Archive for the 'Financial Services' Category
May 9th, 2016 by Tom Minney
Highlights of the African Financial Services Investment Conference AFSIC 2016, held in London 5-6 May.
Development finance institutions have made $6.5bn of investments in financial institutions. Here are examples of what they are doing:
Proparco, Sophie le Roy, Head of Banking and Capital Markets: “We are 50% invested in Africa and financial services and banking make up 50% of our portfolio. Our aim is to catalyze private investors, we show you can invest and make profit. We have a careful process, we helped create banks in Mauritania, Benin and DRC and they still exist.”
BIO (Belgium), Carole Maman, Chief Investment Officer: “We have Eur600m under management, Africa is about 40% of portfolio, most of it is invested in financial institutions. We work on smaller transactions, our sweet spot is from EUR 6m+. We work mostly with tier 2 financial institution through microfinance, equity and loans. In countries such as Ethiopia and DRC where many people are unbanked, there will be lots of opportunities.”
FMO the Dutch development bank, Bas Rekvelt, Manager Financial Institutions Africa: “We have been investing in developing countries for 45 years, we have been able to catalyze EUR 1bn into the markets last year. We try to ensure the markets where we work are attractive enough for the private sector. Our portfolio is 25% Africa, spread between financial institutions, energy and agriculture.”
SIDA, the Swedish International Development Cooperation Agency, Christopher Onajin, Loan and Guarantees Partnerships & Innovation: “Our role is to give money and guarantees, covering credit risk and market risk. Our Africa portfolio is $135m, and we encourage banks, microfinance and others to push them to lend to under-served sectors.”
DEG – German Development and investment company, Peter Onyango, Investment Manager, Financial Institutions Group, Africa: “We have about 50 years of emerging markets expertise and Africa is a particular focus. We see more countries becoming bankable. Internally our risk appetite is improving, we see opportunities in more countries. We see opportunities in growing insurance and the nascent leasing markets, which will improve. There is a lot more in fintech. A setback for Africa is an opportune time for long-term investors, including DFIs and private investors.”
February 11th, 2016 by Tom Minney
Nigeria’s digital payments and payment card giant Interswitch Ltd could become Africa’s first tech “unicorn” or technology company valued at over $1 billion. Private equity firm Helios Investment Partners (majority owner) is preparing to sell and Citigroup Inc are hired to handle the sale, which could involve an initial public offer (IPO) and listing on the London and Lagos stock exchanges.
Website TechCrunch reported that Interswitch has 32 million customers for its “Verve” chip-and-PIN cards and its Quickteller digital payment app processed $2.4 billion in transactions. It processes most of Nigeria’s electronic bank, government and corporate transactions.
A subsequent report from Bloomberg says Helios paid $92 million for a 52% stake in 2010.
Techcrunch contributor Jake Bright (Twitter @JakeRBright, co-author of The Next Africa: An Emerging Continent Becomes a Global Powerhouse) reports that Interswitch CEO and founder Mitchell Elegbe told him no final decision has yet been made and they are also mulling the option of a trade sale.
Mitchell Elegbe CEO Interswitch (from www.naij.com)
Bright’s Techcrunch report also cites Eghosa Omoigui, Managing Partner of EchoVC
, a Silicon Valley fund investing in African start-ups: “They’ve already selected the ibankers and will likely go public sometime between Q2 to Q4 at (or close to) a $1 billion dollar valuation–roughly two times revenues,”.
Bright points out that there are strong tech opportunities for ventures focused on digital commerce and payments, and cites research by Crunchbase that VC investors put $400m into African consumer goods, digital content and fintech-oriented startups. Helios and Adlevo Capital back ventures such as MallforAfrica
(e-commerce) and Paga
Although Kenya has the spotlight still, because of the runaway success of Safaricom’s M-PESA product, which has 13m customers and generated $300m in revenues for Safaricom in 2014, consumers in Nigeria are projected to generate $75bn in e-commerce revenue by 2020. See this McKinsey report
on future consumer spending trends in a youth-driven market.
Interswitch – motto “bills aren’t fun but payments solutions can be” – is still building digital finance market share in Nigeria and in 2014 bought Kenya’s Paynet and also has operations in Uganda, Tanzania and Gambia. The IPO could support plans to expand into more countries – Cameroon, Democratic Republic of Congo and Ghana were mentioned in an earlier Bloomberg article
Elegbe, age 43 years, founded Interswitch in 2002.
Bloomberg reports that if this goes ahead, it will be one of the few private equity exits at a valuation of over $1 billion. It also cites Bain Capital’s $1.2bn exit from South African retailer Edcon’s private label store cars in 2012, sold to Barclays Absa unit. It says increasing use of e-commerce worldwide makes payments-processing industry a “structural growth market”.
The London Stock Exchange has more than 120 African listings.
In its 2010 press release
, Helios described the company: InterSwitch provides shared, integrated message broker solutions for financial transactions, eCommerce, telecoms value-added services, eBilling, payment collections, 2 and also administers Verve, the leading card scheme in Nigeria. The Verve card, which is currently issued by 16 out of the 24 banks in Nigeria, is the first and only chip-and-pin card accepted across multiple payment channels including Automated Teller Machine (“ATMs”), Point of Sale (“POS”) terminals, online, mobile and at banks. InterSwitch has been at the forefront of the development and growth of the epayment sector in Nigeria which is evidenced by its unique position of being the only switching and processing company connected to all banks in the country as well as over 10,000 ATMs and 11,000 POS terminals. In addition, InterSwitch is the leading processor for Mastercard and the market leader in merchant acquiring/POS, a segment which is still emerging and has potential for tremendous growth in Nigeria. Babatunde Soyoye, Managing Partner and Co-founder of Helios added: “InterSwitch is a Nigerian success story having been led by a superb management team and benefiting from the foresight, innovation and support of its founding shareholders, and a supportive regulator in the Central Bank Nigeria.”
January 22nd, 2016 by Tom Minney
Funding for start-up companies in the technology space was nearly $185.8 million in 2015, according to research by website portal Disrupt Africa. More growth is expected in 2016.
According to the data in Disrupt Africa African Tech Startups Funding Report 2015, the top 3 places where tech investors were backing new businesses were South Africa, Nigeria and Kenya, both in number of deals and amount. Most funding went into solar power (33%), followed by fintech (financial services firms using technology – 30%). The report monitors 10 sectors.
It says 125 tech start-ups raised funding in 2015. These were located 36% in South Africa, 24% in Nigeria and 14% in Kenya. Funding to South African start-ups totalled $54.6m, to Nigerian firms $49.4m and Kenyan firms received $47.4m. Other key places for funding included Egypt, Ghana, and Tanzania.
Gabriella Mulligan, co-founder of Disrupt Africa, commented on the website: “2015 was an exciting year for African tech startups. Our data shows the increasing vibrancy of our ecosystem, with more quality tech startups, and more investor activity than ever before. We’re very pleased to make our data available in the Disrupt Africa African Tech Startups Funding Report 2015, and trust it will contribute to understanding and growing the ecosystem.
He co-founder Tom Jackson added: “These are impressive numbers, showing real growth in the amount of funding available to African tech startups, but in reality they are merely the tip of the iceberg. There will have been many funding rounds across the continent that have taken place quietly. But in terms of demonstrating the development of the ecosystem, these figures are an excellent starting point. We expect to see further growth in 2016.”
Disrupt Africa describes itself as “Africa’s startup portal.. a one-stop-shop for all news, information and commentary pertaining to the continent’s tech startup – and investment – ecosystem”. The report provides detailed information for each country, including deals per location, average deal sizes and highlights key deals and is available here for $50.
Also check out the Fintech Africa awards event, due to be held in South Africa this October.
March 8th, 2015 by Tom Minney
Nairobi is ranked the most attractive destination for foreign direct investment (FDI) in Africa and a regional financial services hub. However, North African cities and Johannesburg dominate the continent in an interesting report “Into Africa, The continent’s cities of opportunity” published by consultants PWC recently.
The report highlights key aspects of 20 African cities, along with photos and charts, ranking all in their score on different areas. This is because cities are the engine of growth worldwide and particularly in Africa, where increasing numbers of the fast-growing population are moving to cities and mega-cities are emerging and growing very fast.
The report points out a strong correlation between infrastructure, human capital and economics and makes it clear that Africa’s future will partly depend on developing infrastructure and human capital, partly that smart and ambitious people will live where it is easier for them to flourish.
It highlights how many of the cities in the report have had millennia to establish themselves, but newcomers can catch up fast if the leaders become complacent. Johannesburg is 3rd among the 20 but was officially founded in 1886 and opened the stock exchange and the theatre next year. Accra, which grew from 20,000 resident to 2 million in a century, is number 6 but only fractionally behind Algiers and is forceful and dynamic, with a good vision, ranking 1st for communications infrastructure and low crime, 2nd to Nairobi in attracting FDI and to Casablanca in GDP diversity, 3rd for political environment, 4th for ease of doing business.
The report highlights how some effort and planning can help cities develop: Dar es Salaam and Douala are key ports and Douala also for transshipments, Accra for telecommunications, Lagos in culture, both music and Nollywood film (Johannesburg has top spending in Africa for entertainment and media and Nairobi has the fastest growth in E&M spending with projected increase of 12.5% in 2013-2018), and Nairobi in financial services along with Johannesburg. Abidjan is top in middle-class growth and diversity, Dar es Salaam in GDP growth.
According to the authors: “The entire purpose of this analysis, of course, is to facilitate the decisions and actions of both investors and policymakers. Therefore, we’ve structured this report, as much as possible, around the critical issues of the business community, as well as those of the officeholders and other public authorities who are responsible for improving the collective life of each city examined here. And that leads to our third – and, we believe, most important – group of readers, the actual citizens of the 20 cities in this report. Every element of this study – from infrastructure and human capital to the economy and society – directly concerns the more than 97 million people who live in the cities described here.”
This is the order overall, including top rankings in each of the 4 main categories:
1. Cairo – top in infrastructure
2. Tunis – top in human capital
4. Casablanca – top in economics
9. Addis Ababa
10. Kampala – top in society and demographics
15. Dar es Salaam
Gauged by opportunity, the ranking is headed by Dar es Salaam, followed by Lusaka, Nairobi, Lagos, Accra and Abidjan.
Urban infrastructure development
How Nairobi attracts FDI
This report on Ventures Africa website highlights the FDI figure, where Nairobi comes top. It reports that in the 2013/2014 financial year, FDI to Kenya was estimated at $1.6 billion, despite the increased terror attacks. Writer Emmanuel Iruobe analyzes steps for success:
Rapidly developing infrastructure: Infrastructure plays a fundamental role in attracting investors and Kenya is investing into energy, maritime, aviation and rail, including major financing from China, Japan, Western Europe and the United States.
Leading technology adoption: The country is a leader in technology adoption and advancement within the African continent and abroad including for deepening financial inclusion and he says Nairobi is the only African smart city among the list of top 20 smart cities globally and highlights plans to build Konza technology hub as part of Kenya’s Vision 2030, which has attracted the interest of IBM (which set up the first African research lab in Nairobi last year), Google, Microsoft and Intel. Dubbed the African “Silicon Savannah”, the project is expected to be a key economic driver for the country in the coming years.
High value mineral resources: In addition to natural resources such as coal and titanium, the recent discovery of oil and gas has contributed to FDI inflows into Kenya over the past 3 years with firms from the UK, US and Canada setting up operations in Nairobi.
Growing consumer base: The growing consumer class in the country, anchored on a fast-expanding middle class, has provided business opportunities for consumer goods. South African retail giant Massmart is expected to make an entry into Kenya in May under the “Game” brand name. French retailer Carrefour has reportedly signed up.
February 27th, 2015 by Tom Minney
Leading website and magazine Private Equity Africa lists the top 10 Africa private equity deals from 2014. They use data from Preqin.
1. Helios Investment Partners – Helios Towers Africa – $630m
This is the second year that Helios Investment Partners took the top slot when it led a consortium to inject $630m of growth capital into telecommunications service provider Helios Towers Africa (HTA) in July. It was US-based private equity investor Providence Equity Partners’ first deal in Africa. The IFC’s African, Latin American and Caribbean Fund also invested for the first time in HTA. Existing investors Quantum Strategic Partners, Albright Capital Management and RIT Capital Partners also backed the tranche. (Helios’ big deal in 2013 was to partner with BTG Pactual and Indorama to bring $1.5bn investment into Nigeria-based oil and gas exploration company, Petrobras Africa.)
2. Emerging Capital Partners leads consortium – IHS – $490m
Emerging Capital Partners (ECP) led the consortium that invested $490m in Nigeria-based telecommunications towers company IHS. The latest 2014 funding round brought in Goldman Sachs was a new investor and the IFC Global Infrastructure Fund and African Infrastructure Investment Managers (AIIM) were also in. IHS is part-owned by Investec Asset Management, the first private equity investor to fund its expansion. Other existing investors are ECP, Wendel, sovereign wealth fund Korea Investment Corporation (KIC) and the Netherlands Development Finance Company (FMO). KIC first backed IHS when it joined Investec and ECP in a $1bn financing round in 2013. Standard Chartered Bank contributed $70m in senior debt specifically set apart to finance expansion into Zambia as part of the capital package
3. Abraaj – Liberty Star – confidential
South Africa’s Liberty Star Consumer Holdings (Libstar) manufacture and distributes food. It sells private-label products to retailers, own-brand products and third-party packaging and ingredients to the food industry. Abraaj acquired a majority stake in the company through a secondary buyout from Metier, Old Mutual Private Equity, Development Partners International and Lereko – which have all exited the company. Libstar management took a minority stake in the buyout. The deal value is confidential.
4. Atlas Merchant Capital – Union Bank of Nigeria – $270m
The investment was channelled through Atlas Mara Co-Nvest, its $325m investment vehicle listed on the London Stock Exchange. Atlas Merchant previously held 9.05% in Union Bank, inherited when it took over ADC African Development Corporation in early 2014. It committed the capital by exercising an option to acquire 20.89% of the financial services company.
5. IFC-Asset Management Compan & Temasek – Seven Energy – $255m
More sovereign wealth fund action in April, when Singapore’s Temasek partners with IFC Asset Management Company (IFC-AMC) to invest $255m in Nigeria’s Seven Energy, an oil and gas exploration and production company. Temasek contributed $150m for a 25% stake. Previous investors in Seven Energy include Actis, Investec Asset Management, Africa Finance Corporation, Capital International Private Equity and Standard Chartered Private Equity. Seven Energy’s $600m capital-raising round included $335m in debt of which the IFC African, Latin American, and Caribbean Fund contributed $30m.
6. Kohlberg Kravis Roberts – Afriflora – $200m
KKR’s first deal for Africa, in July, was approximately $200m in Afriflora, an Ethiopia-focused agriculture production company that cultivates, produces and sells roses based on Fairtrade standards. The company operates as Sher Ethiopia. The investment is part of KKR’s $6.2bn European Fund III.
7. Carlyle – Tiger Automotive – confidential
It was fast-moving Carlyle’s third deal of the year from its maiden $698m Africa-focused fund, closed earlier in 2014. It bought South Africa’s vehicle accessories distributor Tiger Automotive (TiAuto) in November. It partnered with Old Mutual Private Equity (OMPE) to buy the company from Ethos Private Equity. TiAuto operates through 7 divisions, including Tiger Wheel & Tyre, Tyres & More, YSA and Treads Unlimited and primarily distributes branded tyres such as Continental, Yokohama, Michelin, Pirelli, Goodyear, Achilles, GT Radial and Hankook.
8. Stanchart – Sphinx Glass – $180m
Standard Chartered Private Equity backed a deal and partnered with Saudi Arabia’s Construction Products Holding to buy Egypt-based industrial production company Sphinx Glass from Qalaa Holdings (formerly Citadel Capital) in May for $180m. Sphinx Glass operates under license from US-based PPG Industries, a specialist float glass technology provider. Qalaa sold it as part of a strategy to shed non-core assets.
9. Rocket & Kinnevik – Jumia – $148m
Hotshot tech investors Rocket Internet and Kinnevik put another $148m into their consumer shopping platform Jumia in December. US-based private equity investor Summit Partners owns part of Jumia and JP Morgan Asset Management has also previously invested. Jumia owns consumer shopping websites offering branded consumer products as Internet shopping starts to take Africa by storm. Rocket Internet has previously backed Groupon, eBay, Facebook, LinkedIn and Zynga. Watch this space.
10. Carlyle Diamond Bank – $147m
Carlyle’s fourth deal was into Nigeria-based financial services company Diamond Bank, which is a Tier II bank, covering corporate, retail and public sector banking with subsidiaries offering custodian, mortgage, securities and insurance products and services. Kunoch Holdings, the Africa-focused investment platform of entrepreneur and investor Pascal Dozie, raised its holding in the bank from 5.86% to 20.65% in August, buying the additional stake from Actis and CDC Group.
*Rankings based on Preqin data and Private Equity Africa research.
January 16th, 2014 by Tom Minney
Weather insurance is a financial product aiming to help African farmers manage the volatility of drought and other weather crises. This week (14 Jan), IFC (www.ifc.org) signed 2 grant agreements with MicroEnsure Ltd to make more index-based weather insurance available to small-scale farmers in Rwanda and Zambia. Index-based insurance pays out on the basis of agreed weather data, such as rainfall as measured being lower than an agreed level, and is more efficient risk management tool than traditional indemnity-based agricultural insurance, which runs up high transaction costs and premiums.
The grants, valued together at about $650,000, aim to help mitigate the adverse effects of climate change and to strengthen food security. The funds come from the Global Index Insurance Facility (GIIF), which is a multi-donor trust fund implemented by IFC and the World Bank and funded by the European Union, Netherlands and Japan.
The GIIF grants are expected to help MicroEnsure to offer index-based insurance to an extra 90,000 small-scale farmers in Rwanda within 2 years and 15,000 small-scale farmers in Zambia within one year. Index-based insurance, which pays out benefits on the basis of weather data without costly field verification of losses, is a more efficient risk management tool.
Much of the farmland in Rwanda and Zambia, as in many other parts of Africa, is irrigated only by rain, and certain regions are vulnerable to drought from too little rain and floods and destruction from too much rain. To limit their losses due to extreme weather, smallholder farmers make minimal investments into their land, leading to reduced yields and continued food insecurity.
UK-based MicroEnsure has been operating since 2002 and works with mobile-network operators, banks, microfinance institutions, and other aggregators to provide insurance for the mass market. Shareholders include some of its managers and IFC, Omidyar Network and Opportunity International, which created MicroEnsure in 2005. It has a regional base in Nairobi and country operations across Africa and Asia. It has twice been awarded the Financial Times/IFC Sustainable Finance Award. The company has worked with local insurance companies in India, Malawi, the Philippines, Rwanda and Tanzania.
In Rwanda 90% of the labour force work in agriculture and in 2010 IFC agreed with MicroEnsure to design and provide index-based insurance and develop an outreach network to small farmers, while scaling up the insurance into a commercially viable and sustainable product. By March 2012, 6,208 maize and rice farmers were reported to be covered with weather station and satellite index products, with the aim to boost coverage to 24,000 farmers by December 2013. It works in Rwanda with Urwego Opportunity Bank which is a subsidiary of Opportunity International and local insurance companies Sonawara and Soros.
In Tanzania, MicroEnsure’s pilot project (Dec 2011-Apr 2012) worked to provide weather index insurance to 24,000 Tanzanian cotton farmers through the Tanzanian Cotton Board, supported by Gatsby Foundation, local underwriter Golden Crescent and a technical partnership agreement with reinsurer Swiss Re. It covers cover for value of inputs provided to farmers on credit.
IFC has also backed Kilimo Salama (“safe agriculture”) in Kenya to offer cover for inputs in the event of drought or excessive rainfall, in a partnership between Syngenta Foundation for Sustainable Agriculture and Kenyan insurance company UAP. Also available is cover for farm-output value, estimated on the expected harvest. A Nov 2010 grant from GIIF encouraged Syngenta to develop the product further, which uses weather stations to collect rainfall data and mobile SMS technology to distribute and administer payouts. It
For more information see IFC website on Rwanda and Tanzania and on Kenya.
Richard Leftley, CEO MicroEnsure and MicroEnsure Asia, said in an emailed press release: “As a pioneer in the provision of weather-index insurance to smallholders since 2004 we have seen the impact that these products have in unlocking credit to fund inputs, resulting in a dramatic increase in yields and rural income. Our on-going relationship with the team at IFC has been central to our growth in this sector.”
Gilles Galludec, IFC GIIF programme manager, said: “There is great potential for index insurance to strengthen economic security for smallholder farmers in Rwanda and Zambia while also serving to further the development of sustainable insurance markets in both countries. A reduction in weather-related risks also stimulates investment in farming by making it viable for financial institutions and agribusinesses to extend credit to smallholder farmers for long-term investment in the land. Index-based insurance is a powerful tool in the fight against poverty.”
GIIF is a multi-donor trust fund, launched in Africa in 2009, with the aim of expanding use of index insurance as a risk-management tool in agriculture, food security and disaster-risk reduction. It supports the development and growth of local markets for indexed/catastrophic insurance in developing countries, primarily in Sub-Saharan Africa, Latin America and the Caribbean, South Asia and Southeast Asia.
IFC is a member of the World Bank Group and focuses exclusively on the private sector, working with enterprises in more than 100 countries. Investments climbed to an all-time high of nearly $25 billion in the financial year 2013 www.ifc.org
The International Livestock Research Institute (www.ilri.org) is another organization backing index-based insurance, this time offering livestock cover for vulnerable pastoralists in Kenya and Ethiopia to cut climate-related risk. The product is called index-based livestock insurance and was launched in Marsabit District of Kenya in Jan 2010 with insurer UAP (it made payouts in Oct 2011 and Mar 2012) and in Ethiopia’s Borana zone in Jul 2012. For more information, see here. The product uses econometrics to measure links between livestock mortality and a Normalized Difference Vegetation Index (NDVI).
December 31st, 2013 by Tom Minney
“How can African exchanges become an integral part of the continent’s economic transformation?” This is the challenge from Sunil Benimadhu, President of the African Securities Exchanges Association (ASEA www.african-exchanges.org), at the flagship conference in Abidjan, Cote d’Ivoire, earlier this month. It is a good agenda for action by Africa’s securities exchanges in 2014.
Benimadhu asks how the stock exchanges can “become powerful enablers and powerful drivers of change”; how they can “empower the middle-class, democratize the economy and help overcome poverty”; and how capital markets can “effectively provide the much-needed capital for corporate funding, but also the funding of governments’ social programmes in Africa?”
He identified 4 “S”s for securities exchanges:
S is for synergy
“There is a fundamental need for African stock exchanges to establish strong synergies with the other clusters within the financial services sector, like the banking sector, the insurance sector, the asset-management industry, the pension-fund industry, and work towards the emergence of an integrated approach to the development of the financial services sector in Africa. African exchanges have, for too long, been considered as mere appendages to the mainstream financial services clusters, when in effect they should have occupied a central position within the financial services spectrum, as clearly evidenced by successful financial centres in the world.”
S is support
Governments and policy-makers in Africa need “to understand the fundamental transformational role of capital markets to the socioeconomic fabric of African economies. Governments need to be fully supportive of the development of vibrant capital markets and they need to adopt policies that are conducive to the development of efficient and competitive markets.” Benimadhu cites Singapore, whose success began with a “direct interventionist approach of the Singaporean Government which made a clear statement about its vision to transform Singapore into an international financial centre and adopted policies that were fully supportive of the stated vision.” He points out how Singapore’s capital markets have contributed immensely to the transformation of the country’s economy into a world star. He added that Africa’s most successful companies should support the African stock exchanges by listing and contributing to market growth.
S is scope
African securities exchanges should “move up the value-chain and extend the scope of products and services they offer”. He acknowledges the short-term challenge is still the flotation and listing of new, valuable and liquid companies, but adds: “the short-to-medium term target implies a fundamental review of the exchange business model and the diversification of revenue streams via a strategic shift from the current equity-centric focus. New products including bonds, exchange-traded funds, structured products and eventually derivatives need to be introduced.”
S – substance
“Substance is about the ability of African Stock Exchanges to demonstrate that they have created value for the different stakeholders they service, namely issuers, investors and society as a whole.” Benimadhu says exchanges need to show how they have enabled existing issuers to raise capital to fund their growth and to create value for their shareholders and this will help bring new issuers to the market. “The substantive contributions of African Exchanges on both these counts are quite compelling and I think that these strengths need to be aggressively marketed by African exchanges to attract new issuers and broaden our product offerings.”
It is also important for African stock exchanges to improve their image and marketing to investors: “African exchanges need to demonstrate that they operate in a cost-effective and transparent manner, that information on listed scrips are readily and timeously available and that exchanges offer products that can potentially generate attractive returns to investors.
“With regards to society, exchanges should demonstrate that they can contribute to the democratization of the economy, create wealth for the citizens of a nation, contribute to the job-creation process, improve corporate governance and finally contribute to the overall well-being of a society from both a quantitative as well as a qualitative perspective.”
Panels at the conference included government support to the development of vibrant capital markets in Africa; how exchanges can generate substance and value for issuers, helping issuers tell their story right and endorsing effective communication strategies; and listening to issuers and investors on how African exchanges have added value to each.
October 31st, 2013 by Tom Minney
London is back at the top of the world’s international financial centres, pushing out New York again, according to a world ranking of IFCs prepared by The Banker magazine. London excelled in factors such as business friendliness and the depth of the various business clusters present. It generates the largest value of outward as well as inward foreign direct investment in the financial sector.
A recent article in The Economist says international trading in China’s yuan currency has tripled over the past three years to $120 billion a day, with London accounting for a third.
On 29 October, speaking at a World Islamic Economic Forum (WIEF) meeting in London, Prime Minister David Cameron said that the UK also intends to become the first country outside the Islamic world to issue its own Islamic bonds, known as sukuk. A new Islamic index is to be launched on the London Stock Exchange to establish the City as one of the world’s leading centres of Islamic finance. According to Reuters, The bond, expected in 2014, will be £200 million ($321m), smaller than earlier planned and would provide a much-needed liquidity management tool for Britain’s six Islamic lenders and could encourage local firms to consider issuing sukuk of their own.
Africa’s IFCs – Johannesburg and Mauritius
Among The Banker’s IFCs, Mexico City has jumped 15 places to a world ranking of #15. At the end of 2012 Mexico City hosted its largest initial public offering with the $4.1bn listing of the Mexican operations of Spanish bank Santander. Johannesburg is the only African IFC to feature on the main list, coming in at 35th which puts it ahead of Munich (36) and Bangkok (37) but behind Copenhagen (14), Stockholm (24), Edinburgh (30) and Madrid (34).
Mauritius is ranked 6 out of 13 specialized financial centres, up one place and now following Cayman Islands, Jersey, Guernsey, Bahamas and Bermuda.
The Banker’s ranking of IFCs is based on data ranging from financial markets indicators to economic potential to business environment factors. The ranking focuses on the level of international business and the value offered to institutions seeking to expand their international operations as well as international appeal. Different data is used for the specialized centres.
London had a similar score to last year’s winner, New York on a financial markets data category. London led in various components that contributed to its financial markets score, such as: the number of new foreign listings (a total of 36 against New York’s 29) and the issuance of international debt securities ($3,401bn against New York’s $1,977bn). New York has the largest volumes of assets under management ($920bn) among firms that it hosts.
Singapore and Hong Kong are in third and fourth positions, respectively, the latter displacing Frankfurt (now 5). Beijing is the most improved Asian IFC, moving from #36 in 2012 to #32 this year in the overall ranking. It is now ranks #7 among Asian IFCs, overtaking Kuala Lumpur (8). Bangkok has also climbed 4 positions in the global ranking and comes in ninth regionally.
Number one global IFC by cost is Copenhagen, with office occupancy costs lower than many emerging markets and low employment-termination costs.
October 21st, 2013 by Tom Minney
A leading African private equity house Development Partners International (www.dpi-llp.com) has reached the first close of its second pan-African African Development Partners II (ADP II) fund at over $400 million. According to authoritative website Private Equity Africa, the fund has raised over $250 million in equity commitments from Limited Partners and $150million in debt from the Overseas Private Investment Corporation (OPIC).
Equity LPs in the fund include the CDC Group, which upped its $25m ADP I investment to $75m in the new fund , according to PEA . DPI’s first fund raised approximately $400m.
ADP II fund is structured as a 10-year Guernsey Limited Partnership. Its final close will be at $500m. DPI’ chief executive officer is Runa Alam and its portfolio companies operate in 18 African countries.
Similar to ADP I, the new fund is pursuing a broadly diversified strategy across Africa. The DPI managers have particular interest in finance, healthcare, education, construction, and consumer goods sectors although they can invest generally, reports PEA.
DPI has a track record in the high-growth fast-moving consumer goods (FMCG) sector, including investing in Nigeria’s Food Concepts, which operates consumer food retail outlets under the brands Chicken Republic and Butterfield Bakery; South Africa’s Libstar, a holding company; and in 2013 a deal to back Biopharm, a pharmaceutical company in Algeria.
Financial services investments include Letshego Holdings, a financial services company based in Botswana; Nigeria’ s Mansard Insurance, previously Guaranty Trust Assurance; and Ghana’s CAL Bank. Previously DPI had invested in Touax Africa, which is holding company for leasing firms Ste Auxiliaire de Construction de Montage et d’Industrie (Sacmi) and Réalisations Aménagements Constructions (Ramco), both based in Morocco.
Other investments include pan-African telecommunications tower-sharing services company Eaton Towers and OSEAD, a North-Africa focused mining exploration company.
DPI LLP was founded in 2007 and is based in London. Veteran Africa investor Miles Morland was co-founding partner with Alam and is also chairman of DPI.
July 26th, 2012 by Tom Minney
Lots of useful commentary is published this week about what’s going wrong with the world’s leading capital markets and finance. This new bout of soul-searching follows the publication of Prof John Kay’s “The Kay Review of UK Equity Markets and Long-Term Decision Making” on 23 July and available here (and the Interim Report, published in February, with much of the evidence is available here.
The Prof says that equity markets are not working as effectively as they could. “We conclude that short-termism is a problem in UK equity markets, and that the principal causes are the decline of trust and the misalignment of incentives throughout the equity investment chain”. He says that successful financial intermediation depends on: “Trust and confidence are the product of long-term commercial and personal relationships: trust and confidence are not generally created by trading between anonymous agents attempting to make short term gains at each other’s expense.”
He blames the prevailing culture and says that people don’t only work for financial incentives, as widely promoted in current City culture – “Most people have more complex goals, but they generally behave in line with the values and aspirations of the environment in which they find themselves.” Prof Kay puts forward a series of 17 recommendations on how to make things better and this could be useful reading for anyone involved in developing capital markets with an aiming to help grow savings and create better performing businesses. This includes fiduciary standards of care if you manage other peoples’ money, diminishing the current role of trading and transactional cultures, high-level statements of good practice, improving the interactions of asset managers and other investors with investee companies, and tackling misaligned incentives in remuneration, and reducing pressures for short-term decision making. The Guardian newspaper’s Nils Pratley has a useful summary of some of the best recommendations here, ironically coupled with a beautiful rosy photograph of the City!
One background comment is by Evening Standard columnist Anthony Hilton here. He says “The behaviours that led Deputy Governor of the Bank of England Paul Tucker to use the word “cesspool” when giving evidence to the Treasury Select Committee on Libor come in a straight line from the reforms imposed on the Stock Exchange by the then Prime Minister Margaret Thatcher in 1986 when she forced it to open up membership to all comers, and in particular to abolish single capacity — the arrangement under which firms had to confine themselves to a single activity in which they acted for themselves or for the client, but not both… From being a servant of the real economy, finance began its journey towards becoming an end in itself, with deals done not because they had economic rationale but because they made money for bankers and costs, both direct and indirect, that impose a colossal and unnecessary burden on that real economy.” He adds that this kept the system honest “or rather it was dishonest in a less poisonous way. Until Big Bang, the problems came from dishonest people working in honest firms; today the problems are caused by honest people working in dishonest firms. The culture is rotten.” This brought world-beating businesses low “by policies designed to pander to the stock market rather than secure the businesses’ long-term future for its customers, employees and indeed the country.” He says the rewards of finance should belong to customers, not their advisers.
Kay also notes that index investing, as growing popular in some African markets with the rise of ETF (exchange-traded funds) and other derivatives, may not represent a strategy for representative returns, see this Financial Times summary. He also urges less securities lending.
Most of the leading commentators though conclude that the view is rather rose-tinted, and not in touch with the real world. The Financial Times Lex Column says (unfortunately this link may be subscribers only, but you did not miss much if you don’t find a way around): “Dig a little deeper though and this vision – which includes an attack on the efficient markets hypothesis – is flawed”. It says although investors should engage more with companies a falling share price is better incentive for a manager to perform well than a phonecall and that quarterly reporting helps people see what’s going on and reduces insider trading. It points to the UK’s “shareholder spring” in which investors forced change at companies such as Aviva and AstraZeneca. Another Financial Times summary of reaction is that Kay is “no silver bullet” and while people may agree with his views “some.. may prove challenging to implement in practice”. Some recommendations can be implemented by the industry, including investors’ forums for collective long-term engagement and good stewardship, others such as calls for asset managers to disclose all costs, including transaction costs and performance fees charged to funds, may be carried out voluntarily. Only a few may be carried out through legislation, and many others (apart from Lex) support removal of obligations for quarterly reporting and argue that managers’ time could be better spent elsewhere.
It’s a week of interesting reading for people, including many in Africa, building capital markets that are meant to serve economies, the creation of business growth and jobs, and also to encourage more long-term savings.
Discussion is very welcome!