Opinion: Steps for regional integration of capital markets

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In mature capital markets, regional integration shows significant benefits in unlocking potential and allowing investors to mobilize liquidity across borders by interconnecting diverse markets. Regional integration seems to be the future of world capital markets.

Can it also work for African capital markets, many of which face considerable problems of liquidity?

Many parts of the world have already tackled integration and each has faced its own challenges. In the past, the state of the technology and the feasibility of effective regional integration used to be a major challenge, and often offset the benefits.

This has changed. The technology has become cost-effective and industrial standards have evolved, based upon the widespread experience and solid implementations in different regions. Remaining challenges that still prevent smooth implementation are not in technology but in the business processes and political will.

First it is important to understand the landscape. Africa’s exchanges are usually divided into 4 categories:
• Dominant market: South Africa is the biggest contender
• Medium-size market: Each region tends to have its leading market
• Emerging markets: Several markets are growing fast and showing innovation and determination
• Markets yet to take off: Some are recently established, some are showing slow growth.

As African stock markets have become larger and more prevalent over the last 10 years, there have been preliminary moves towards regional integration. This is the global trend, but more importantly because integration can meet the mutual needs of the exchanges themselves.

Lack of liquidity is a major constraint to attracting influxes of foreign capital (portfolio investment) and to efficient allocation of savings and asset pricing. The different businesses (shares) on offer can be limited and the size of potential deals is often small. Pricing and other cross-comparisons within sectors and across companies can be difficult.

Efficient securities markets in Africa will help exchanges act as efficient channels for the growing pools of domestic savings funds (pensions and insurance) towards national growth and development – both infrastructure and enterprises – as well as providing comfort for foreign and domestic investors. Links and eventual integration between national stock exchanges is the way to ensure this.

Talk of pan-African or other continental structures can be a distraction. It may overlook the necessary work to be done on national and regional limits, including exchange controls, prudential regulations, macro-economic stability and others. It ignores the key roles of local securities exchanges, which are already central in their national economies and have working legal frameworks and institutional set-ups that can be built upon.

Each market has evolved according to the needs of the market participants and the challenges that have been impacting them. Each has its own electronic platforms built for the local practices. Existing micro-level frameworks can prevent change being introduced in a straightforward fashion. For example, in certain markets, turn-around trading is yet not available and settlement procedures are longer than necessary. Regional integration can take this into account if it involves a pragmatic framework that accommodates the composition of the markets.

In most regions, regulations are a key limitation on integration. The enabling environment for integration requires common policies, institutions and regional frameworks and, above all, the necessary political commitment that ensures macroeconomic stability. Cross-border settlements are difficult as there are no common currencies and the cost of trading is higher due to intermediary costs. Regulatory work to be overcome includes tackling national exchange controls, harmonization of regulations and recognizing each other’s institutions and intermediaries. Prudential limits on cross-border funds’ investments and regulations that stop share offers being marketed across borders could also be rolled back.

Political will is needed to recognize the importance of national structures and to recognize the added value of an integrated regional structure.

Regional integration demands not only that participants agree on a common standard of procedures at the higher level, but that there are platforms to support the regional integration charter. Initially the process may be structured around entities that exchange information with each other but operate on their own.

An ideal is to think towards forming one mega-enterprise with national outposts – Africa’s example is the BRVM which provides an integrated exchange linking 8 markets and is firmly anchored in the considerable monetary and policy integration structures in the francophone region. The evolving future regional exchanges should link all stakeholders through a set of global processes that bridge the gaps between the diverse systems that exist at various levels and connect all to bring value to customers.

There have already been some healthy efforts by Africa’s regional economic communities. The Southern African Development Community (SADC) is supporting linkages between regulators, central bankers and the Committee of SADC Securities Exchanges. Strong advances include the SIRESS cross-border payments systems and cooperation and harmonization between exchanges and regulators, including on listing requirements. The West Africa Capital Markets Integration Council considerable progress has extended to mutual recognition of stockbrokers and regional structures, as highlighted in this blog, and cross-border share deals between national exchanges, in addition to its ground-breaking BRVM regional exchange for 8 countries. The African Development Bank (AfDB) and other multilaterals and finance institutions are supporting important projects.

One of the leaders is the East African Community (EAC), following the signature and ratification of its Common Market Protocol. The EAC Secretariat, working with the World Bank and other development partners, established the EAC Financial Sector Development and Regionalization Project I (EAC-FSDRP I) to support the development of the financial sector through the establishment of a single market in financial services among EAC Partner States. The project objective is to establish the foundation for financial-sector integration among EAC partner States, including the broadening and deepening of the financial sector through the establishment of a single market in financial services, with a view to making a wide range of financial products and services available to all, at competitive prices. InfoTech, a Pakistani IT vendor with expertise in capital markets, particularly in Africa, is delivering the capital markets linkages.

To complement work on the IT and other systems, there is much to be done at policy-making level to harmonize the rules of the game across the region, backed by full commitment of all direct and indirect stakeholders, such as stock exchanges, depository companies, regulatory authorities etc. and their IT vendors to support their existing systems so they can support the regional integration.

Implementing the capital markets regional integration project will be a big milestone and a big step in tackling the core issues that hinder effective integration. The prospects are huge.

Capacity-building at all levels is also critical. Policymakers and regulators need to enhance skills on how to grow efficient markets to ensure they support national and regional development objectives. Exchanges, brokers, banks and key advisors such as lawyers are also central. Knowledge and skills among potential issuers, including small and medium-enterprises, and investors including both institutions and the investing public, all contribute to fast growth of more efficient markets.

Integration has already been proven in advanced markets and the technology works. The biggest challenge and responsibility is with the policymakers who have to formulate a governance framework with effective support to implement the framework at grassroots level.

Working together, African capital markets are moving to the next level of their evolution.

 

Ethos Capital PE lists after R1.8bn oversubscribed private placement

Private equity company Ethos Capital, based in Mauritius, listed on South Africa’s JSE on 5 August after R1.8 billion ($131 million) oversubscribed private placement for institutional investors. The listing is a unique combination of a liquid listed share which invests into a diversified pool of unlisted private equity investments. It is aimed particularly at institutional investors, including pension funds.
Ethos had placed 180m A ordinary shares at R10.00 each. Rand Merchant Bank was the financial advisor, sole global coordinator, bookrunner and JSE sponsor. The first trade on Friday was at R10.26, pushing market capitalization up to R1.85bn.
The new fund starts as a cash shell and will invest into a portfolio of unlisted investments with Ethos Private Equity, sub-Saharan Africa’s largest private equity firm, acting as the new company’s fund manager and advisor.
Stuart MacKenzie, CEO of Ethos Private Equity, said in a press release: “Growth is a central principle of Ethos Private Equity’s strategy: value is added by actively transforming the strategy, operations and finances of investee businesses, striving to make them best-in-class. Through pioneering thought leadership, creativity and innovation, Ethos Private Equity has developed a long track record of sustainable investor returns.”
Peter Hayward-Butt, CEO at Ethos Capital, said: “We look forward to investing alongside Ethos Private Equity into high-potential businesses, supporting economic growth and job creation in the long term whilst simultaneously delivering value to our shareholders.”
Ethos Private Equity has a 32-year history and has invested in 104 acquisitions of which 91 have been realized, delivering investment returns with a gross realised internal rate of return (IRR) of 37.4%.

Stuart Mackenzie, CEO Ethos Private Equity

Stuart Mackenzie, CEO Ethos Private Equity

Ethos Capital is expected to invest into:
• Primary investments into various funds to be raised and managed by Ethos Private Equity. EPE is reported to be planning to fund raise for Ethos VII fund by early 2017, targeting R8bn-R10bn with 25% for investments in sub-Saharan Africa outside South Africa. Ethos Capital is to commit up to R2.5bn. There is also plans for: a R2.5bn-R3bn Ethos Mid Market Fund I targeting deals of between R100m-R350m which will be majority black-owned and chaired by Sonja de Bruyn Sebotsa, according to Financial Mail, and Ethos Mezzanine Fund I which aims to raise R1.5bn and will be run by a team which formerly operated as Mezzanine Partners.
• Secondary investments by buying interests owned by limited partners (LPs) in existing Ethos funds. This could include up to $600m invested into Ethos VI fund which closed at $800m in 2013 (against a $750m target), according to Private Equity Africa website.
• Direct investments into investee companies alongside Ethos funds
• Temporary investments including a portfolio of low-risk, liquid debt instruments such as South African government bonds and similar instruments, managed by Ashburton Fund Managers.
According to the prospectus, Ethos Capital investors will be charged a management fee of 1.5% of invested net asset value and 0.25% on cash balances. The investors are offered 20% exposure to growth, subject to a 10% hurdle.
Previously Brait, another leading South African private equity company, had listed its portfolio.
Mackenzie says South Africa does not have enough investments in alternative assets such as private equity, according to the Financial Mail, which reports they make up barely 2% of pension fund assets compared with 20% in many developed markets. The listed vehicle will enable funds to share in the outperformance of private equity but will mean they do not have to stay invested for the full fund life, often 10 years.
The report adds that Mackenzie promises investors will not be subjected to a double layer of fees and that Ethos Fund III and IV outperformed listed markets by more than 5% but Fund V, invested in the years before the financial crisis, underperformed listed markets by 2.4%.
A report by RisCura and the SA Venture Capital Association (Savca) shows that private equity in South Africa has generally outperformed the total comparative return of investment of the JSE’s all share and SWIX indices, returning an internal rate of return of 18.5 percent. Over the same period, EPE returned 20.9 percent on realised investments.
Key investors in the private placing reportedly included fund manager giants such as Coronation and Stanlib and emerging managers such as Mergence and Sentio.

Rwanda to host 20th African Securities Association conference on 27-29 November

The Rwanda Stock Exchange (RSE) and the African Securities Exchanges Association (ASEA) will host the 20th Annual ASEA Conference in Kigali, Rwanda on 27-29 November. The ASEA annual conference is the flagship event for Africa’s capital markets and all those who work in them. This year’s theme is “The road to 2030: Making the African capital markets relevant to the real economy”.
Celestin Rwabukumba, RSE CEO, explained: “The conference will bring together more than 300 global and regional experts and stakeholders in capital markets, regulators, law firms and issuers, domestic, regional and international investors, rating agencies, portfolio and investment managers, government representatives, and technology providers to ask questions and address the big question of how African securities exchanges should become more effective and play a bigger role in mobilizing capital for African businesses that will drive our economies on the global economic stage.” He added it offers an opportunity for the East Africa Community (EAC) region to demonstrate how much can be achieved through integration of regional securities markets – the EAC is leading the way with an exciting capital markets integration programme as part of stronger regional economic links.
The gathering will also celebrate the RSE’s 5th birthday, it was formed in 2011. “It’s been an exciting 5 years for us. We have grown on all fronts and are increasing our numbers every year in terms of market participation, companies coming on board and technology. This will definitely be a good occasion,” Rwabukumba added.
There will also be scope for tourism and other enjoyment after the conference.

Kigali under Vision 2020 (photo: www.TopBoxDesign.com)

Kigali under Vision 2020 (photo: www.TopBoxDesign.com)

AfDB and stock exchanges group ASEA sign MoU for capital markets projects

Africa’s leading financial institution, the African Development Bank (AfDB), is pairing with the African Securities Exchanges Association (ASEA) to deepen and connect Africa’s financial markets. The partnership aims to help mobilize more resources to drive growth.
The two will work on projects of mutual interest such as developing financial-markets infrastructure, introducing new products, improving market liquidity and participation, information-sharing and capacity-building. AfDB and ASEA signed a 5-year memorandum of understanding on 11 July. This provides “a collaborative framework for harmonizing and coordinating the efforts”, according to an AfDB press release.
The Bank and ASEA have already started successfully collaborating on the African Exchanges Linkage Project, which they co-initiated to improve liquidity and foster greater investments and trading across markets. This aims to link key regional markets and has proposed Casablanca, Johannesburg, Nairobi and Nigerian stock exchanges as regional hubs, according to project documents.

AfDB and ASEA Executive Committee delegation. (From left to right) Stefan Nalletamby (Vice-President for infrastructure, regional integration and private sector, AfDB), Geoffrey Odundo (CEO of Nairobi Securities Exchange), Oscar Onyema OON (CEO of Nigerian Stock Exchange), Akinwumi A. Adesina (President of AfDB), Karim Hajji (CEO of Casablanca Stock Exchange), Edoh Kossi Amenounve (CEO of BRVM) Photo: AfDB

AfDB and ASEA Executive Committee delegation. (From left to right) Stefan Nalletamby (Vice-President for infrastructure, regional integration and private sector AfDB), Geoffrey Odundo (CEO of Nairobi Securities Exchange), Oscar Onyema OON (CEO of Nigerian Stock Exchange), Akinwumi A. Adesina (President of AfDB), Karim Hajji (CEO of Casablanca Stock Exchange), Edoh Kossi Amenounve (CEO of BRVM) Photo: AfDB

AfDB President, Akinwumi A. Adesina says deepening and integrating Africa’s financial markets to mobilize domestic resources to fund African economies is very important to deliver the Bank’s “High 5s” priorities: Light up and Power Africa, Feed Africa, Industrialize Africa, Integrate Africa and Improve the Quality of Life of Africans (all part of the bank’s 2030 agenda for attaining the global Sustainable Development Goals – SDGs).
He says there are huge pools of capital available in sovereign-wealth, pensions and insurance funds and these can be used for developing Africa through appropriate intermediation and capital-markets products. He called for “increased mobilization of domestic pools of savings and support for small and medium enterprises (SMEs), as they constitute the bulk of Africa’s private sector.”
Adesina pointed to the bank’s progress in financial markets development through issuing and listing local-currency bonds in Uganda, Nigeria and South Africa. The bank has also created African Financial Markets Initiative (AFMI) to support domestic bond markets through the African Financial Markets Database. The bank will soon launch an African Domestic Bond Fund building on the success of the AFDB Bloomberg® African Bond Index, which started in February 2015 to combine the Bloomberg South Africa, Egypt, Nigeria and Kenya local-currency sovereign indices and was expanded in October 2015 by Botswana and Namibia..
ASEA President, Oscar N. Onyema, CEO of the Nigerian Stock Exchange, says the MoU will frame projects focused on the development of exchanges, deepening the stock markets and ultimately fueling African economic growth.

Korea Exchange success story with SMEs

This article summarizes a talk by Honghee Shin, Executive Director of Korea Exchange, at the World Exchanges Congress in March 2016, which highlighted the KRX experience and lessons to be learned.
Building an exchange environment for small and medium-size enterprises and hi-tech companies to raise capital on a securities exchange requires strategic coordination and support by many different government agencies. The Korean Exchange (KRX) has grown to be the world’s third biggest stock exchange for listing and trading SMEs by creating a virtuous cycle in each stage of growth generates cash-flows which in turn fuel other stages.

The original Korea Stock Exchange was set up in 1956 and KRX evolved in 2005 to offer comprehensive front-to-end services. It has KSD (depository) as a 70% owned-subsidiary and also owns 76% of >koscom, a technology subsidiary. It offers a full range of products, trading and market data, as well as the central counterparty (CCP) and it is a self-regulatory organization performing its own market surveillance.

In 2015, KRX had 1,961 listed companies, 8th highest in the world, and traded $1,929 billion of securities, achieving the 10th highest level globally, according to World Federation of Exchanges. The main board is called KOSPI market and it has a futures and options market that was rated 12th in the world.

koreaSMEs160719_diagramvirtuouscycle

It has two boards for SMEs:
• KOSDAQ was launched in 1996, and provides funds for well-established SMEs and “technology-savvy” area including information technology (IT), bio technology (BT) and cultural technology (CT).
• KONEX was launched in 2013 exclusively for SMEs and start-up companies to support their early-stage financing and development through the capital market.

The ratio of market capitalization compared to GDP is higher at KOSDAQ in Korea than any other major SME markets in Asia. In global terms it ranks third among world SME markets for market capitalization and daily trading volume and 4th with 1,061 listed companies. Technology has been the main driver of the market – IT, BT and CT companies made up 68% of the market in 2015, up from 63% in 2005. In particular, biotech has grown its share 4 times and forms 17% of the total market.

KONEX had 24 companies in the third quarter of 2013, but increased that 5 times to 128 listed companies by the end of 2015. Market capitalization is up 8x, and daily average trading value is up 4x over the period. It offers a fast-track “ladder system” which 14 companies have scaled to transfer from KONEX to KOSDAQ.

Much of the success of the exchange can be attributed to the coordinated efforts of Government, the exchange and other stakeholders.

koreaSMEs160719_diagramstakeholders

Key supports from Government include:
1. Tax incentives
– Corporate tax exemption for investing in newly-listed shares(within 2 years)
2. De-regulation for M&A
– Between KONEX and unlisted stocks
– Relieving corporate governance structure
– Waiver of obligation on appointment of external director and full-time auditor
3. Eased accounting standard application
– Exemption of K-IFRS accounting standard.

Concessions offered by KRX are:
1. Relaxation of Listing Requirements
– Lightened listing requirements for corporations with 20% of total investment from angel investors and venture capital
2. Modified disclosure obligation
– Reduction of timely-disclosure
– Exemption of quarter and semi-annual reports
– Mitigation of obligation to submit registration of securities
3. Minimum deposit requirement for investors adjusted from $300,000 to $100,000.

The exchange brings together companies from diversified industries, with a convergence of the high-tech companies that are the driving force of the economy. There is a solid investor base, including active retail investors with ample liquidity, and the exchange offers them a new way to find investment opportunities. The KRX itself offers relaxed listing requirements and less disclosure and maintenance costs. Government offers supportive policies towards gradual de-regulation as well as tax incentives and benefits.

The 2 Korean boards, KOSDAQ and KONEX play a critical role in a virtuous circle of growth and investment. Typically venture capital (VC), angel investors and government (through policies as well as funds) invests into start-up companies. These grow to list on KONEX, where professional investors tend to invest in what re now start-up SME companies, and VC investors can take some funds out to re-invest into fresh start-ups. As the company grows further, it can more to KOSDAQ where often non-professional investors may be interested in what have evolved into established SMEs, and the VCs can take more funds to reinvest into the earlier growth stages. The virtuous circle means that each stage adds momentum to the other stages, fuelling further growth – for the diagram see above.

Dar Stock Exchange shares double on first day of listing in hectic trading

Trading has been fast and furious in the shares of Dar es Salaam Stock Exchange PLC, which self-listed at 9am on 12 July. The first day of trading saw the shares listed at TZS 500 each and soaring as high as TZS 1,000 after hitting TZS 800 in the first 20 minutes. They closed at TZS 935. Turnover was 201 deals out of all the 248 deals for the day, according to the DSE daily report and TZS 794.8 million ($363,750) worth of shares were traded (out of TZS 817.9m traded for all counters).
DSE continued scorching up its own trading boards today (13 July), climbing further to TZS 1,100 and then ending at TZS 1,000 in 289 deals (out of 356 total) for a total value traded of TZS 1.1 billion (out of daily traded value of TZS 1.25bn).
Huge interest had already been seen in the initial public offer (IPO) of shares which ran from 16 May and closed on 3 June. Total bids were TZS 35.8 billion ($16.4 million), or 4.8 times the offered amount of TZS 7.5bn ($3.4m). This follows its demutualization in 2015. The Capital Markets and Securities Authority (CMSA) approved that DSE could augment its “green shoe” option from 10% (i.e. TZS 750m) to 35% or TZS 2.6m). That means the DSE raised TZS 10.1m in total.
IPO applications for up to 10,000 shares (TZS 5m) got their application in full, the full 3% allocation was given to staff, and those who applied for more than 10,000 shares received shares pro rata and a refund.
Government is planning pressure to encourage more listings. Speaking at yesterday’s launch, Finance and Planning Minister Philip Mpango said Government would start with encouragement for privatized companies to list, but it could consider a new law and regulations: “If the mutual talks fail, then the Government will push them to offload some of their shares at the DSE” (as reported in Daily News).
Listed companies that were previous privatizations such as Tanzania Breweries, Tanzania Cigarette Company, National Microfinance Bank, CRDB Bank, Simba Cement, Twiga Cement and TOL Gases are among Tanzania’s 15 largest taxpayers and rated as top-quality employers. Mpango said listing would encourage transparency and good corporate governance, making tax administration easier while enabling citizens to participate in economic activities.

Minister of Finance and Planning Philip Mpango (source rai.co.tz)

Minister of Finance and Planning Philip Mpango (source rai.co.tz)


DSE CEO Moremi Marwa said more than 400 state-owned enterprises (SOEs) had been privatised in the last 20 years, but only 7 listed on the bourse: “It is advisable that future privatizations are conducted through the capital market.”
Nasama Massinda, CEO of CMSA, said they were very pleased by Government’s move to force telecom companies to list 25% of shares at the DSE. “We believe this is the right thing as we want Tanzanians to own shares of these companies… the trend is that some of the firms are allocating shares to one or two ‘mwananchi’. We want them to sell their shares to the public. And the good thing is that these shares are not given for free since local investors would buy them.” She added that the Mining Act also requires that mining firms with special mining licences should sell part of their shares to citizens through DSE.

Investors who want to buy or sell shares can contact the DSE stockbrokers (licensed dealing members) or trade on the DSE’s mobile phone trading platform by dialling *150*36# and selecting “DSE Shares” from the list.

daressalaamse_new logoJan2016

Dar es Salaam Stock Exchange IPO nearly 5x oversubscribed

Total bids for the initial public offer (IPO) of shares in the Dar es Salaam Stock Exchange PLC were TZS35.8 billion ($16.4 million). This is 4.8 times the offered amount of TZS7.5bn ($3.4m) in the IPO which ran from 16 May until 3 June. Next steps include the DSE to refund excess bids after exercising its “green shoe” option, which allows up to 10% extra, and then to self-list on 12 July on its own Main Investment Market Segment under the ticker “DSE”.
According to the DSE announcement: “The planned self-listing is in line with the global trend and practice for exchanges, and is aimed at achieving good corporate governance practices, efficiency and effectiveness of the DSE and further strengthen its strategic and operational practices.” The DSE said in its prospectus it planned to use IPO proceeds to enhance its core-operating system, introduce new products and services and for “strategic and operational purposes”.

Moremi Marwa of DSE and UK Secretary of State for International Development open trading on the London Stock Exchange. Credit: London Stock Exchange

2014: Moremi Marwa of DSE and UK Secretary of State for International Development open trading on the London Stock Exchange. Photo: London Stock Exchange


DSE management are doing an excellent job and there is great potential for the exchange to keep serving the supply of long-term risk capital to one of Africa’s fastest-growing economies. It is sticking closely to its offer timetable and has announced results on time on 16 June. Next is to credit accounts with shares at the central securities depository (CSD) on 24 June and process the refund cheques on 30 June before the self-listing and trading of fully-paid DSE shares on 12 July.
The receiving bank for the DSE offer, as with many Tanzanian IPOs, was local leader CRDB. The lead transaction manager is Orbit Securities Company Limited which said interest was very strong. During the IPO the shares could also be bought using Tanzania’s MAXMALIPO payment gateway or by dialling *150*36# on a Tanzanian mobile phone.
According to an earlier statement by CEO Moremi Marwa: “Over the past few years the DSE has achieved significant milestones, notably:
• Compounded annual growth rate of 110% since 2010 for market capitalization to TZS21trn by 30 March 2016
• Compounded annual growth rate of 56% since 2010 for liquidity to an aggregate average turnover of over TZS800bn per annum
• Introduction of the Enterprise Growth Market (EGM) segment and the increase of listings of both equity and bonds
• Introduction of mobile trading on the DSE trading, depository and settlement platform
• Increased financial independence sustainability and profitability.
As at 30 March 2016 the Exchange had 23 listed equities and 3 outstanding corporate bonds. There are also Government bonds, worth about TZS 4.6trn listed on the exchange, making the DSE the second largest exchange in the East African region.”
According to the prospectus, 3% of shares were reserved for DSE employees and 15% for a capital markets development fund.
Previously DSE was a mutual company limited by guarantee with no shareholders and no capital. The 20 institutions that acted as guarantors – including 8 of the 11 stockbroking firms currently trading – agreed to be issued with 1 share each with nominal value TZS400 by 29 June 2015. It was part of the process as the bourse restructured and changed from Dar es Salaam Stock Exchange Ltd to the Dar es Salaam Stock Exchange Public Ltd Company (Plc).
Among recent changes at the dynamic exchange are
• Migration to the new efficient automated trading system and central depository system (2013), supplied by South Africa’s STT (Securities and Trading Technology system)
• Reduction of settlement cycle from 5 days to 3 days for equities and 3 days to 1 day for bonds in line with international standards (2013)
• The Capital Markets & Securities Authority (CMSA) put in place the enabling regulatory framework and licensed the NOMADs to create a framework for a new Enterprise Growth Market segment of the DSE which was launched in 2013. Since the five companies have listed on the EGM
• Interlinking the exchange’s central depository system to the national payment system (2014)
• Deployment of ATS on the wide area network and start of remote trading by brokers (2014)
• Introduction of the regulatory framework and subsequent use of mobile phone technology in IPOs (equity and debt) and secondary trading (August 2015)
• Limits on foreign investment were recently lifted. There is also increasingly close cooperation in the exciting East African region, including installation of an interconnectivity hub for routing trading order between the exchanges.
New products which the CMSA and DSE are developing include real-estate investment trust (REIT), futures and derivatives, exchange-traded funds (ETFs), closed end collective investment schemes and municipal bonds.
Your author was honoured to be team leader of the CAPMEX/Wiener Börse AG team that wrote the demutualization strategy.

Source Dar es Salaam Stock Exchange

Source Dar es Salaam Stock Exchange

JSE switches to T+3 on 11 July

The Johannesburg Stock Exchange is switching to a shorter T+3 settlement cycle for the equity market from 11 July. It will reduce risk and add an estimated R50 billion ($3.3bn) of cash into circulation. Currently it is still working on T+5.

Last week the JSE announced that the final market-testing phase of the project has been successfully completed and the transition to a new post-trade dynamic will go ahead as planned. In the equity market, “T+3” is an abbreviation and means that ownership of equities is delivered in exchange for cleared payment in 4 days from the date of the trade. The current T+5 means this post-trade settlement cycle happens within 6 days. International best practice settlement standards are usually T+3 to allow time for international funds transfers to reach the target account in time for settlement. Many African securities exchanges are already on T+3 and some, such as Egyptian Exchange, are faster.

JSE Executive Director Dr Leila Fourie said: “South Africa must ensure that it remains as attractive as possible for foreign inflows of capital, and settlement assurance is vital for us to retain and keep attracting investment from outside of the country. Global investors need to be assured that, if they trade on our market, their trades will settle seamlessly. Currently, 37% of equity trades are held by non-residents with approximately 30% trading on a daily basis.

JSE celebrates 20 years since closing its trading floor on 7 June (photo Claudelle von Eck)

JSE celebrates 20 years since closing its trading floor on 7 June (photo Claudelle von Eck)


“A further benefit of a shorter settlement cycle is that it dramatically reduces the amount of unsettled trades at any given point. So, in the event of a market default, the number of unsettled trades that we have to unwind is reduced significantly. This reduces potential losses between trading parties, and enhances investor protection during the process.”

“The move to a shorter settlement cycle will catapult the country and the JSE to compete confidently among global equity markets, making it a matter of major importance for SA Inc. It will result in additional benefits to the market such as cash being released earlier in the settlement cycle, increasing the funds in circulation. Based on the average value traded per day of R25bn, this will create a release of R50bn into circulation.”

The entire market and all participants are affected, including listed companies, traders, investors, clearing and back-office participants, the central depository Strate, the JSE and all regulators. The JSE is leading the move in close collaboration with the South African Reserve Bank, National Treasury, Financial Services Board and numerous other stakeholders to ensure system and process readiness ahead of the move.

South Africa’s rate for failed trades has been close to zero over the past 15 years. The new, shorter settlement cycle will increase the number of trades that roll and do not settle on time. The JSE expects that between 5% and 10% might roll in the new environment, but aims to maintain a target of less than 5%. Fourie says: “We are working with participants to minimize this percentage by improving the availability of securities for lending and borrowing activity and also by actively encouraging behaviour changes where required.”

The JSE has requested that listed companies avoid corporate actions between 4 and 18 July in order to reduce complexity during the cutover week. The JSE thanks all participants, both local and abroad, “for their tremendous support in making market testing a great success”, according to the announcement.

Private Equity Africa award winners 2016

What a night – the gala dinner of the Private Equity Africa 2016 awards. It is the 5th year of these awards and all the “great and good” of Africa’s private equity fund managers (general partners/GPs), investors (limited partners/LPs) and service providers gathered at The Langham hotel in London to celebrate how their industry is growing in size and sophistication. A full day conference (I was honoured to be MC) charted the changes with sessions on new structures for private equity funds, the rise of stock exchange IPOs as exits, specialized agriculture, healthcare and other funds, the changing valuation premium on Africa’s businesses post the currency crises.. and many more topics for 2016.

Congratulations to the winners of the 2016 Private Equity Africa Awards. The final award winners were selected by an independent panel of judges and recommendations from the London Business School Institute of Private Equity nomination team.

OUTSTANDING LEADERSHIP AWARD
Honourable Okey Enelamah, founder of African Capital Alliance and now Minister for Industry, Trade & Investment, Government of Nigeria. The award was presented by Right Honourable Baroness Lynda Chalker of Wallasey who also made a speech. It is awarded based on voting by leading industry investors.

Okechukwu Enelamah, Minister of Trade & Investment (photo: Guardian Nigeria)

Okechukwu Enelamah, Minister of Trade & Investment (photo: Guardian Nigeria)

HOUSE AWARDS
HOUSE OF THE YEAR
Sub-Saharan Africa House of the Year: Helios Investment Partners
North Africa House of the Year: Abraaj
Francophone Africa House of the Year: Adenia
West Africa House of the Year: Synergy Capital Managers

SPECIAL RECOGNITION: HOUSES
The event also recognised investors that had delivered exceptional transactions during 2014 that do not fall into the main award categories.
Credit Investor: Investec Asset Management
Mid Cap Investor: Development Partners International (DPI)
SSA Fund of the Year, awarded in partnership with Financial Services Promotion Agency (FSPA): Helios Investment Partners for Helios III
Pan-Africa Exits: Actis
Outstanding First-Time GP: Verod Capital

DEAL AWARDS
EXIT OF THE YEAR
Large Cap Exit of the Year: Helios Investment Partners for Equity Bank
Mid Cap Exit of the Year: AfricInvest for UAP Holdings
Small Cap Exit of the Year: Adenia for Newpack

DEAL OF THE YEAR
Mid Cap Deal of the Year: Amethis for Novamed
Small Cap Deal of the Year: Databank for Norish

SPECIAL RECOGNITION: DEALS
The event also recognised deals that had delivered exceptional transactions during 2015 that do not fall into the main award categories, are had not comparable contenders.

Debt Deal: XSML for Médecins de nuit
Infrastructure Deal: African Infrastructure Investment Managers (AIIM) for Azura Power
Large Cap Deal: Abraaj for North Africa Hospital Holdings Group
Frontier Deal – Morocco: TPG-Satya for Ecoles Yassamine
Frontier Deal – Côte d’Ivoire: Duet for SAPLED
Frontier Deal – Uganda: 8 Miles for Orient Bank

PORTFOLIO AWARDS
PORTFOLIO COMPANY OF THE YEAR
Development Impact: Emerging Capital Partners for CIPREL
Social Impact: Fanisi for Haltons
Innovation: Adenia for Syrse
Improvement: Mediterrania Capital Partners for CashPlus

ADVISOR AWARDS
ADVISORS OF THE YEAR
Overall Legal Advisor (Deals & Funds): Clifford Chance
Funds Legal Advisor: King & Wood Mallesons
Deals Legal Advisor: Webber Wentzel
Single Deal Advisor of the Year: Linklaters for NSIA
Single Fund Advisor of the Year: O’Melveny & Myers for Helios III

SPECIAL RECOGNITION: ADVISORS
Advisor of the Year – Fund Administration: Trident Fund Services

SPECIAL RECOGNITIONS: ADVISORS
The event also recognised advisors that had delivered exceptional transactions during 2015 that do not fall into the main award categories.
Mid-Cap Advisor: Dentons
Local Legal Advisor: Anjarwalla & Khanna
Regional Legal Advisor: Freshfields Bruckhaus Deringer
Corporate Finance Advisor: Intercontinental Trust

The hard-working awards judges were:
Vivina Berla, Co-Managing Partner, Sarona Asset Management
Daniel Broby, Director CeFRI, University of Strathclyde
Matthew Craig-Greene, Founder, Craig-Greene & Co
Arnaud de Cremiers, Partner, Adams Street Partners
Mark Flanagan, Assoc. Partner, Aon Hewitt
Mark Florman, ex-CEO, British Private Equity & Venture Capital Association
Jean-Luc Koffi Vovor, Founder, Kusuntu
Peter Maila, Investment Director, CDC
Tom Minney, CEO, African Growth
Rory Ord, Executive, RisCura
Charles Rose, Chairman, Hainsford Renewable Energy
Daniel Schoneveld, Principal, Hamilton Lane
Hervé Schricke, President, AFIC Africa
Dushy Sivanithy, Portfolio Director, CDC
Arjette van den Berg, Independent Private Equity Advisor
Erika van der Merwe, CEO, SAVCA
Gail Mwamba, Editor, Private Equity Africa (Awards Chair)

The advisors were Adeola Dosunmu, Head of Research, Private Equity Africa (Awards Director); Mark Artivor, Independent Private Equity Advisor; Alfonso Campo, Reporter, Private Equity Africa and Joe Walsh, Reporter, Private Equity Africa.

Tech will drive African IPOs

Telecoms, e-commerce and technology will be the driving force behind many of Africa’s coming initial public share offers (IPOs) as the continent’s telecom, media and technology (TMT) sector continues to grow fast. Ben Nice, editor of specialist news provider TMT Finance, says in a press release: “Despite global volatility, regional macroeconomic uncertainty, and a rout on commodity prices, recent forecasts are predicting that the next 12 months could see a rebound with IPOs set to reach their highest levels in Africa since 2010, and several TMT companies looking likely to float in 2016 and 2017.

Africa Internet Group (AIG) – which runs the Jumia ecommerce brand – just raised a further EUR75 million ($84m) from Orange, in addition to the recent EUR300m ($338m) from investors including Goldman Sachs, MTN and Rocket Internet. The company is the first real African tech unicorn and we understand that it will be targeting an IPO (initial public offer) by 2017, and is also on the hunt for a new CFO. Orange Egypt (formerly Mobinil) is also preparing to list shares in Cairo to fund US$3.2bn investment into infrastructure, and IHS Towers, the Lagos-based mobile tower operator, is also expected to float over the next 12 to 24 months.”

Other African tech which may bring IPOs in the near and medium term include: Dark Fibre Africa of South Africa, Nigerian payment services provider InterSwitch, Africa’s largest independent fibre operator Liquid Telecom, and South African media company Primedia. According to a previous news story, Interswitch may scoop the prize (and publicity) as Africa’s first tech unicorn, as it is working on a London and Lagos IPO for Q2-Q4 and could be worth at or close to $1bn.

AIG, which was founded in 2012 and now operates in 23 countries with 71 companies, is said to be planning an IPO by 2017. Jumia e-commerce is present in 11 countries and linked to online and mobile consumer services such as Kaymu (shopping), hellofood (food delivery), Jovago (hotel booking) and classified ads Vendito (general merchandise), Lamudi (real estate), Everjobs (jobs) and Carmudi (vehicles).

Orange Egypt, rebranded from Mobinil in March, is preparing an IPO for the Egyptian Exchange, with an offering of up to 20% of the shares. It has 33.4m customers and is Egypt’s second biggest operator after Vodafone. In March it announced Orange intended to invest EGP2.5bn ($281.5m) into upgrading networks and services.

IHS Towers, based in Lagos and owner of over 23,300 mobile phone towers in Nigeria, Cameroon, Côte d’Ivoire, Zambia and Rwanda, is expected to float shares within 12-24 months. In December, chief executive and founder Issam Darwish said it would be “the biggest IPO ever in Africa”.

Next week on 14 June, over 200 industry and finance executives, including African telecom CEOs, private equity investors and leading international bankers and advisers, are meeting in London to talk investments at the 7th annual TMT Finance & Investment Africa 2016 conference. Sessions include: Africa telecom leadership; TMT M&A; broadband investment; mobile towers; raising finance for Africa TMT; datacentres Africa; private equity Africa; mobile money and M-Commerce; and digital Africa. Speakers include leaders from Millicom, Google, IHS, Helios, Eaton Towers, Avanti Communications, BNP Paribas, Citi, UBS, Standard Bank, IFC, the World Bank, TransferTo, Icolo, Bima, Dentons and Hardiman Telecommunications.

Tech wizards to IPO (from www.africainternetgroup.com)

Tech wizards to IPO (from www.africainternetgroup.com)