Africa’s DFIs proud at banking awards gala

Two leading African development finance institutions led the pack at this week’s African Banker Awards. Bank of the Year 2019 goes to Afreximbank, making giant steps in growing profitable operations in financing and promoting trade within and from African and launching many key new products in the past 18 months.

African Banker of the Year is Admassu Tadesse, President of Trade and Development Bank and from Ethiopia. The bank – formerly PTA Bank –  has been expanding its operations in East and Southern Africa and launched many new products.

Olukayode Pitan of Bank of Industry (left) awards African Banker of the Year 2019 to Admassu Tadesse of Trade and Development Bank

The African Banker Awards spotlight and celebrate excellence in banking and finance in Africa. The 2019 winners were announced at a prestigious gala dinner in Malabo, Equatorial Guinea, on the fringe of the annual meeting of the African Development Bank.

“I am very honoured to be a judge. It’s exciting to read the submissions about many top-quality African institutions and excellent leaders. Its very hard to choose winners from many inspiring entries, including giant investments and transactions that are transformational for African economies.” Tom

South African banks dominated in tightly-contested investment banking and in the deals of the year. Absa won investment bank of the year; Standard Bank and RMB won the equity deal of the year with the VIVO Energy’s £548m ($742m)  IPO in London (see our story); debt deal of the year went to Rothschild & Co for Senegal’s dual-currency Eurobond ($1bn and €1bn); and infrastructure deal of the year went to Credit Agricole and TDB which financed a floating liquefied natural gas (LNG) platform in Mozambique. 

In other categories: Ecobank won retail bank of the year; Kenya’s KCB won the prize for innovation; Equity Bank for its CSR activities; and Nigeria’s Bank of Industry won the prize for financial inclusion.

Overall there were excellent winners from most African regions in 2019. Organizers and the 2 main sponsors of the awards, the African Guarantee Fund and the Bank of Industry, called to make banking more inclusive, both in gender representation among senior managers and through lending to small and medium sized enterprises (SMEs).  

The 2019 lifetime achievement award went to South African Sizwe Nxasana, former CEO of First Rand group, which grew at a compound annual growth rate of 20% under his leadership. In his speech, Nxasana called for even greater investment in human capital to accelerate growth in Africa. The African Banker Icon award was for Mitchell Elegbe, founder of Interswitch, the payments service provider another Africa-led “unicorn”, a tech start-up business whose value is likely to exceed $1bn (see our story).

Tarek Amer, Governor of the Central Bank of Egypt, won Central Bank Governor of the Year for his work in restoring faith in Egypt’s markets, helping make it one of the best-performing emerging markets. Benin’s Romuald Wadagni won Finance Minister of the Year, after big improvements to macro-economic indicators and structural transformation reforms.

Omar Ben Yedder, Publisher of African Banker magazine, said: “2018 was another strong year for banks. Undoubtedly fintech was the most buoyant sector in terms of tech investments and we are yet to truly see the transformative impact it can have. Despite the positive stories from the banking sector, the words of the winner of our Banker of the Year still resonate when he said last year at the Africa Investment Forum: we need to speed up, scale up and synergize. ”


THE 2019 AFRICAN BANKER AWARD WINNERS
 
African Banker of the Year
Admassu Tadesse, TDB

Lifetime Achievement Award
Sizwe Nxasana, former CEO, First Rand Group 

African Banker Icon
Mitchell Elegbe, Founder, Interswitch Group

African Bank of the Year
Afreximbank

Minister of Finance of the Year 
Romuald Wadagni, République du Benin

Central Bank Governor of the Year 
Tarek Amer, Central Bank Governor, Egypt
 
Best Retail Bank in Africa
Ecobank
 
Investment Bank of the Year
Absa Capital
 
Award for Financial Inclusion
Bank of Industry, Nigeria

Special Commendation for their contribution to the development and financing of the Rural Sector: Banco Nacional de Guinea Ecuatorial (BANGE)
 
Socially Responsible Bank of the Year 
Equity Bank, Kenya
 
Innovation in Banking 
KCB, Kenya

Special Commendation: JUMO, South Africa

Deal of the Year – Equity
Vivo IPO
Standard Bank & Rand Merchant Bank (South Africa)
 
Deal of the Year – Debt
$2.2bn Senegal Eurobond
Rothschild 

Infrastructure Deal of the Year 
Mozambique Floating LNG
TDB & Credit Agricole

Regional Bank of the Year
East Africa – KCB, Kenya
West Africa – Orabank
North Africa – Banque de l’Habitat (Tunisia)
Southern Africa – Mauritius Commercial Bank
Central Africa – BGFI, Gabon

Bumpy ride when African tech unicorn Jumia comes to NYSE

Jumia share price from Yahoo Finance

Investors in Africa’s technology unicorn company Jumia have had a bucking bronco ride since it listed American Depository Receipts (ADRs, representing shares) on the New York Stock Exchange (NYSE). Similarly the company is learning fast that the world’s most developed public markets still have elements of the Wild West,

Jumia has seen the price of the ADRs more than double since it started trading on 12 April at $18.95, after an initial public offer (IPO) when people bought in at $14.50 a share. By 1 May it had climbed to $46.99, an impressive 224% increase for IPO investors.

The listing was the first IPO by an African startup on a major global exchange and the issue of 13.5m ADRs, representing shares accounting for 17.6% of the company, raised $196m for the e-commerce firm.

A report by US media company Citron Research published on 9 May claimed investors had been misled about the business model and revenues of Jumia in Africa The ADRs were already trading and the report triggered  started to slip back, when the report came out there were two days of heavy trading and the price crashed nearly 25% to $24.50 on 10 May before sliding back to $19.92 by 17 May. US lawyers started preparing class-action lawsuits against Jumia.

On 13 May Sacha Poignonnec and Jeremy Hodara, co-CEOs of Jumia countered by releasing first-quarter results early, showing 58% growth in gross merchandise value (GMV) representing the total value of merchandise sold before deducting fees, and 102% increase in revenue. They said: “.. year-on-year improvement of 356 basis points of operating loss as a percentage of GMV and further development of JumiaPay, highlighted by the investment by and partnership with Mastercard. We believe that Jumia is increasingly relevant for consumers and sellers in Africa.”

Jumia background

Jumia was launched in 2012 as Africa Internet Group in 2012. Germany’s Rocket Internet, an incubator and venture capital fund based in Berlin, supported it and still owns 20.6% of the shares.

Its operates in 14 African countries, offering goods and services including online takeaway food, travel bookings and classified advertisements. In Nigeria it operates JumiaPay payment platform and a delivery service of leased warehouses, trucks and motorcycles, and allows African traders to sell online with more than 81,000 active sellers (defined as a retailer who received an order on Jumia in the last 12 months). The prospectus said there were 4m active shoppers, up from 2.7m a year before.

In 2016 it was valued at $1bn – earning the title “tech unicorn” – in a funding round involving South Africa’s Mobile Telecommunications Networks MTN, which owns 29.7% of the shares, investment bank Goldman Sachs, French insurer AXA and French telco Orange. Mastercard Europe snapped up $50m in Jumia ordinary shares before the New York IPO.

CEOs Jeremy Hodara and Sacha Poignonnec are French, both former employees of consultancy firm McKinsey, and the company is incorporated in Berlin. However it has corporate presence and pays taxes in Africa, has its headquarters in Lagos, operates exclusively in Africa, and employs more than 5,000 people in Africa. Juliet Anammah, the Nigerian CEO of the main country operation rang the NYSE ceremonial trading bell. Two Nigerian tech entrepreneurs Tunde Kehinde and Raphael Afaedor were co-founders but both left in 2015 to create other companies.

The company was still making heavy EBITDA losses of €172m in 2018, compared to revenues of €131m on gross merchandise volume of €828m, up from revenues €94m in 2017. Accumulated losses by 31 Dec 2018 were €862m. It has no plans to pay dividends and will focus on acquiring sellers and consumers, growing technology infrastructure and sales and marketing expenses.

A McKinsey report suggests African consumers will spend $2.1trn by 2025, and e-commerce could be 10% of that. Many tech firms take years to reach profitability and Jumia’s track record is only encouraging enthusiastic New York buyers.

Airtel Africa confirms June $750m listing in London

Airtel Tanzania HQ (photo by Prof.Chen Hualin – Own work, CC BY-SA 3.0, creative commons by Wikipedia

Airtel Africa has confirmed that it is going ahead in June 2019 with its $750 million listing on the main market of the London Stock Exchange, as flagged up in January in our article. Owned by India’s Bharti Airtel, it is Africa’s second biggest mobile operator with operations in 14 countries and has 99m subscribers and 14.2m mobile money customers.

It said this week that it is aiming for a premium listing on the main market of the LSE, meaning it will float at least 25% of hits shares. It could offer up to 15% more shares through an overallotment option, according to a report in Financial Times which reports that the group says the exact number of shares to be sold and the indicative price range of the offer will be determined “in due course”.

Airtel will use the proceeds to cut the ratio of net debt to EBITDA (earnings before interest, tax, depreciation and amortization) to 2.5x, according to City AM. It also plans to expand data and mobile money services across Africa.

It is also considering a listing on the Nigerian Stock Exchange, according to reports.

Advisers and joint bookrunners appointed are JP Morgan, BofA Merrill Lynch, Citigroup, Absa, Barclays, BNP Paribas, Goldman Sachs, HSBC and the Standard Bank of Africa but the sole as its advisers. JP Morgan will be sole sponsor; BofA Merrill Lynch, Citigroup and JPMorgan will also act as joint global co-ordinators.

The amount to be raised in the listing is down from the figure of $1bn given by Reuters on 28 May quoting Airtel, and the $1.25bn figure in January and February.

For the year to 31 March it posted revenue of more than $3bn and operating profit of $734m. For more background on the shareholders and earlier capital raises, read our earlier report.

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African Banker Awards coming up 11 June 2019

The African Banker Awards 2019 are coming up next week during the African Development Bank annual meeting in Malabo, Equatorial Guinea. Dynamic banks are competing for awards including:

  • African bank of the year
  • African banker of the year
  • Investment bank of the year
  • Best retail bank
  • Innovation in banking and 5 other categories

For a full list of entries, including the African megadeals competing for debt and equity deals of the year, see the awards website.

Omar Ben Yedder, the Group Publisher and Managing Director of IC Publications Group, which publishes African Banker Magazine, said:
“We have received a record amount of entries this year. The banking industry is being disrupted by technology and one could sense that the sector is embracing this technology to develop solutions that will truly benefit the real economy. Financial inclusion lies at the heart of formalising our industries and fintech is playing a role in bringing finance to the masses. ” 

The awards are held under the patronage of the African Development Bank and are sponsored by The African Guarantee Fund and The Bank of Industry. The Gala Dinner and Awards presentation will take place at the Gaviota, by the Sofitel Sipopo, Malabo. 

MTN Nigeria shares soaring after $5bn listing

Telecommunications firm MTN Nigeria has had strong days of trading since it joined the Nigerian Stock Exchange in a listing by introduction on 16 May. As it moves closer to what the company may feel is “fair value”, chances of a future initial public offering (IPO) increase.

The $5.1bn listing of 20.4 billion (20,354,513,050) ordinary shares of MTN Nigeria Communications Plc (MTNN) at N90 per share on the Premium Board makes it the second biggest stock on the NSE after Dangote Cement plc and ahead of Nestle Nigeria plc, according to Bloomberg. It is the Nigerian unit of MTN Group Ltd, Africa’s biggest mobile-phone company.

Journalist Shola Lawal writing in Mail and Guardian newspaper described the scene: “At exactly 2.30pm, when the stock market closed on Thursday, MTN Nigeria’s chairperson Pascal Dozie and Ferdi Moolman, MTN Nigeria’s CEO, excitedly clanged metal sticks on a gong on the crowded trade floor at the Nigerian Stock Exchange (NSE) building. The room, filled with brokers in their maroon jackets, erupted in celebration.”

The shares were priced at N90 and have since climbed some 10% a day to reach N119.75 by close of business on 20 May. The main shareholders are only letting a few shares go until the share gets a higher price, according to an interesting interview by Kayode Omosebi, Team Lead, Financial Advisory at ARM Securities on CNBC. He estimates the stock will keep moving until it gets past N130 when more stock could become available, but his firm estimates “fair value” at N149.

Omesebi adds that interest has been wide including retail investors, and could spark a revival of interest in other equities. It will also widen liquidity across telecom stocks in Africa as investors will have a wider range of shares in South Africa, Kenya, Ghana and other markets.

The NSE listing is part of a settlement with the Federal Government of Nigeria after a $5.2bn fine was imposed for failing to meet at 2016 deadline to register SIM cards. In September 2018 there was a $2bn bill for back taxes, and the Central Bank of Nigeria said it has illegally repatriated $8.1bn between 2007 and 2015.

The initial plan was for a share offer or IPO, and MTN Chairman Dozie was not giving any timetable for when that will come: “We were to have an IPO but due to unforeseen circumstances we couldn’t. Half bread is better than none.”

Oscar Onyema, Chief Executive Officer of NSE, said in a press release: “Having MTN Nigeria listed in our market is a testament of the exchange’s commitment to building a dynamic and inclusive market and creating channels for sustainable investment. This listing will promote liquidity for MTN Nigeria, enhance its value and increase transparency, as our platform remains one of the best avenues for raising capital and enabling sustainable growth for national development”.

Analysts also hope that the listing will encourage international oil companies and two other key telecoms firms, Airtel and Globacom.

Mail and Guardian quotes Ugo Obi-Chukwu, founder of leading financial literacy website, Nairametrics: “The last time we had any major listings was in the early 2000s and it was the Government that stimulated those listings… This will open the floodgates for more listings and possibly renew an interest in the stock market.”

The premium board is “a listing segment for the elite group of issuers that meet The Exchange’s most stringent corporate governance and listing standards. This Board features Dangote Cement Plc, FBN Holdings Plc, Zenith International Bank Plc, Access Bank Plc, Lafarge Africa Plc, Seplat Petroleum Development Company Plc and United Bank for Africa Plc,” according to the NSE.

Work starts on African exchanges linkage project

Africa’s stock exchanges, regulators, central banks, stockbrokers and clearing systems are working together on the African Exchanges Linkage Project (AELP), set to create trading and information links between the 7 leading securities exchanges.

Participating exchanges at the first capital markets stakeholders’ roundtable were the West African regional exchange Bourse Regionale Valeures Mobilieres (BRVM), Casablanca Stock Exchange, The Egyptian Exchange, Johannesburg Stock Exchange, Nairobi Securities Exchange, The Nigerian Stock Exchange and the Stock Exchange of Mauritius.

The linkage project is a joint initiative by African Development Bank and African Securities Exchanges Association. It aims to facilitate cross-border trading and settlement of securities, unlock pan-African investment flows, promote innovations and diverse investments, and address lack of depth and liquidity in Africa’s financial markets. For more background, see our recent article.

The project is backed by $980,000 grant through the African Development Bank Korea-Africa Economic Cooperation Trust Fund (KOAFEC).

Karim Hajji, ASEA President and chief executive of the Casablanca Stock Exchange, said according to the press release: “Regional integration is a high-priority continental agenda. By organically linking 7 exchanges in Africa which collectively have a market capitalization of over US$1.4 trillion, the AELP will stimulate intra-African flows and provide opportunities for investors and trading participants in over fourteen African countries.

“With the expected outcome of boosting liquidity in African capital markets, the AELP will unlock the powerful potential of African markets to access and redistribute domestic capital for economic development.”

Pierre Guislain, African Development Bank’s Vice-President, Private Sector, Infrastructure and Industrialization, said: “The partnership between us and ASEA complements the Bank’s interventions towards deep and resilient capital markets in Africa. The African Exchanges Linkage Project will contribute to a wider financing pool for African corporates and SMEs and help close Africa’s infrastructure deficit, estimated at US$67–107 billion annually. Indeed, the continent needs deep, liquid and linked capital markets that will enable accelerated mobilization of domestic resources and incentivize private financing of infrastructure”.

Participating partners at the workshop on 24 April at African Development Bank’s headquarters included:
• Regulators Le Conseil Régional de l’Epargne Publique et des Marchés Financiers, Autorité Marocaine du Marché des Capitaux, Securities and Exchanges Commission of Nigeria, and the Capital Markets Authority of Kenya.
• Central bank – Banque Centrale des Etats de l’Afrique de l’Ouest,
• Stockbrokers and exchanges associations – Association Professionnelle des Sociétés de Bourse, Association of Stockbroking Houses of Nigeria, Kenya Association of Stockbrokers and Investment Bankers
• Clearing systems – Association Professionnelle des Banques Teneurs de Compte Conservateurs, Maroclear, Central Securities Clearing System – Nigeria, Central Depository and Settlement Corporation Ltd. – Kenya
• Investment banking – Afrinvest West Africa.

Pierre Guislain of African Development Bank and Karim Hajji of African Securities Exchanges Association and Casablanca Stock Exchange

AFSIC conference – 2 weeks to go

AFSIC – Investing in Africa is in its 7th year and takes place in 2 weeks’ time.
Europe’s biggest annual conference on inward investment to Africa will be 8-10 May 2019 in London.

For registration go to the AFSIC conference website.

AFSIC is a highly focused investment event and one of the most important Africa investor events globally. Over 200 of Africa’s most important investors and business leaders are confirmed as speakers.

1000+ Expected to attend in 2019

Business leaders from around 40 African countries are expected to attend in 2019; over 250 speakers and participants in country-focused sessions; expected 1000+ delegates; 100 sessions dedicated to uncovering Africa’s most profitable investments; and dynamic networking events providing opportunities for African business leaders, investors and deal-makers to meet.

A sophisticated event and meeting app allows delegates to prepare up to a month ahead for critical investment meetings allowing real deals to be concluded during the course of AFSIC.

Many of Africa’s most important investment funds are confirmed as speakers including:

  • Jussi Ahonen, Investment Manager, Finnfund
  • Magdi Amin, Investment Partner, Omidyar Network
  • Diana Amoa, Portfolio Manager, JP Morgan Asset Management
  • Franklin Olakunle Amoo, Managing Partner, Baylis Emerging Markets LLC
  • George Asante, Head: Markets ex SA, CIB, Absa Bank
  • Souleymane Ba, Partner, Helios Investment Partners LLP
  • Christopher Balliet Bleziri, Principal Investment Officer, BOAD
  • Craig Batsi Bandason, Portfolio Manager, Imara Asset Management
  • Peter Bartlett, Partner, GML Capital LLP
  • George Bodo, Head of SSA Banking Research, Ecobank Capital
  • Ben Botes, Group CEO, SeedsLife Caban Impact Investment LLP
  • Chantelé Carrington, COO, Africa Business Group, PwC
  • Emilio Cattaneo, Executive Director, EAIF – Part of The Private Infrastructure Development Group
  • Anne-Marie Chidzero, Chief Investment Officer, FSD Africa Investments
  • Johann Choux, Head Of Equity Investments – Financial Institutions & Innovation, Proparco
  • Paul Clark, Portfolio Manager, Ashburton Investments
  • Grant Cullens, CEO Asset Management, African Alliance Asset Management
  • Edwin Dande, Chief Executive Officer, Cytonn Investments
  • Andreas Davidsen, Senior Investment Manager, Norfund
  • Jonathan De La Pasture, Portfolio Manager, Stanlib Credit Alternatives
  • Arnaud De Lavalette, Senior Project Manager, ADA Microfinance
  • James Doree, Managing Director, Lion’s Head Global Partners
  • Kunal Doshi, Investment Professional, Capricorn Investment Group
  • Steven Duchatelle, CEO, Advans Group
  • Olivier Edelman, Head of Unit, European Investment Bank
  • Karim El Hnot, CEO, Sogecapital Gestion
  • John Esther, NE AFRICA Coverage Executive, TDB
  • Michael Fabbroni, Head Financial Institutions Debt Financing – Africa, responsAbility Investments AG
  • Michael Fischer, Director – Financial Institutions Africa, DEG mbH
  • Wieger Fokke, Senior Investment Officer – Financial Institutions Africa, FMO – The Dutch development bank
  • Juan Jose Garcia, Principal and Regional Syndications Lead, Sub-Saharan Africa & Latin America, International Finance Corporation, IFC
  • Jarred Glansbeek, Chief Investment Officer, RisCura Holdings (Pty) Ltd
  • Cathy Goddard, CEO, Firebird Fund Managers
  • David Grayson, Chief Executive Officer, Auerbach Grayson & Company
  • Yann Groeger, Regional Manager Africa, BlueOrchard Finance
  • Sanjeev Gupta, Executive Director & Head of Financial Services, Africa Finance Corporation
  • Thomas Heinig, Senior Project Manager, KfW Development Bank
  • Ed Higenbottam, Managing Director, Verdant Capital
  • Steve Hollingworth, President, Grameen Foundation
  • Philip Hopkins, Director of Investments, Equator Capital Partners
  • Thomas Hougaard, Vice President, IFU – Investment Fund for Developing Countries
  • Nick Hughes, Co Founder and Chief Product Officer, M-KOPA LLC
  • Will Hunnam, Co-Founder, Orbitt
  • Ulla Huotari, Investment Manager, Finnfund
  • Jimoh Ibrahim, President Infastructural Development in Africa, Africa infrastructural Development Funding Dubai
  • Ioto Iotov, Manager, AfricInvest
  • Robert Jenkins, Senior Partner and Chief Investment Officer, Phatisa
  • Afsane Jetha, CEO & Managing Partner, Alta Semper Capital
  • Jarri Jung, Regional Manager Africa & Middle East, Triple Jump
  • Dr Jens Koeke, Chief Investment Officer, Allianz Africa
  • Laureen Kouassi-Olsson, Financial Institutions Head and West Africa Office Head, Amethis Finance
  • Jonathan Kruger, Portfolio Manager, Director, Adventis
  • Arun Kumar, Principal Investment Officer, African Development Bank Group
  • Brenton Lalu, Specialist: Africa, Public Investment Corporation
  • David Lashbrook, Head of Africa Real Estate, Momentum Africa Real Estate Fund
  • Gregoire Lecomte, Group Head of Investor Relations & Funding, Baobab Group
  • Peter Leger, Head of Global Frontier Markets, Coronation Fund Managers
  • Alexis Losseau, Investment Officer, BIO – Belgian Investment Company for Developing Countries
  • Steven Loubser, Fund Manager, Investec Asset Management
  • Albert Maasland, Group CEO, Crown Agents Bank
  • Johan Marnewick, Head of Credit Alternatives, Stanlib
  • Asha Mehta, Lead Portfolio Manager, Acadian Asset Management
  • Cédric Mezui, Coordinator of African Financial Markets Initiative, African Development Bank
  • The Rt Hon Penny Mordaunt MP, Secretary of State, Department for International Development
  • Kurt Morriesen, Senior Advisor of Impact Investments, UNDP
  • Hoda Atia Moustafa, Africa Regional Head, Multilateral Investment Guarantee Agency (MIGA)
  • Rufaro Mucheka, Head of Strategy & Rest of Africa, Nedbank Limited
  • Kaan Nazli, Senior Economist, Neuberger Berman
  • Nothando Ndebele, Head: Financial Institutional Group, Absa Bank
  • Erica Nell, Head of Credit, Sanlam Investment Management
  • Lexi Novitske, Principal Investment Officer, Singularity Investments
  • Temi Ofong, Head: CIB, Absa Bank
  • Adesuwa Okunbo, Partner & Managing Director, Syntaxis Capital Africa
  • Lanre Oloniniyi, Co-Founder, Orbitt
  • Ope Onibokun, Investment Specialist, Investec Asset Management
  • Yann Pambou, Head of Africa, Principal Investments and Private Equity, Swiss Re direct Investment Ltd
  • Lasitha Perera, CEO, GuarantCo – Part of The Private Infrastructure Development Group
  • James Polan, Vice President, Small & Medium Enterprise Finance, Overseas Private Investment Corporation
  • Martijn Proos, Director, Investec Asset Management
  • Brandon Quinn, Co-Founder and CEO, Saffron Wealth
  • Charles Robertson, Global Chief Economist, Renaissance Capital
  • Erik Sandersen, Executive Vice President – Financial Institutions, Norfund
  • Robert Schofield, Head of Division, European Investment Bank
  • Andrew Schultz, Head of Africa Sales, Investec
  • Nimit Shah, Partner, Helios Investment Partners
  • Frank Streppel, Global Head of Investments, Emerging Markets Department, Triodos Investment Management B.V.
  • Jean-Philippe Syed, Principal, DPI – Development Partners International
  • Wasim Tahir, Sector Strategist – Financial Institutions, CDC Group
  • Roland Tatnall, Senior Investment Director, Mubadala Infrastructure Partners
  • Ameya Upadhyay, Principal, Investments, Omidyar Network
  • Antti Urvas, Associate Director Financial Institutions, Finnfund
  • Cobus Visagie, Group CEO, Africa Merchant Capital
  • Emma Wade-Smith, Her Majesty’s Trade Commissioner for Africa, Department for International Trade
  • David Webb, Managing Partner & CIO, Emerging Markets Development Partners
  • Graham Wrigley, Chairman, CDC Group

Guest post: Institutions funding infrastructure

By Gerald Gondo, Business Development Executive, RisCura

Never before has the need for infrastructure felt so immediate and acute. This became apparent to me as I travelled to Nairobi, Lagos, Lusaka and Gaborone during the first 3 months of this year.

RisCura has partnered with Africa Investor to launch Africa’s first infrastructure performance benchmark. The first results are expected in mid-2019 and will provide much-needed insight. This should facilitate increased investment into African infrastructure projects

A commonality I saw across all these African cities — the yellow metal equipment either excavating, tilling, scooping or pouring inputs — could result in an improved outcome for Africa’s infrastructure. According to the World Bank, closing Africa’s infrastructure quantity and quality gap has the potential to increase GDP per capita by as much as 2.6% per annum.

Historically, governments have borne the responsibility for infrastructure development as infrastructure is typically considered a “public good”. However, in most African States, governments are struggling to keep up with the level of development required.

To combat the continent’s infrastructure deficit, alternative sources of funding are needed, and institutional investors are increasingly seen as natural funding partners, given their long-dated liabilities that seek inflation-linked assets.

But, not all infrastructure assets offer the virtues of
hedging inflation. It is important for investors to understand the different categories of infrastructure assets, as well as the different life-stages of their development, as these result in different cash-flow profiles. There are 2 main types of infrastructure investment – greenfield and brownfield.

“Greenfield infrastructure investment” refers to investments that create new infrastructure – new development and construction. For an investor, some inherent risks of these projects include construction risk, performance risk and off-taker risk. The creation of the asset primarily involves funding the project, with risk of the project not reaching a stage of being commercialized. At this stage of development, the infrastructure asset would not manifest any inflation-hedging features.

“Brownfield infrastructure investment” refers to investments in existing and ready-to-operate infrastructure assets. These assets can potentially generate revenues. Given that the infrastructure now exists and is in use, the risks of investing into this project are substantially less than in a greenfield project where the future cash generation is uncertain.

Because many infrastructure assets feature monopolistic features (e.g. a toll road that all road users must utilise to access a specific town), cash generation for such assets is easy to model. Brownfield infrastructure investments are also often scalable; by enhancing the facilities, greater output can be produced and therefore greater cash flows. These features allow for the cash flows emanating from brownfield infrastructure investments to be modelled to escalate or be linked to inflation and the cash flows can be used to match against long-dated liabilities because of the long-dated nature of the operating capacity of most infrastructure assets.

With an understanding of the fundamental merits of the asset class, it is important to appreciate how institutional investors in Africa would traditionally approach the asset class. Prudential investment requirements might preclude them from taking up exposure to a single asset (e.g. one toll road) and they could invest in a diversified portfolio of infrastructure assets. This can be achieved by investing in a fund, where the fund is able to give investors diversified exposure to the asset class. However, it is important to appreciate that most infrastructure investments would be classified as unlisted investments.

Most institutional investors are relatively risk-averse and may not have investment mandates allowing for investing in unlisted instruments. Thus, for long-term savings to be channelled towards African infrastructure assets, the investment mandates (inclusive of the regulatory thresholds) would need to be revised to accommodate investments in unlisted instruments and more specifically, infrastructure assets.

In addition to revised mandates, institutional investors would benefit from a performance index for infrastructure investments in Africa. This would improve their ability to evaluate the available investment opportunities, monitor the performance of infrastructure investments and make better informed decisions on asset allocation.

RisCura has partnered with Africa Investor to launch Africa’s first infrastructure performance benchmark. The first results are expected in mid-2019 and will provide much-needed insight into investment in this sector, which should in turn facilitate increased investment into African infrastructure projects. In time, this should contribute towards closing Africa’s infrastructure gap and help boost economies across the continent.

Africa’s jumbo stock exchanges to link in 2019?

An ambitious project to link Africa’s 7 biggest securities exchanges is moving to implementation with a call this month for a project manager for the coming year. The African Exchanges Linkage Project (AELP) aims to transform the number of trades on exchanges and investment flows across Africa by creating a platform so an investor in once country can buy or sell shares listed on an exchange in another country.

It’s a leading initiative of the African Securities Exchanges Association (ASEA) and the African Development Bank, and will feature a central linked trading platform linked to the different exchange trading systems. The roll-out was boosted last November 2018 by a grant of $980,000 through the African Development Bank Korea-Africa Economic Cooperation Trust Fund (KOAFEC).

At November 2018, the participating exchanges were listed as Johannesburg, Nigeria, Nairobi, Casablanca, Bourse Régionale des Valeurs Mobilières SA (BRVM) and the Stock Exchange of Mauritius, this year the Egyptian Exchange has been added. The initial 7 exchanges represent at least 85% of the market value of listed securities (market capitalization) across Africa. More exchanges are to join after the pilot phase.

The central platform will enable free flow of trading information between the linked exchanges, and stockbrokers will be able to access the trading platform and place orders on the member exchanges through “sponsored access”, working through a locally registered stockbroker. It will use order-routing technology to channel orders through brokers into exchange trading systems.

Oscar Onyema and Karim Hajji, previous and present Presidents of African Securities Exchanges Association

Karim Hajji, CEO of the Casablanca Stock Exchange and President of ASEA, says: “We look forward to working with AfDB more closely and fostering a more connected African capital market,” according to a Nigerian online report.

Oscar Onyema, CEO of the Nigerian Stock Exchange and former president of ASEA, told stockbrokers at a workshop last November: “The AELP will start off with the 6 markets participating in the pilot with the goal of onboarding other markets in Africa who meet the minimum requirements. The countries participating in the AELP pilot phase are strategically spread across the continent as this will become instrumental in the scaling up of the project.

“The model for the linkage will be ‘sponsored access’, meaning that the cross-border trades will be required to pass through the risk-management system of the sponsoring broker before flowing to the exchange. We believe that this model will minimize the disruption to the local market and provide confidence for all stakeholders.

“Thus we anticipate that the initiative will be welcome by all stakeholders and will support ASEA’s goal of boosting intra-Africa capital-market trading activity. ”

According to a document from ASEA: “The AELP is aimed at addressing the lack of liquidity and promoting information-sharing in the African capital markets. It is envisaged that the linkage project would allow cross-border visibility and open up markets for investors to trade in any of the linked markets.”

Anticipated benefits include: more liquidity, measured by the number of deals and the value traded; better market openness; increased participation by foreign investors; more participation by African investment institutions such as the fast-growing pension funds across the continent; African businesses and other issuers being able to raise capital and floating shares across the continent; creating a bigger financial market; convergence towards international standards; and building capacity and sharing information.

In preparation for the project stockbrokers were asked to talk to clients to gauge potential interest in buying and selling securities on different exchanges, and to give their inputs into the design and rollout.

A2X exchange scores dual listing #17

Tharisa plc became the 17th company to list on South Africa’s A2X exchange in February.

Kevin Brady, CEO of A2X, said in a press release: “Tharisa is the second company from the general mining sector to list on A2X”.

It is a secondary listing for the integrated platinum group metals and chrome producer. It has a market capitalization of R4.5 billion ($312 million), which has its primary listing on the Johannesburg Stock Exchange (JSE) and also listed on London Stock Exchange.

Phoevos Pouroulis, CEO of Tharisa, said: “The secondary listing on A2X is an opportunity to improve liquidity and attract new investors through the lower trading costs offered by the A2X trading platform. There are no additional regulatory requirements or ongoing obligations. Listing on A2X will complement Tharisa’s existing listings on the JSE and LSE by providing investors with a choice of exchanges on which to transact.”

The A2X began trading in October 2017 and has 9 approved stockbrokers. Combined market capitalization on the A2X was over R2 trillion last month, with listings from mining, banking, property, fast-moving consumer goods (FMCG), financial services, media and telecommunications. The 17 dual-listed firms include leading stocks in the South African market including Naspers, Sanlam and Standard Bank.

It is a licensed stock exchange which provides a secondary listing venue and is regulated by the Financial Sector Conduct Authority and the Prudential Authority (SARB) in terms of the Financial Markets Act.

A recent article on Bloomberg claims that A2X is the most serious of South Africa’s challenger securities exchanges, taking on the 132-year old JSE which is one of the top 20 world exchanges and aiming to be the leading emerging market exchange.

According to Bloomberg news agency , Aarti Takoordeen, CFO of JSE, said in an interview: “About 60% of our revenue comes from the cash-equity market and we are keeping a close eye on specifically one of the competitors playing in that space.”

Although JSE trading prices are marginally higher than those at the rivals, according to Takoordeen: ““It’s not all about price though,” she said. “The JSE is able to provide massive liquidity for trades, we have multiple order types, and we are constantly upgrading our technology, not to mention the know-how that we offer to clients.”