UK, African businesses will still thrive through IPOs that are being launched by international companies within the region.

Brexit will have an impact of the African economy, but African-focused IPOs are coming from other trading partners and should not be affected by the UK’s vote to leave the EU.

Credit Pixabay.com

Malawi Stock Exchange to start automated trading in May

Malawi Stock Exchange is set to go live with an automated trading system (ATS) and today (30 April) is start date for dematerialization as shareholders move physical certificates onto the Reserve Bank of Malawi electronic Central Securities Depository (CSD). Trading on the African stock exchange is to be automated by end of May.

Malawi Stock Exchange (photo credit: The Times Malawi)

According to the announcement by MSE and RBM: “Electronic trading is expected to commence by end of May 2018 and only securities that have been transferred and registered in the CSD will be traded in the ATS. Going forward, after implementation of the systems, all new IPOs (initial public offers) and subsequent trading will be made in the CSD and the ATS, respectively.

“The CSD is commencing the dematerialization process of the existing paper certificates and therefore requires that shareholders open investor accounts and dematerialize their securities (migrating from paper-based title to electronic securities) in preparation for the trading of electronic-based securities following implementation of the systems.

“Current shareholders are consequently required to contact a registered stock broker or custodian to dematerialize their stock holdings. Stock holders will be required to complete a Stock Holding Declaration and Consent to Dematerialize form upon presentation of the physical certificates; a signed and stamped copy of the form will be provided to the holder. The dematerialization process will run from 30th April, 2018 to 30th September, 2018.

“The investing public is encouraged to open securities accounts (in the same manner that one opens a bank account) through a registered custodian or stock broker from 30th April, 2018 onwards and deposit their share certificates in such accounts. We strongly encourage investors to deposit their securities early in order to minimize inconveniences that holders may face when need to trade arises instead of waiting for the deadline. Investors in regularly trading counters are particularly encouraged to speed up the dematerialisation of the securities.”

Capizar ATS system by InfoTech
The new system is Capizar ATS supplied by InfoTech Group of Pakistan in partnership with local firm Unified Technologies Ltd for infrastructure, also supplying hardware for MSE. Amir Raza Khan, VP & Head of Capital Markets BU at InfoTech, commented in a press announcement: “It is a privilege to work and represent Pakistan on an international platform. We are extremely proud of the expansion InfoTech has made in African markets especially in the SADC region. I would like to congratulate the Reserve Bank of Malawi and wish them success in this new era of automated trading and hope this new direction will influence a rise in aggregate turnover as well as volumes traded.”

The project is part of the $28.2 million Financial Sector Technical Assistance Project funded by a World Bank loan, with the total project set to close on 29 June. The tender was advertised by RBM in November 2016 and a procurement document published by the World Bank puts the CDS cost at $399,000 and the ATS at $723,708, plus links and other costs.

$1.9 bn pensions and insurance
MSE was created in 1994 and started offering secondary market trading in Government of Malawi securities. It started trading equity in November 1996 when it listed National Insurance Company Limited (NICO). It is licensed under the Financial Services Act 2010 and operates under the Securities Act 2010 and the Companies Act 2013. CEO is John Robson Kamanga.

At 30 April there were 3 stockbrokers, and listings were 13 stocks and 2 Government of Malawi bonds. The most recent main board listing was FMBcapital Holdings in September 2017, breaking a 9-year listings drought since Telekom Networks Malawi listed in November 2008. No companies have yet listed on the Alternative Capital Market designed for smaller and medium enterprises (SMEs) to raise capital. FMBCH is based in Mauritius and is holding company for FMBcapital group with banking and financial operations in Botswana, Malawi, Mozambique, Zambia and Zimbabwe.

Reserve Bank of Malawi (RBM) Governor, Dalitso Kabambe, said the stock market has a critical role to play in development, according to local newspaper The Times. He said firms are need capital for expansion to increase output, but also funds are growing rapidly outside the stock exchange, especially in pension and life insurance assets. “It is estimated that, by next year, 2018, the country will have a combined total of pension funds and life insurance funds to the tune of MWK1.4 trillion ($1.9 billion), against a total equity at the MSE of MWK762bn ($1.0bn).

“This, if not addressed by listing more companies on the MSE, will likely cause sub-optimal asset allocation, liquidity issues and an asset bubble. We have to avoid this at all costs, and the development of a stock market is a sure way of meeting the objective,” he said.

He was also quoted in a local newspaper The Nation that the new ATS and CSD would enhance confidence for local and international investors.

Barclays Bank call for standards for derivative trades on blockchain

Blockchain can revolutionize trading in derivatives, fix inefficiencies and cut cost of trading, but only if there is much more standardization across the industry. Barclays Bank is one of the key champions and yesterday (26 April) spoke out at the annual meeting of the International Swaps and Derivatives Association (ISDA) in Miami, USA.

According to this preview article on Coindesk: “Before banks and traders can rely on a distributed ledger technology as the vaunted ‘single record of truth,’ there first needs to be better standardization. Yet as it stands, they use a hodgepodge of data structures and formats to track the life cycle of trades, reflecting in part the variety of regulatory requirements imposed after the 2008 financial crisis.”

ISDA had proposed a common domain model (CDM) in May 2017, with the support of blockchain firms including R3, a consortium of the world’s biggest banks including JPMorgan and Citigroup among 200 enterprises, dedicated to researching and delivering new financial technology, and Axoni, a capital markets technology firm specializing in distributed ledger infrastructure.

ISDA is to release the first iteration of the blockchain-compatible version of CDM in early summer 2018 and Barclays has an internal CDM adoption working group. Coindesk quotes Sunil Challa from the business architect team at Barclays: “There is a shiny new technology promising to be a panacea for fixing many post-trade processing issues. So, now is an opportune moment to re-engineer our processes.”

“Simply replicating the existing fragmented state would be a colossal missed opportunity.”

How blockchain works for derivatives
Derivatives are traded using a contract between two or more parties, as highlighted in April 2016 on CNBC. Derivatives “contracts are made up of three main parts with ISDA creating the standards for derivative trading across the financial world. But the process is arduous with current paper contracts in the form of computer documents still being issued.”

Barclays showcased a prototype of using smart contracts through the lifecycle of a derivatives trade, including negotiating an ISDA master agreement, entering individual trades and performing the trades on a distributed ledger. The bank replaced traditional derivatives contracts with an electronic smart contract, whose fields could be pre-populated with certain values agreed by ISDA. This way, all the banks have the same document which will not vary slightly from bank to bank, something that can cause delays and unnecessary human intervention. The UK bank used a blockchain called Corda, developed by R3.

The banks involved could then populate the fields with the terms of the derivatives agreement such as the price with any changes being recorded. Those can then be seen online. Previously, a bank would have to search through its inbox or pile of documents to find an earlier version of the draft.

Even if banks use CDM on transactions between them, often they use their own ways to communicate data internally. CDM and distributed ledger could standardize data within institutions. It also provides a way for derivatives trading to be “blockchain agnostic” as many different providers are providing blockchain platforms and it is seen as risky to be on one.

Coindesk quotes Lee Braine of Barclays CTO Office, describing a future scenario in which banks are trading with each other on different distributed ledgers. If there are some counterparties on one network and other counterparties on other networks, would each need to host a node on every network or could they be genuinely interoperable? “A simplistic solution would be to revert to the traditional model of silos with messaging between them, but that risks replicating the fragmentation of the past. If you instead transition to the CDM, then at least there is opportunity to standardize on data structures, lifecycle events etc.”

Better for costs, better for regulators
Barclays working group estimated around 25% gains in efficiency form using CDM only in clearing, and about $2.5 billion in annual running costs.

Goldman Sachs, another keen supporter of CDM and shared ledgers as a way to deal with some of the extra pressures from implementing the European Union MiFID2 Markets in Financial Instruments Directive, which started being rolled out across financial institutions in the EU in January 2018.

One appeal for blockchain is that regulators can streamline reporting, by pulling data from a node on the blockchain. The Financial Conduct Authority of UK participated in a proof-of-concept for regulatory reporting of data mortgage transactions, using R3’s Corda platform.

According to Coindesk, Clive Ansell, head of market infrastructure and technology at ISDA, says: “There is a fantastic opportunity … but the level of success will depend on the industry operating to a common data and processing model.”

This article also appears at my new company website, www.innovation-wire.com.

African capital markets and innovation key to achieving African agenda

“The time is now to stop aspiring to building and focus on ensuring the African financial markets are actually built.”

    Paul Muthaura CMA Kenya (photo The East African)

  • African capital markets are key to African development visions but governments must prioritize market finance structures over donor and government-to-government finance.
  • How to mobilize over $1trn of assets in pension, insurance and collective investment vehicles across sub-Saharan Africa
  • Innovation at the core of Kenya’s 10-year capital markets masterplan, including M-Akiba bonds, regulatory sandbox, mobile platforms for securities trading
  • Governments to provide conducive environments
  • Capital markets connectivity to allow free flow of capital across borders to fund critical infrastructure for Continental Free Trade Area

Here are extracts from the speech by Paul Muthaura, CEO of the Capital Markets Authority of Kenya, this morning at the 7th annual “Building Africa Financial Markets Seminar” in Nairobi.

Also present was HE William Samoei Ruto (Deputy President of Kenya), Oscar Onyema (President of African Securities Exchanges Association (ASEA) and Chief Executive Officer of the Nigerian Stock Exchange), Sam Kimani (Chairman of the Nairobi Securities Exchange) and Geoffrey Odundo (CEO of NSE).

“This conference also comes closely on the heels of the admission of the NSE to the World Federation of Exchanges which acknowledges the trajectory of our markets’ growth in recent years and reinvigorates us for the journey ahead as we seek to position the NSE as a globally competitive platform for wealth creation, a global cross roads for investment and risk management and a critical catalyst for economic transformation.

“The central role of deepening capital markets to finance infrastructure, business enterprise and overall economic development is increasingly a key pillar of policy makers’ agendas in Africa. For instance, the African Union (AU) Agenda 2063 prioritizes the development of capital markets on the continent to strengthen domestic resource mobilization and to double market-based financings’ contribution to development financing.

“Similar prioritization is found in several national visions including Nigeria’s FSS2020, Zambia’s Vision 2030, Rwanda’s Vision 2020, Uganda’s Vision 2040 and of course the Kenya Vision 2030. Over US$1 trillion in assets are currently held by pension, insurance and collective investment vehicles across sub-Saharan Africa so the challenge to us in this room remains how are we going to leverage these pools to crowd-in the significantly larger pools of global capital necessary to fund the meteoric rise of this continent.

Innovation

“Institutions or sectors that do not prioritize innovation are ultimately relegated to stunted growth, poor competitiveness and ultimately, redundancy. The very fact that we are all gathered here today affirms that as a continent we are committed to actively deliberating on proactively adapting to emerging innovations. To institutionalize this commitment to constructive innovation at a national level, the Authority was honoured to convene our sector and international partners to put in place the Capital Markets Masterplan (CMMP) – a 10-year strategic policy document that targets to stimulate innovation to broaden product and service offerings, deepen market participation and liquidity, and drive transformative economic development for Kenya and the wider region.

“Any conversation on innovation appears inseparable from a deliberation on the global efforts to continuously update business models in line with technological changes cutting across product/services design, infrastructure, access and supervision. To this last point, regulators are increasingly challenged to rethink their supervisory models to align regulatory requirements with market needs is a fast-changing environment.

“For some time now, Kenya has been sitting in a unique position as a bustling hub for impactful innovation, ranging from MPESA – a fast and convenient mobile money platform to M-Shwari – a mobile-based savings product. Not to be left behind, Kenya’s capital markets have through various initiatives have been angling to put the country on the global innovation map. These initiatives include;

  • The recent launch of M-Akiba – a mobile-phone-based retail government bond primary and secondary market investment platform,
  • The on-going efforts to establish a Regulatory Sandbox for Kenya’s capital markets to provide an ideal platform for testing of ideas/innovations/products/services etc. before they are rolled-out to the wider market; and
  • The development of a wide spectrum of mobile based platforms for securities trading.

“As a regulator cognisant of our dual mandate of regulation as well as development, the Authority has also operationalized principle-based approval powers to allow for the accelerated introduction of new products including exchange-traded Funds, GDR/Ns (global depository receipts) and asset-backed securities.

Right foundations

“It is critical, particularly given the nascent state of markets on most of the continent, that we do not lose sight of the critical importance to build our markets on the right foundations. In a world where we are eternally competing for highly mobile capital, we must prioritize the development and more critically the transparent enforcement of world class legal and regulatory frameworks; in pursuing innovation, we must not forsake robust market infrastructure that provides pre and post trade transparency and engenders confidence in settlement finality; we must ensure that the products and services being developed are actually relevant and responsive to the economic needs of our environment, resonate with the political priorities of our governments and strengthen the savings and investment habits of our citizenry.

“We must challenge our governments to provide conducive macro-economic, political and fiscal environments for markets to grow. Difficult as it may be, we must be willing to prioritize market-based funding models over traditional government-to-government and donor funding models. What appears concessionary today will likely be unsustainable tomorrow where the necessary market dynamics have not been built to support private sector growth and SME business as the engines for long-term sustainable economic growth and as a critical source of tax revenue to ensure debt service and sustainability.

“We must challenge our market intermediaries to raise their operational and technical standards to be able to support responsive product design and ethical practices, all parties need to come together to drive both issuer and investor education on the full spectrum of financing options available to them to ensure the supply side is as dynamic as the demand side’s need.

“We must challenge our domestic institutional investors to make the difficult decisions to diversify into appropriate market-based risk products that allow for effective asset-liability matching in place of traditional government debt and, needless to say, proactively work with government to consistently lower government borrowing rates in order to tackle the crowding-out effect all too common with the easy availability of double-digit risk-free assets.

“If we are to deliver robust African capital markets we must deepen the capacity of the complementary professionals, support independent auditor oversight, robust corporate governance and globally benchmarked certification standards.

“Introduction of REITS (real estate investment trusts), operationalizing collateral management and liquidity management tools like REPOs and securities lending and borrowing, Impending green finance, roll-out of Islamic finance, delivery of commodities exchange and warehouse infrastructure, derivatives markets to support hedging, online forex trading (FX CFDs), and leveraging fintech to support access and market growth, are all critical components in deepening and diversifying the capital markets that have received and continue to receive strong support from the government in partnership with market stakeholders.

Pan-African challenge

“With the introduction of the Continental Free Trade Area, it is for the capital markets to address pan-continental connectivity to allow for the free flow of capital across borders to fund the critical infrastructure necessary to support the free movement of goods and services under the free trade area. The time is now to stop aspiring to building and focus ensuring the African financial markets are actually built.

“As the capital markets regulator, we are keen on actively playing our role in positioning Kenya as an investment hub for East and middle Africa. By 2023, we envision Kenya as the choice market for domestic, regional and international issuers and investors looking for a safe and secure investment destination.”

For the full speech, see the CMA Kenya website.