South Africa’s securities exchange war goes to court

Court is the next battleground in a war to redraw the securities exchange landscape in South Africa. New exchange 4AX has launched a High Court application to set aside both the decisions of the FSB regulator and its Appeals Board to give a licence to new exchange ZAR X, according to Moneyweb .
Last September South Africa’s Financial Services Board awarded licences to ZARX (Pty) Ltd (ZAR X) and 4 Africa Exchange (Pty) Ltd (4AX) (see our story here) .
The JSE and 4AX appealed against ZAR X’s licence but in February 2017 the FSB Appeals Board dismissed the appeal, saying the FSB had complied well with the Financial Markets Act 2012 (FMA), and awarding ZAR X full costs (see another Moneyweb article). ZAR X settled its first trade in February 2017, delayed from an initial September launch date. Its first listing was agribusiness Senwes.
In February Donna Nemer, JSE Director of Capital Markets, said the JSE will fully respect and abide by the decision: “We are still very committed to the market and the participants in this market, and will cooperate fully in the debate on how we should be evolving going forward,” she said. “We will continue the work we are doing with the regulator and all the market participants, including the new exchanges, to maintain the high quality capital markets for which South Africa is really well known.” The JSE is not joining the new court case.
Also in waiting is exchange A2X, which has a licence application with the FSB. For more background on 4AX see our story.

Why another exchange?
The new bourse has 3 listed securities and 7 authorized market participants or brokers, according to its website. It says many listings are set to come.
According to Geoff Cook, cofounder and director of ZAR X, writing in Business Day newspaper this month: “Nowhere is radical change more desperately needed in SA than in the capital markets. The model that has dominated for more than 60 years is stagnant, with no broadening of the capital markets. It is also hopelessly skewed against the private investor.”
Volumes had grown of trading over the counter (OTC) in shares in black economic empowerment schemes for big companies such as MTN, Vodacom, Multichoice, Sasol and Imperial. Other OTC schemes were being operated as restricted shareholder platforms such as large agricultural cooperatives Senwes, TWK and KWV, while a few other companies sought liquidity at low cost for a limited spread of shareholders.

Geoff Cook, ZAR X Head Markets and Regulations (credit ZAR X)


ZAR X co-founder and CEO Etienne Nel created a platform called Equity Express for the OTC market. In July 2014 the FSB issued Board Notice #68 which effectively compels the OTC equity trading market to alter methodology and operate through a licensed exchange in terms of the FMA.
ZAR X works with a prepayment model, so that cash is prefunded (deposited into the system before a trade) and a seller’s shareholding is pre-cleared before concluding a transaction. Securities are held in a segregated depository account at a central securities depository (CSD), as required in the FMA. with a CSD participant facilitating clearing. The trade settles on t+0 or real time.
According to Cook: “Only severe disruption will return the financial markets to any sense of reality and social relevance. That disruption has arrived. Brokers can now execute a R1,000 order profitably through a world-leading T+0 prefunded execution model that does not require settlement risk capital, in which trading and administration applications are provided at minimal cost and where live data is free to all. Safe custody fees are zero and fees are only paid on transactions.
“The equity market is too concentrated and the debt market remains inaccessible and opaque. Despite there being nearly 1,300 collective investment schemes as well as many broker-managed discretionary portfolios, allocations are nearly all aligned to a limited number of old economy securities. Passive investment products such as index trackers simply compound the concentration.”
Cook says that regulation and the funding imbalance towards collective investment schemes means innovative small and medium and medium-sized companies to raise capital from asset managers. They need direct access to retail investors or bespoke asset managers who can invest in smaller companies. Asset managers are restricted to investing in securities with large market capitalisation.
He says the new exchange will mean that listings of less than R100m will become more common.
Cook claims that on average less than 0.5% of daily market volume on the JSE is retail-driven with less than 300,000 active retail clients, across all brokers, loaded within the JSE’s broker deal accounting (BDA) system. He says 30% of trading volume comes from brokers who collocated or moved their trading systems physically closer to the JSE trading engine in order to profit by millisecond time advantages. According to its website: “No high frequency trading, derivatives or short selling will be allowed. ZAR X has deliberately structured fees in such a manner that we wish to encourage investing rather than trading.”
“Nearly all equity listings are now done by way of private placement, which requires a minimum investment of R100,000 per subscriber. Offers to the public are rare as brokers cannot facilitate smaller retail client transactions profitably. With high costs and insufficient order flow brokers focus on providing discretionary managed portfolios, which attract higher fees but have higher financial entry requirements.
“The “uninvested” retail investor is therefore totally excluded from directly participating in the capital market. Their only access is indirectly via a collective investment scheme that, if they did, would further perpetuate the shrinking of our capital market.
“The concentration of order flows to fewer institutional brokers is detrimental to efficient and transparent market pricing. With thin net margins, institutional brokers use their balance sheets to secure revenue flow by engaging in principal trading, high-frequency trading (HFT), and facilitation trading, including dark pools.”

Stokvels – South Africa’s $3.8bn savings pool
Cook claims there is huge potential for retail investors to buy securities: “Stokvels, whose members are active savers and investors, have more than 2m members. The Zion Christian Church has about 4-million contributing members. The potential size of the ’uninvested’ retail market is unknown, but I would suggest it is in excess of R700bn. The market system has ignored it.”
ZAR X also hopes to work with other exchanges “particularly in Africa”.
Stokvels are a big part of life in South Africa, with estimated 810,000 stokvels and 11.5m members, with a stokvel economy worth R49bn ($3.8bn), according to the National Stokvel Association of South Africa. There is even a comedy show called Stokvel on DSTV’s Zambezi Magic.

Stokvel comedy, Zambezi Magic DSTV.

Namibian SX and Bank of Namibia poised to launch paperless

The Namibian Stock Exchange and the central Bank of Namibia are working together to create a central securities depository (CSD) for equities, bonds and bills traded. They are waiting for laws and regulations to be passed to get the new system operational.

According to Kazembire Zemburuka, Deputy Director: Corporate Communications at the Bank of Namibia, quoted in a Southern Times newspaper article: “In an effort to develop the domestic capital market, the Bank of Namibia and the Namibian Stock Exchange have collaborated to jointly create a Central Security Depository company that will be licensed by NAMFISA (regulator) to hold and safeguard financial instruments in electronic format.”.

He said the Central Security Depository (CSD) Company is already in existence and has a Board of Directors comprising representatives from the two institutions. Following industry-wide consultations, systems requirements for the Namibian CSD were developed and a vendor has been appointed to provide a system. It will cater for both equities and bonds.

“Full implementation of the system awaits the finalisation of the necessary legislation and regulations. This process is already at an advanced stage,” explained Zemburuka. The company will provide electronic settlement of equities and bonds transactions concluded on the NSX and settle transactions in money market securities. It will be regulated by the Namibian Financial Institutions Supervisory Authority (NAMFISA).

Earlier, Tiaan Bazuin the NSX CEO told Namibian Economist newspaper why the 2 institutions are working together: “It is not a requirement to work jointly, it is preferred as it is a national project, in fact we have a market steering committee with all the market participants involved, including the banks, asset managers [amongst others].”

Interested stakeholders would be able to join as shareholders in future. “We have already indicated once it is up and running, others will also be able to join as shareholders if they want to. Typically some market participants wish to have a strategic stake in financial market infrastructure.”

In many African countries there are often two CSDs, with the central bank and the exchange each running their own systems, but it is much more efficient and reduces risk if both are integrated and built to work seamlessly with the capital markets trading such as the securities exchanges. Bank of Namibia and the local banks have worked together over decades and built advanced payment systems between the banks. Similar systems extending across most other countries in the Southern African Development Community (SADC) and it is hoped eventually that crossborder securities trading will also become more widespread.

Since the NSX was founded, it has operated using physical or paper certificates representing ownership of equities and bonds. It set up a very streamlined system for this, settling domestic equities on T+5 and South African stocks on T+3, and working closely with the banks involved in including global custodians.

Only treasury bills are paperless. Dual-listed South African and other shares are settled on the home country central securities depository, for example Strate in South Africa.

Vodacom Tanzania wrapping up $213m IPO on Dar es Salaam bourse

Some 40,000 Tanzanians subscribed for the TZS476 billion ($213 million) initial public offer (IPO) of Vodacom Tanzania Ltd, part of South Africa’s Vodacom Group. The figure came from company’s MD, Ian Ferrao, quoted in the Citizen newspaper.

It is the largest IPO in the history of the Dar es Salaam Stock Exchange (DSE) and attracted many first-time buyers.

The company says it has 12.4m customers and 31% market share of a telecoms market it estimated was worth $996m. It says TZS2.6 trillion ($1.17bn) is transacted every month by over 7m customers of its M-pesa mobile money solution. It had offered 560m shares (25% of the company) at TZS850 each. The IPO opened on 9 March and was extended for 3 weeks after the closure date of 19 April and ended 11 May. The announcement of results was due on 26 May, and the listing was expected on 12 June 2017 but has not yet been reported. According to news reports, the Capital Markets and Securities Authority (CMSA) is busy with verification, according to Orbit Securities which is Vodacom’s lead advisor.

Mr Simon Juventus, General Manager of Orbit, said the time extension meant more investors could be reached: “This time around we reached many investors unlike the first six weeks … the progress was good.”

The IPO follows the Electronic and Postal Communications Act of 2010 (EPOCA) which requires all telecom companies to list, and the June 2016 Finance Act requiring them to list at least 25% on the DSE to boost domestic ownership, with foreigners barred.

So far only Vodacom is busy with the process. On 1 June, President John Magufuli said that telecoms licences would be revoked if telecom companies did not list on the Dar es Salaam bourse saying they made enough profit to pay the fines of TZS300m and ordered the Tanzania Communications Regulatory Authority (TCRA) to act tough against telcos that do not list.

According to the President, as reported in Daily News: “Listing at the bourse will enhance transparency and enable the Government to collect its fair share of revenues,” He noted that Ethiopia’s state-owned monopoly telephone company has 30m-35m subscribers and made $1.5bn profit. Tanzania Telecommunications Company Ltd (TTCL) has not paid any dividends since shares were sold to foreign investors in 1990s.

Other companies which list are Airtel (Bharti Airtel Ltd of India and Government each offered to sell 12.5% of the shares), Tigo (local subsidiary of Millicom International Cellular SA of Luxembourg) and Maxcom Maxcom Africa (MaxMalipo), which have presented their prospectus to the CMSA. According to Daily News, the Tanzania Communciations Regulatory Authority (TCRA) says there are 86 tele-firms which that s must list. andOthers include TTCL, Halotel Tanzania, Zantel and Smart. Finance Minister Philip Mpango proposed that smaller companies should be exempted from IPOs as he presenting the Finance Bill 2017 to Parliament.

Opening the IPOs to foreigners
Mpango on 22 June told parliamentarians that Government would bring legislation to allow foreign investors to buy shares in telecommunications companies listing on the DSE. According to Bloomberg , after the IPO stalled.

The combined value of expected telco listings would be $1bn, compared to stock exchange capitalization of about $8.4bn. The Daily News reported that the law change would probably be through a 2017/18 Financial Bill to amend EPOCA.
“We want to open up the mandate of companies listing 25% of their shares to allow Tanzanians, Tanzanian companies, Tanzanians in the diaspora, joint ventures between Tanzanians and foreigners, East Africans or companies owned by East Africans, or citizens from other countries.”

The article quotes George Fumbuka, CEO at stockbroker Core Securities: “We are now doing it the way it should’ve been done. I can understand trying to give special treatment for locals, but in the stock market it should be open market.” He said he thought Vodacom was overpriced and an open market would encourage compaies to price IPOs “more competitively”.

George Kalebaila, director for telecoms and Internet of Things in Africa at International Data Corporation, was quoted by The East African newspaper: “Equity markets need time to develop and I think 25 per cent is rather ambitious, as there is limited equity in local hands waiting to be invested. That’s why you see the shareholding structure of a couple of large organisations favour wealthy and politically connected individuals, who have access to capital.” Foreigners will also be able to buy the shares after the IPO

System to track electronic payments

On 1 June President Magufuli launched Electronic Revenue Collection System (e-RCS), which will be operated by Tanzania Revenue Authority (TRA) and Zanzibar Revenue Board (ZRB). The system is designed to track and directly collect Value Added Tax (VAT) and Excise duty on all electronic transactions by communication companies and financial institutions, with the views of enhancing efficiency in the collection of government revenues.

Tanzania Revenue Authority Commissioner General Charles Kichere said only 3 companies – Halotel, Smart and TTCL – have so far joined e-RCS. He said it was an efficient tool for tracking and collecting revenues through electronic payments without human intervention.

Latest on developments in African capital markets

Presentations from the exciting Building African Financial Markets (BAFM) seminar are now available on the Internet. The 6th edition of BAFM was hosted the first time in North Africa by the Casablanca Stock Exchange (CSE) in Morocco on 18-19 May, 2017. The seminars are organized with the African Securities Exchanges Association (ASEA).

The theme of the event was “Global Best Practices to Enhance the African Capital Markets”, I was compere and there were many top presentations which you can download here. It provided a great platform for sharing information and discussing best ways the exchanges can support Africa’s needs for long-term capital.

According to the host, Karim Hajji, Deputy President of ASEA and CEO of the Casablanca Bourse: “The Casablanca Stock Exchange is more than ever before convinced of the important role of African exchanges in mobilizing the means for financing the continent’s growth. BAFM is indeed an opportunity to consider new paths of cooperation and enhance synergies so as to improve the role of Exchanges in financing the African economy.”

BAFM is a capacity-building initiative designed to promote growth in African financial markets. The Casablanca meeting attracted more than 100 delegates from within and outside Africa. There were very many top speakers including: Abimbola Ogunbanjo (First Vice President of the Nigerian Stock Exchange), Ronald Webb (Director – Financial Services, Safaricom Ltd), Riccardo Ambrosini, (Climate Finance Specialist, IFC World Bank Group) and Selloua Chakri (Head of Market Structure Strategy MEA Region, Bloomberg L.P.).
This high-level meeting provided a.

Oscar N. Onyema, President of ASEA and CEO of the Nigerian Stock Exchange, said; “Building the African financial market is our collective responsibility, hence we must seek out knowledge that empowers each of us to remove impediments to the advancement of our market.”

To view the presentations as well as the pictures of the Seminar, please visit http://www.african-exchanges.org/sites/default/files/publications/building_african_financial_markets.pdf and http://www.african-exchanges.org/en/media#contentCarousel/gallery respectively.

Progress of real-estate investment trusts (REITs) in financing Africa

“There are only 32 REITs (real-estate investment trusts) in Africa with South Africa being the largest REIT market having 27 REITs and Nigeria second with 3 REITs listed”, according to Oscar Onyema, CEO of the Nigerian Stock Exchange. He said REITs are only available in 4 countries – Ghana, Nigeria, South Africa and Kenya – and their total value was $29 billion. (TM NOTE: Mauritius and some other markets also list real-estate investment companies under general or other listing regulations, without specific rules for REITs).

Onyema said that the volume of transactions had climbed from $65 million across Kenya, Nigeria and Ghana in 2012 to an estimated $265m worth of transactions in 2015. “This indicates an increasing market as a larger number of investors are beginning to take increased interest and participation in the Real Estate Investment sector.

“Whilst the Nigerian market may not be as developed as other emerging markets such as Mexico, South Africa and Singapore, this asset class has definitely come to stay. Today we have about N40bn ($126.8m) in REITs market cap (capitalization) listed on the NSE and a total of N96b in the construction/ real estate sector of our equity market”.

Minister of Power, Works and Housing, Babatunde Raji Fashola (who was represented by Ayo Gbeleyi, Managing Partner of GA Capital Limited) said Government would use the stock exchange among other tools to raise finance for housing: “It is difficult, if not impossible, for Government to provide all housing solutions given the diverse demands. Best practices in places like the UK, US, Canada and Singapore are stories of a mixture of ownership and rental arrangements.

”In the medium term, we intend to raise more capital outside direct Government Treasury, working with the Federal Ministry of Finance, through Infrastructure bonds, REITS and other forms of real-estate financing instruments, leveraging as most appropriate the platform of the Nigerian Stock Exchange”. Other funding sources include pension funds, private equity funds and the National Housing Fund managed by the Federal Mortgage Bank.

Onyema said the exchange is implementing changes in the reporting and valuation of REITs and other collective investment schemes listed on the NSE, in order “to create a more transparent, liquid and accessible market structure in line with global best practices for REITs”.

Abimbola Ogunbanjo, the first Vice President of the National Council of NSE, said the Nigerian REITs market is largely underdeveloped due to lack of clarity on regulatory issues: “The major challenges facing the REITs industry in Nigeria include restrictive legislation, poor knowledge and understanding of the industry in addition to prolonged bottlenecks created by the Land Use Act of 1978. Nigeria’s Land Use Act is embedded in the Constitution of our country. Thus, any attempt to rectify its inadequacies requires a constitutional amendment which of itself is a major challenge”

The speakers were at a recent conference at the Nigerian bourse to promote real estate investment trusts (REITs in Africa). It was sponsored by Stanbic IBTC Holdings Plc, FSDH Asset Management Limited, PricewaterhouseCoopers (PWC), United Property Development Company (UPDC) Plc, Rand Merchant Bank (RMB) Nigeria Limited, Udo Udoma & Belo-Osagie and Mixta Nigeria. Click for NSE press release and photos.

RETS conference: Photo Nigerian Stock Exchange.

Private Equity Africa award winners 2017

Congratulations to all the winners and participants of the Private Equity Africa Awards 2017, who attended a glittering night of excellence in finance supporting Africa’s growth. The awards dinner was at the Savoy in London, and the final award-winners were selected by an independent panel of judges (see below) and recommendations from a nomination team at the London Business School Institute of Private Equity. For full details and more photos see Private Equity Africa website and the detailed pages on the awards and speakers.

Winners of 2017 awards were:

  • Limited Partner (LP) Award: CDC
  • Outstanding Leadership Award: Ziad Oueslati, co-founding Partner at AfricInvest. Award presented by Runa Alam, Chief Executive Officer at DPI. This was awarded based on voting by leading industry investors.
  • Venture Philanthropy Africa Award: Helios Investment Partners

House Awards – House of the Year: 

  • Sub-Saharan Africa House of the Year: Development Partners International (DPI)
  • SME Investor of the Year: AfricInvest
  • Credit Investor of the Year: Investec Asset Management

 

Special Recognition: Houses

  • Regional Investor – North Africa: Mediterrania Capital Partners

 

Deal Awards

  • Exit of the Year: Actis for Emerging Markets Payments
  • Large Cap Deal of the Year: Helios for Oando Gas & Power
  • Mid Cap Deal of the Year: 8 Miles for Beloxxi
  • Small Cap Deal of the Year: Apis Partners for Direct Pay Online
  • Credit Deal of the Year: Investec Asset Management with IHS Nigeria

 

Special Recognition: Deals

  • Infrastructure Exit: African Infrastructure Investment Managers (AIIM) for N3 Toll, Trans Africa and Bakwena Platinum Corridor

 

Portfolio Awards – Portfolio Company of the Year

  • Development Impact: Emerging Capital Partners (ECP) for Oragroup
  • Social Impact: Development Partners International (DPI) for HomeChoice
  • Innovation: Quona Capital for Zoona
  • Improvement: Quona Capital for Zoona

 

Advisor Awards – Advisor of the Year

  • Overall Legal Advisor of the Year (Deals & Funds): Clifford Chance
  • Funds Legal Advisor: Webber Wentzel
  • Deals Legal Advisor: Clifford Chance
  • Local Advisor of the year – Legal: Bowmans
  • Local Advisor of the year – Financial: Pangaea Securities
  • Single Deal Advisor – Legal: Bowmans for Tsebo
  • Single Deal Advisor – Financial: KPMG for Tsebo
  • Single Deal Advisor – Infrastructure: Latham & Watkins for Azura Power
  • Single Deal Advisor – Frontier: Grant Thornton for Microcred
  • Fund Administrator of the Year: Abax Services

 

Special Recognitions: Advisors

  • Global Financial Advisor: KPMG
  • Regional Advisor – North Africa: Freshfields Bruckhaus Deringer
  • Exceptional Single Deal Advisor: Aluko & Oyebode.

The awards are an occasion for Africa’s fast-growing private equity industry, focused mostly onto growth equity, to celebrate its achievements and highlight excellence. As a judge, I have been very impressed with the detail, scale and outcomes of some of the deals, which are transformative for many African economies and reflect many months of hard work, inspiration and a wide range of skills including legal, financial and negotiation.

This year’s judges are: Vivina Berla (Sarona), Daniel Schoneveld (Hamilton Lane), Jeremy Cleaver (CDC), John Kristensen (Swedfund), Obinna Isiadinso (IFC), Mark Florman (Listed Private Equity), Dushy Sivanithy (Rede Partners), Gozie Chigbue (CDC), Isaac Gross (Capria), Erika van der Merwe (Southern African Venture Capital Association), Alex Wolf (HarbourVest), Hervé Schricke (Association Française des Investisseurs pour la Croissance – AFIC), Jean-Luc Koffi Vovor (Kusuntu Partner), Matthew Craig-Greene (Family Office Data Alliance), Sunaina Sinha (Cebile Capital), Tom Minney (African Growth Partners), Daniel Broby (University of Strathclyde), Mark Flanagan (Aon Hewitt), Charles Rose (Hainsford Renewable Energy), Gail Mwamba (Private Equity Africa).

Sir Bob Geldof (8 Miles), Spencer Baylin (Clifford Chance), Gail Mwamba (PEA), Afua Hirsch (MC). Photo: Private Equity Africa

Top speakers for BAFM capacity-building seminar 18-19 May


Leaders and movers of African capital markets are heading to Casablanca for the 6th Building African Financial Markets (BAFM) capacity-building seminar on 18-19 May, organized by Casablanca Stock Exchange with the African Securities Exchanges Association and supported by member exchanges.
This year focuses on “Global best practices to enhance African capital markets”. The agenda features CEOs of top African exchanges and other industry leaders: Oscar Onyema CEO of Nigerian Stock Exchange and President of ASEA, Siobhan Cleary of the World Federation of Exchanges, Karim Hajji CEO of Casablanca Stock Exchange, and speakers from Bloomberg, International Finance Corporation, Ethiopian Commodity Exchange, Tanzania Capital Markets and Securities Authority, Securities and Exchange Commission (Nigeria), Safaricom, Kenya Retirement Benefits Authority, Maroclear, and many others.
Topics include: demutualization and growth, what the new US administration means for African markets, financial inclusion, pensions, liquidity, green finance, global principles on IT infrastructure, and regional integration of exchanges in East, West and Southern Africa.
It will be held at Casablanca Most Events Business Center, Anfa Place, Casablanca, Morocco. Don’t miss a great chance to meet the drivers of Africa’s capital markets development. For more, check the Casablanca Stock Exchange website page.

JSE listed ETF offers 15 African exchanges ex-South Africa

A new exchange-traded fund (ETF) offers investors access to an index covering 50 companies across Africa outside South Africa. The AMI Big50 Ex-SA ETF tracks a new index designed by Cloud Atlas Investing, a Johannesburg-based collective investment scheme. It covers shares in 15 African exchanges including Egypt, Mauritius, Kenya, Morocco, Tanzania, Nigeria, Tunisia, Botswana, Namibia, Uganda, Ghana and Zimbabwe, as well as the BRVM Exchange in West Africa.

The ETF was listed on the Johannesburg Stock Exchange on 20 April. Donna Nemer, Director of Capital Markets at the JS, said in a press release: “The JSE is committed to playing a role in the expansion and deepening of Africa’s investment opportunities. This new ETF offers an easy, safe way to invest in African markets and supports the continent’s growth journey.”

ETFs are investments that track the performance of a group or “basket” of shares, bonds or commodities. They can offer tax and cost benefits to some investments, and are good for investors who do not want to pick and choose individual shares, but they are also used by institutional investors. They are regulated by the JSE and the Financial Services Board (FSB) and can be acquired, like any other listed share, through a stockbroker or online trading account, or via an investment platform that offers a monthly debit-order facility.

Maurice Madiba, CEO and Founding Director of Cloud Atlas Investing, said: “We want to improve liquidity and help to develop African markets for investors to feel the full robustness of these markets, and as such, have chosen to invest in stocks that are listed on African exchanges. These could include stocks in multinationals that are listed on African exchanges, as well as local African companies.”

The fund is available for individual and institutional investors. Regulation 28 of the South African Pension Funds Act allows pension funds to invest up to 5% per cent of a fund’s capital in African investments outside South Africa. Madiba explained: “We have received a dispensation from the South African Reserve Bank to offer this ETF to institutional investors according to Regulation 28. We have already opened up the ETF to the retail market, and certainly have plans to bring the institutional investor on board. We believe this ETF is a good product to have for the long-term investor because of its growth prospects, and as such will be of interest to both the individual and the institutional investor. It is important to us that we try to facilitate ways in which Africans can participate in Africa’s growth.”

Nemer adds it offers South African investors a wider opportunity to share in Africa’s growth and “Rand-hedging opportunities.”

According to this report on website ETF Strategy, the fund has certain concentrated exposures including significant country exposure to Morocco (28.4%) and Egypt (19.3%), as well as highly concentrated single holdings in Moroccan telecoms firm Itissalat Al Maghrib (20.6%) and Egyptian bank CIB (11.0%). Other top exposures include Nigeria (13.7%), Kenya (11.0%) and stocks listed on the BRVM Exchange in West Africa (6.3%). The top sector exposures are to banks (29.3%), telecoms (27.9%), food & beverage (17.7%) and industrials (14.6%). (Data as of March 2017). The fund has total fees of 1.17%.

The ETF market has seen steady growth globally as well as in South Africa. There are 53 ETFs listed on the JSE, with a total ETF market capitalization of almost R73 billion ($5.4bn). Several providers offer various indexes on African markets including regional indexes.

Prejelin Naggan, Head of Primary Markets, Johannesburg Stock Exchange and Maurice Madiba, CEO and Founding Director of Cloud Atlas Investing. Photo: JSE

World Exchange Congress 2017: First step – get domestic capital markets right

Here are some key points from the panel on “Alternative exchanges and connecting the African markets: What do you need to know?” at the World Exchange Congress 2017 in Budapest. All are CEOs: Moderator: Hirander Misra, Chairman and CEO, GMEX Group; Thapelo Tsheole, Botswana Stock Exchange; Moremi Marwa, Dar Es Salaam Stock Exchange; Sunil Benimadhu, Stock Exchange of Mauritius.

Q1: How to develop frontier African stock markets? Benimadhu: “We look at what our niche products are, that we do better than others. We list those products on the exchange. Then we think: ‘How we reach out to the world and tell our story?’ We need to make sure trading on our exchange is easy, efficient and meets international standards. Then we can look beyond our borders and ask what does the region need?”

Q2: Should you offer risk mitigation for currencies? Tanzania, Botswana and Mauritius are all open for investors to take their capital out, Mauritius was one of the first African markets to drop exchange control; it was brave as it’s a small economy, but it found the capital flowing in soon became more than the capital flowing out.
Protecting against changes in value of African currencies such as KES and NGN will be very important for attracting foreign investors, for inter-African trade and for trading in derivatives linked to international currencies. Benimadhu – Mauritius (and other markets) are looking at exchange-traded linked products to mitigate currency risk “there is a strong need to come up with a very sophisticated derivatives platform for mitigating currency risk”.

Q3: Inter-African stock-market links? Marwa: “We are harmonizing our trading rules among the 4 markets in the region – Kenya, Tanzania, Uganda and Rwanda – with the help of the World Bank. We are building an infrastructure based in Tanzania combining our automated trading systems (ATS) and central securities depositories (CSDs). In the Southern African Development Community (SADC) we are also making some progress in harmonizing and integrating our markets.
“Investors would rather see us as one big market, instead of small markets. For any issuer, reaching out the whole region will attract wider interest. In Tanzania we are well placed for this and we encourage harmonization and integration.”
Benimadhu “I have seen examples of larger markets and we should learn from that and use their experience. Take the case of Australia and Singapore, they allowed brokers from Singapore to trade in Australia and vice versa to increase order flow. After 10 years they scrapped it, it did not generate expected volumes. Many of the others have also fallen short of expectations. One which is working is Hong Kong-Shanghai but that is for specific reasons, including access to the Chinese market.
“I am a contrarian. I believe linkages make sense, but before doing that it makes sense to grow the domestic market. Open up, attract foreign flows. Don’t spend a lot of time and energy on linkages, but focus first on growing the domestic market. We should follow regional links, but they should not sidetrack us from where we should concentrate, on our own markets”.

IPO for I&M Bank Rwanda extended to 10 March


The extended deadline for the initial public offer (IPO) of I&M bank Rwanda is 10 March. The Government is selling its 19.8% stake in the bank in an offer launched on 14 Feb and originally set to close on 3 March. On offer are 99 million shares at RWF90 ($0.11) each, with a minimum purchase of 1,000 shares.
The offer could contribute nearly RWF8.9bn towards Government plans to raise RWF11.5bn ($13.9m) to build a second airport near Kigali, according to a report in KenyanWallStreet.com. As part of the offer, 5m new shares were created for an employee share offer programme (ESOP).

Prospectus delays
The Ministry of Finance and Economic Planning said it had received enthusiastic investor interest across the region. According to a statement: “This is to ensure that prospectuses and application forms reach investors across the country and the East African region in good time, and in response to requests from retail and institutional investors given the early start to the year, it has been decided to avail additional time to enable investors participate.”
New Times newspaper quotes Shehzad Noordally, the Chairman, Rwanda Association of Stockbrokers and Market Intermediaries: “There has been a slight delay in publishing prospectuses, which is an administrative issue that has been resolved. This has, therefore, resulted in the prospectuses not being distributed on time to the general public”.
I&M Bank, the Capital Market Authority, and the Rwanda Stock Exchange have approved the extension. The shares will be listed on the RSE.
The Government is committed to the development of capital markets as a means to building a strong foundation for long-term financing for both private and public sector, according to Minister for Finance and Economic Planning, Claver Gatete.
Previously Government has sold shares in 2 enterprises leading to listings – Bralirwa (Brasseries et Limonaderies du Rwanda, the largest brewer and beverages company) and Bank of Kigali. The other local listing is Crystal Telecom, subsidiary of Crystal Ventures Ltd, which represents a chance to trade the shares of MTN Rwanda. Crystal Ventures was profiled in the latest issue of The Economist magazine.
I&M Bank Rwanda was established in 1963 and was called Banque Commerciale du Rwanda Limited (BCR) before becoming the Rwanda subsidiary of I&M Bank Group Limited, headquartered in Nairobi, with operations in four countries.

Reasons for privatization

According to an earlier CMA press release, this is the Government of Rwanda’s strategy behind the listings:
“It is the GoR’s objective to encourage investment of shares of successful companies amongst the citizens of Rwanda, and to promote the development of the country’s capital markets. The GoR is pursuing a divesture program of state-owned enterprises, which kicked off in earnest in 1997 with a total of 72 institutions earmarked for privatization/divesture.
The specific objectives of GoR’s privatization /divestiture program entail:
• Reducing the shares held by Government in public companies and thus alleviating the financial burden on its resources (through the elimination of subsidies and state investments) and reducing its administrative obligations in the enterprises
• Ensuring better management and financial discipline in privatized companies
• Attracting foreign investment in Rwanda and the accompanying transfer of technology and knowhow
• Developing and promoting Rwanda’s capital markets and
• To give to the wider public the opportunity to participate in the shareholding of a well-run company”.