Archive for the 'South Africa' Category

Innovative African IPO and listing successes show strong demand

Here is a round-up of recent initial public offers (IPOs) and other listings of shares on African Stock Exchanges, many of them over-subscribed. Namibia has scored its first listing of a special purpose acquisition company (SPAC), while Mauritius is the home for an innovative listing of Afreximbank GDRs and of 2 primary listings on the Johannesburg Stock Exchange.

Namibia: Nimbus Infrastructure Limited is first SPAC vehicle
Nimbus Infrastructure Limited listed on the Namibian Stock Exchange (NSX) via private placement and started trading on 6 October. It raised more than N$100 million ($7m) from local investment institutions and retail investors. It aims to invest into information, computer and telecommunications (ICT) projects and institutions in sub-Saharan Africa.

It is Namibia’s first listed capital pool company (CPC). This is a type of company, also known as a special purpose acquisition company (SPAC), is most popular in the USA or Canada and South Africa’s Johannesburg Stock Exchange (JSE) has listed several SPACs.

The company has no commercial operations or assets, except cash. It uses its cash to evaluate promising investments and once it has invested in a viable business, usually within a set timeframe, it continues to operate as a conventional listed company. The funds are kept in an escrow account and are released on approval by shareholders or in line with a pre-approved spending budget, according to the company website. It must also comply with the Corporate Governance Code for Namibia (NamCode).

The private placement was open from 15-29 September. The listing of Nimbus was a joint initiative between Cirrus Capital, Paratus Namibia and Cronje and Company.

According to the company, it “is currently looking at a number of potential transactions and as per the stock exchange rules, aims to take these transactions forward for shareholder approval before the end of the year.” Nimbuas has signed a management agreement with Paratus.

According to an NSX statement, reported in Namibian Economist: “The Nimbus listing boasts exciting opportunities for Namibia, as not only does it focus on the fast-growing ICT sector across the continent, but in so doing, it offers a strong diversification opportunity for the funds of institutions and individuals alike, allowing diversified jurisdiction, currency and sector returns for investors. Further to this, as Namibia’s first CPC, Nimbus represents an opportunity to prove a new concept that will likely form a critical part of the future development of the Namibian real and financial sectors”.

Côte d’Ivoire: Ecobank Cote d’Ivoire
Ecobank Cote d’Ivoire launched a share offer on 27 September and closed it the same day as it was already twice oversubscribed. The IPO was to sell 20.44% of the bank’s shareholding in the form of 2,250,000 shares at XOF20,000 per share, raising XOF45bn (USD79.5m).

The bank is set to list on the Bourse Régionale des Valeurs Mobilières (BRVM) in December, where it will join parent company Ecobank Transnational Incorporated (ETI), a leading share on the BRVM, the Nigerian Stock Exchang and the Ghana Stock Exchanghe.

The offer, organized by stockbrokers EDC Investment Corporation and Hudson & Cie had been scheduled to run from 22 September to 11 October. It was 2.2x oversubscribed on the first day.

According to Enko Capital “Ecobank Cote d’Ivoire was created in 1989 following the acquisition of Chase Manhattan Bank. The bank has since expanded to become the third largest lender in Ivory Coast with a market share of 10.5% in terms of loans and 11.7% in terms of deposits and employs 648 people across 53 branches holding 274,018 accounts.

“Prior to the IPO, ETI held a 94.26% stake in Ecobank Cote d’Ivoire and this will reduce to 75% post listing. ETI was founded in Togo in 1985 and currently has a presence in 36 African countries. The banking group is listed on three exchanges in Africa.. Its stock is owned by more than 600,000 shareholders and the group employs over 17,000 people across 1,200 branches and offices. Ecobank Cote d’Ivoire is the third largest contributor to ETI’s group revenue after Ecobank Nigeria and Ecobank Ghana.”

Namibia: Letshego Holdings
Letshego Holdings Namibia had to extend its IPO by 4 days to 26 September and drop its offer price from NAD4.70 to NAD3.80 per share, according to Enko Capital: “The main purpose of the IPO was to satisfy the Bank of Namibia’s conditions for granting a banking license to Letshego Bank Namibia in 2016 which require a minimum 45% local ownership within a four year period.”

Letshego listed on 28 September on the Namibian Stock Exchange (NSX)with a market capitlaization of NAD1.9 billion, according to a report in New Era and a press release.

Finance Minister Calle Schlettwein did not have a warm view of capital markets as he celebrated the listing: “’With this listing Letshego has taken a dive into the shark pool, but this is a well-prepared dive that you were truly prepared for”.

Over 3,600 qualifying applications were received during the 4-week offer, with individuals and non-institutional investors making up NAD40m of the total NAD180m raised.

NSX CEO Tiaan Bazuin said: “I am extremely pleased with the successful listing of Letshego. There has been a lot of talk about localization in the Namibian market and this listing shows the best way, in my mind, to achieve this goal.”

Letshego Namibia is an offshoot of Letshego Holdings Limited, listed on the Botswana Stock Exchange, which has reduced its holding from 85% to 79%. Letshego Bank Namibia has had a full licence since July 2016, and is a 100% subsidiary of Letshego Holdings Namibia. Its origin in 2002 was as Edu Loan Namibia, making salary loans, and in 2008 Letshego bought majority shareholding.

Mauritius – Afeximbank global depositary receipts
African Export-Import Bank (Afreximbank), headquartered in Egypt, raised more than its $100m minimum target after selling global depositary receipts (GDRs) backed by its Class D shares. The GDRs listed on the Stock Exchange of Mauritius was on 4 October. The minimum investment for the offer was $30,000 and it closed on 22 September.

Afreximbank is a supranational trade finance bank established in October 1993. Class A shareholders consist of African States, African central banks and African public institutions; Class B shareholders are African financial institutions and African private investors; Class C shareholders are non-African investors, such as international banks and export credit agencies; while Class D shareholders can be any investors.

South Africa: African Rainbow Capital Investments
This newly formed company listed on the main board of the Johannesburg Stock Exchange on 7 September, the 12th listing to date in 2017. It raised ZAR4.0bn ($282m) and brought the total capital raised on the JSE in the year to date to ZAR76bn ($54bn), according to this JSE press release.

ARC Investments is a capital raising and investment entity incorporated in Mauritius which will offer shareholders the opportunity to invest in a permanently broad-based black controlled investment entity holding a diversified portfolio of investments. The initial investment portfolio held by ARC Investments will be seeded by African Rainbow Capital Proprietary Limited (ARC), which will remain the majority shareholder in ARC Investments.

Shareholders invest alongside ARC in the initial portfolio of 16 investments in financial services including: Alexander Forbes Limited, Alexander Forbes Group Limited, Indwe Broker Holdings, Senayo Securities and Santam and and 17 non-financial services including investments in agriculture and food production, building and construction, energy, information technology and telecommunications, investment holding companies and real estate businesses. Its most significant investment is a 20% interest in Multisource Telecoms Proprietary Limited, currently trading as Rain. According to Reuters, ARC Investments is valued at ZAR8.5bn, and has 3 cornerstone investors including Singapore’s GIC Pte Ltd, the Public Investment Corporation and Sanlam Private Wealth.

ARC is a majority black-owned investment holding company which seeks to utilize its empowerment credentials, strong balance sheet and the track record of its leadership and brand to invest in financial services distribution businesses. ARC is wholly owned by Ubuntu-Botho Investments (UBI), which was created in 2003.

Patrice Motsepe, Chairman of both Ubuntu Botho Investments and ARC, said: “the listing of ARC Investments on the JSE is a major step towards realising one of the key objectives of ARC, namely to build a world class broad- based black – controlled investment entity for all South Africans.”

Nemer says the JSE is equally proud to help ARC Investments facilitate its goal of providing investment exposure for the public to B-BBEE assets, which are often only held privately.

South Africa – Steinhoff Africa Retail (STAR)

Holding company Steinhoff Africa Retail (STAR) successfully raised ZAR15.38bn (USD1.08bn) after placing 750,000,000 shares at ZAR20.50 each between 4 and 14 September. It listed on the JSE on 20 September.

It brings public shareholding to 21.7% of STAR, which was formed as part of the restructuring of the Steinhoff Group, and Steinhoff International holds 78.3%. The group has 4,808 stores in Angola, Botswana, Lesotho, Mozambique, Malawi, Namibia, Nigeria, South Africa, Swaziland, Uganda, Zambia and Zimbabwe. Brands operating under the STAR group include Pep, Ackermans, Poco, Russells, Flash, Bradlows, Rochester, Buco, Timbercity, The Tile House, Incredible Connection, HiFi Corp, Dunns, John Craig, Refinery, Shoe City, Tekkie Town and Sleepmasters.

According to Enko capital, the offer was 4.8x over-subscribed.

South Africa: Brainworks
Mauritius-registered investment holding company Brainworks, with an investment base focused on hospitality, real estate, financial serice and logistics in Zimbabwe, listed on the JSE on 13 October, after an IPO from 28 September to 11 October. It is the first Zimbabwean company with a proimary listing on the JSE and the 16th listing for the year to date, according to a JSE press release, where it sought to raise ZAR316.5m (USD22.3m) through the sale of 27,523,951 shares at ZAR11.50 per share.

Brainworks was established in 2011 and holds investments including controlling stakes in 2 listed hospitality companies, African Sun and Dawn Properties, which are listed on the Zimbabwe Stock Exchange. It also has investments in GetBucks, GetCash, GetSure, MyBucks, Skyclear and FML Logistics and says approximately 38% of revenue is generated in hard currency.

Donna Nemer, Director: Capital Markets at the JSE, says the exchange is proud to welcome Brainworks to the South African market. “As Africa’s largest stock exchange, the JSE believes we can make an important contribution to the growth and the development of our continent. We do this through offering foreign investors a secure and transparent entry point into Africa and providing the companies who do business here with a liquid platform to raise further capital to fund their expansion.”

Nemer says the JSE also favours dual- or cross-listings, wherein debt or equity is listed simultaneously on the JSE and on a local market. “This assists companies from other African countries to gain access to a much larger capital pool and trade in a more liquid environment, while still allowing local market participation.”

Thanks to research contribution by Enko Capital, which invests in African opportunities.

African IPO pipeline includes $3bn Vivo Energy

Investors have been snapping up Africa-focused IPOs (initial public offers) of shares and more capital-raisings and stock-exchange listings are in the pipeline. Biggest of the upcoming African IPOs is a reported share offer by Vivo Energy, while miner AfriTin, investment and real estate company Cytonn and property company Hystead also said to be heading for the markets.

Earlier this month, Wall Street Journal reported that Netherlands-based Vivo Energy, which is licensed to distribute Shell fuel and lubricants in 16 African countries, is working with investment banks to act as underwriters. Its offer, planned for the London Stock Exchange, could value the company at $3 billion.

Vivo Energy (photo credit Vitol Africa)


Vivo was created in 2011 after Shell sold 80% of its downstream operations in 14 African countries to Dutch firm Vitol Africa BV and private equity fund Helios Investment Partners in a deal worth $1bn and then sold the balance to them for $250 million earlier this year. Vivo operates 1,800 Shell fuel stations and sells Shell-branded products such as liquefied petroleum gas and lubricants to aviation, marine and mining in 16 markets.

AfriTin is a newly formed tin company which is acquiring the tin assets of Bushveld Minerals in Namibia and South Africa and announced plans for a £2m ($2.6m) capital raise on the AIM market operated by the London Stock Exchange. The assets will include 85% of Uis Tin Project, the former workings of Uis mine in Namibia, and assets in South Africa including Mokopane and Zaaiplaats Tin Tailings project.

Pieter Prinsloo, CEO of South African real estate investment trust (REIT) Hyprop, focused on shopping centres, said it was looking to list UK subsidiary Hystead separately on the Johannesburg and Luxembourg stock exchanges in the first half of 2018, according to this news report. Hyprop owns 60% of Hystead, which has interests in 4 malls in Montenegro, Serbia, Macedonia and Bulgaria valued at EUR460m ($535m). Hyprop listed on the JSE in 1988 and has property assets in malls in South Africa, Ghana, Zambia and Nigeria.

Kenya’s Cytonn Investment plc changed into a public company in August using a 2015 provision in the Companies Act. It said it plans to list 10m shares by introduction on the Growth Enterprise Market Segment (GEMS) of the Nairobi Securities Exchange in mid-2018. CEO Edwin Dande said on CNBC . It is not raising new capital but seeking to diversify sources of funding and increase corporate governance, transparency and accountability.

CampusKey houses 4,000 students in 6 locations in South Africa. It says it will list on th JSE when it gets to 10,000 beds and says this is on track for 2019.

Thanks to research contribution by Enko Capital, which invests in IPOs and other African opportunities.

Egypt is Africa’s new #1 investment destination

The challenge for African economies is to adapt to commodity slowdown and sluggish production growth. Many countries have suffered stress in the past three years, and the latest report from a leading investment bank suggests the new winners – and who is lagging. Rand Merchant Bank’s (RMB) Where to Invest in Africa 2018 report shows changes in the top investment destinations in Africa.

South Africa is off the top spot, edged aside by Egypt, and Nigeria and Algeria have crashed out of the top 10. The theme is “money talks” and focuses on major sources of dollar revenues, important income-generators and investment opportunities.

But the report compares 191 global jurisdictions and measures African against country groupings. African countries are still at the lower end of the global-performance spectrum, which is still dominated by the US, UK, Australia and Germany.

In Africa, according to the RMB press release, there is a new pharaoh in town: “Egypt (#1) displaced South Africa (#2) largely because of its superior economic activity score and sluggish growth rates in South Africa, which have deteriorated markedly over the past seven years. South Africa also faces mounting concerns over issues of institutional strength and governance though in South Africa’s favour are its currency, equity and capital markets which are still a cut above the rest, with many other African nations facing liquidity constraints.

“Morocco (#3) retained its third position for a third consecutive year having benefitted from a greatly enhanced operating environment since the Arab Spring which began in 2010. Surprisingly, Ethiopia (#4), a country dogged by socio-political instability, displaced Ghana (#5) to take fourth spot mostly because of its rapid economic growth, having brushed past Kenya as the largest economy in East Africa. Ghana’s slide to fifth position was mostly due to perceptions of worsening corruption and weaker economic freedom.

“Kenya (#6) holds firm in the top 10 at number six. Despite being surpassed by Ethiopia, investors are still attracted by Kenya’s diverse economic structure, pro-market policies and brisk consumer spending growth. A host of business-friendly reforms aimed at rooting out corruption and steady economic growth helped Tanzania (#7) climb by two places to number seven. Rwanda (#8) re-entered the top 10 having spent two years on the periphery, helped by being one of the fastest reforming economies in the world, high real growth rates and its continuing attempt to diversify its economy.

“At number nine, Tunisia (#9) has made great strides in advancing political transition while an improved business climate has been achieved by structural reforms, greater security and social stability. Cote d’Ivoire (#10) slipped two places to take up the tenth position. Although its business environment scoring is still relatively low, its government has made significant strides in inviting investment into the country leading to a strong increase in foreign direct investment over the years resulting in one of the fastest growing economies in Africa.

“For the first time, Nigeria (#13) does not feature in the top 10, with its short-term investment appeal having been eroded by recessionary conditions. Uganda is steadily closing in on the top 10 though market activity is likely to remain subdued after a tumultuous 2016 marred by election-related uncertainty, a debilitating drought and high commercial lending rates.

“Though Botswana, Mauritius and Namibia are widely rated as investment grade economies, they do not feature in the top 10 mostly because of the relatively small sizes of their markets – market size has been a key consideration in the report’s methodology.”

RMB Africa analysts spoke on economic trends:

Neville Mandimika: “The last three years have sounded an alarm, amplifying what is now a dire need for the economies of Africa to shift their focus from traditional sources of income to other viable alternatives.”

Celeste Fauconnier: “Over the past three years, some African governments have had to implement deep and painful budget cuts, announce multiple currency devaluations and adopt hawkish monetary policy stances – all as a result of a significant drop in traditional revenues.”

Nema Ramkhelawan-Bhana: “Some countries have been more nimble and effective than others in managing shortfalls,” says and an author of the report. “But major policy dilemmas have ensued, forcing governments to balance economically prudent solutions with what is politically palatable.”

Where to Invest in Africa 2018 also includes 191 jurisdictions around the world, and measures Africa’s performance relative to other country groupings. The report is available via: www.rmb.co.za/globalmarkets/where-to-invest-in-africa-2018-edition.

Strate’s CEO Monica Singer steps down to focus on blockchain

Monica Singer, the former CEO of South African central securities depository Strate, stepped down at the end of August 2017. Monica had been the project manager of Strate since its inception, and has led the organization for nearly 20 years. She will concentrate full time on blockchain.

Maria Vermaas, who has been Head of the Legal and Regulatory Division since the start of Strate, has been appointed as Interim CEO. The long-standing executive team will continue to drive strategic objectives, according to an announcement from Strate, which adds that Monica is leaving “to fulfil her dream of living in Cape Town and to pursue new opportunities”.

“Monica’s entrepreneurial spirit, together with her visionary leadership” drove the introduction of electronic settlement for South Africa’s financial markets. Strate is proud of “being a Conscious Company that creates shared value for all stakeholders” and globally recognized as one of the most progressive CSDs.

Monica says (in the statement): “I have always had a passion for innovation and technology that drives societal change. With the potential disruption that the financial markets may face, particularly with disruptive technologies like blockchain, I will continue to research to stay ahead of developments which may lead me to consulting on these topics.”

She has been key in several networks that share ideas internationally including as Vice President of the Africa & Middle East Depositories Association (AMEDA), over 18 years in the International Securities Services Association (ISSA), World Forum of CSDs (WFC) and Americas’ Central Securities Depositories Association (ACSDA).

Strate Chairman Rob Barrow, comments: “The Board, together with the Executive team and staff, would like to thank Monica for her contribution to Strate and the legacy that she has left behind. We would like to wish her all the best for her future endeavours.”

Full time in blockchain
According to this news story by Michael de Castillo on Coindesk, Monica is devoting her considerable energies “to dedicate her career to bringing blockchain to industries from finance and insurance to medicine and retail”.

Monica Singer: Blockchain is coming and its going to change the world (Photocredit: coindesk)

“In her first conversation with the media since her resignation, Singer explained how she believes the tech could help her finally cut out what she describes as ‘unnecessary middlemen.’

“Singer told CoinDesk: ‘I’m so in love with blockchain, that the only thing I’m doing, all the time, is telling the world, “Guys, wake up! This is coming, and this is going to change the world.”’ According to the story, Monica will use her global contacts to widen her interest beyond the financial sector. The article mentions ethereum startup ConsenSys and digital ledger startup Ripple among the “fintech” companies Monica is interested in working with.

She still believes CSDs can provide important services, even if blockchain means they will “not have a role to play” in the blockchain world. She is set to speak at the Sibos banking conference in October on blockchain in the cash and securities settlement space and at the World Federation of CSDs in Hong Kong in November.

It quotes her saying: “I love saying to people: ‘Give me a brief description of your industry.’ I can quickly tell them in which way that industry will be affected by this new, incredible technology. So, that’s what I need to do.

“I was the person who moved South Africa’s financial markets from paper to digital.. When I discovered blockchain, I thought this is exactly what we need in the world.”

Brief history of clearing and settlement in South Africa
Johannesburg Stock Exchange rang the final bell on 108 years of open-outcry trading on 7 June 1996. Most recently trading had been in a huge hall at the bottom of its then headquarters in Diagonal Street, so the noise of trading filled the whole building when the market got busy. From market open on 10 June all equity trading has been on the automated Johannesburg Equity Trading system. As volumes increased, stockbroker back offices talked about “how many feet of work do you have?” referring to the huge piles of share certificates and transfer forms stacked high on desks, while the motorcycle delivery drivers at the back of Diagonal Street and Kerk Street, Johannesburg, got ever busier.

Electronic clearing and settlement were urgently needed but the banks that dominate this aspect of capital markets had each invested in their own systems. They had further formed the Bond Market Association to create a self-regulating bond exchange in 1990 and had worked with the South African Reserve Bank the same year to form UNEXcor to set up an electronic settlement system using a CSD. The first fully electronic settlement through UNEXcor and the CSD (called CD Ltd) had been on 26 October 1995.

Monica, famous for long-term vision backed by unstoppable energy, was brought in to break the logjam and move the market forward in 1998. Gold-mining group Harmony was the first equity on the JSE to move to full dematerialization of securities in 1999 and the whole market followed in orderly stages.

According to a brochure by Strate a few years ago: “The transition to an efficient electronic-settlement system increased market activity and improved the international perception of the South African market by reducing settlement and operational risk in the market, increasing efficiency and ultimately reducing costs. Accordingly, by heightening investor appeal, Strate has enabled South Africa to compete effectively with other international markets and not just those of emerging markets.

“Since 2000, Strate has used the South African Financial Instruments Real-time Electronic Settlement system (SAFIRES), an adaptation of the Swiss securities settlement system (SECOM), operated by SIX SIS Ltd, to continuously provide investors with secure and efficient settlement of equities.”

UNEXcor merged with Strate in 2003 and as the platform became more aged, Strate began market consultation to replace the technology and move to a Securities Ownership Register for bonds.

Participants set up the Money Market Forum in 2002 for dematerialization of money-market securities and awarded the contract to do this to UNEXcor, which devolved to Strate after the merger. After extensive market consultation, Strate developed the business requirement and employed Tata Consultancy Services (TCS) to develop the code. Successful testing was completed on 1 October 2008 and Rand Merchant Bank issued the first electronic security to Strate via FirstRand Bank in November 2008. Electronic settlement of newly issued money market securities began in the second half of 2009.

The latest transformation was the switch to T+3 settlement across the South African capital market, carried out successfully on 11 July 2016 and profiled on this blog.

South Africa’s securities exchange war goes to court

Court is the next battleground in a contest to transform the securities exchange landscape in South Africa. Newly licensed exchange 4AX, which is not yet operational, has launched a High Court application to set aside both the decisions of the FSB regulator and its Appeals Board to give a licence to new exchange ZAR X, according to Moneyweb .

Last September the Registrar of South Africa’s Financial Services Board (FSB) awarded licences to ZARX (Pty) Ltd (ZAR X) and 4 Africa Exchange (Pty) Ltd (4AX) (see our story here). The JSE and 4AX appealed against ZAR X’s licence, but in February 2017 the FSB Appeals Board dismissed the appeal, saying that ZARX and the FSB had complied fully with the Financial Markets Act 2012 (FMA), and awarding full costs to both ZARX and the FSB (see another Moneyweb article). ZAR X settled its first trade in February 2017, delayed from an initial September launch date. Its first listing was agribusiness Senwes. 4AX is not yet trading.

In February Donna Nemer, JSE Director of Capital Markets, said the JSE will fully respect and abide by the decision: “We are still very committed to the market and the participants in this market, and will cooperate fully in the debate on how we should be evolving going forward,” she said. “We will continue the work we are doing with the regulator and all the market participants, including the new exchanges, to maintain the high quality capital markets for which South Africa is really well known.” The JSE is not joining the new court case which 4AX has launched in the South Gauteng High Court to set aside both the decisions of the FSB Registrar and the FSB Appeals Board.

Also in waiting is exchange A2X, which has a licence application with the FSB. For more background on 4AX see our story.

Why another exchange?
The new bourse ZAR X has 3 listed securities and 9 authorized market participants or brokers, according to its website. It says a number of listings are in the pipeline.
According to Geoff Cook, cofounder and director of ZAR X, writing in Business Day newspaper this month: “Nowhere is radical change more desperately needed in SA than in the capital markets. The model that has dominated for more than 60 years is stagnant, with no broadening of the capital markets. It is also hopelessly skewed against the private investor.”
Volumes had grown of trading over the counter (OTC) in shares in black economic empowerment schemes for big companies such as MTN, Vodacom, Multichoice, Sasol and Imperial. Other OTC schemes were being operated as restricted shareholder platforms such as large agricultural cooperatives Senwes, TWK and KWV, while a few other companies sought liquidity at low cost for a limited spread of shareholders.

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


ZAR X co-founder and CEO Etienne Nel created a platform called Equity Express for the OTC market. In July 2014 the FSB issued Board Notice #68 which effectively compels the OTC equity trading market to alter methodology and operate through a licensed exchange in terms of the FMA.
ZAR X works with a pre-funded model, so that cash is prepaid (deposited into the system before a trade) and a seller’s shareholding is pre-cleared before concluding a transaction. This means a huge reduction in settlement risk. Securities are held in a segregated depository account at a central securities depository (CSD), as required by the FMA, with a CSD participant facilitating clearing. The trade settles on t+0 or real time.
According to Cook: “Only severe disruption will return the financial markets to any sense of reality and social relevance. That disruption has arrived. Brokers can now execute a R1,000 order profitably through a world-leading T+0 prefunded execution model that does not require settlement risk capital, in which trading and administration applications are provided at minimal cost and where live data is free to all. Safe custody fees are zero and fees are only paid on conclusion of a transaction.
“The equity market is too concentrated and the debt market remains inaccessible and opaque. Despite there being nearly 1,300 collective investment schemes as well as many broker-managed discretionary portfolios, allocations are nearly all aligned to a limited number of old economy securities. Passive investment products such as index trackers simply compound the concentration.”
Cook says that regulation and the funding imbalance towards collective investment schemes means innovative small and medium and medium-sized companies will struggle to raise capital from asset managers. They need direct access to retail investors or bespoke asset managers who can invest smaller amounts. Asset managers are restricted by the size of their portfolios to investing in securities with large market capitalization.
He says the new exchange will mean that listings of companies with market capitalization of around R200m will become more common.
Cook claims that on average less than 0.5% of daily market volume on the JSE is retail-driven with less than 300,000 active retail clients, across all brokers, loaded within the JSE’s broker deal accounting (BDA) system. He says 30% of trading volume comes from brokers who collocated or moved their trading systems physically closer to the JSE trading engine in order to profit by millisecond time advantages. According to its website: “No high frequency trading, derivatives or short selling will be allowed. ZAR X has deliberately structured fees in such a manner that we wish to encourage investing rather than trading and, in so doing, promote savings.”
“Nearly all equity listings om the JSE are now done by way of private placement, which requires a minimum investment of R100,000 per subscriber. Offers to the public are rare as brokers in the conventional system cannot facilitate smaller retail client transactions profitably. With high costs and insufficient order flow brokers focus on providing discretionary managed portfolios, which attract higher fees but have higher financial entry requirements.
“The ‘uninvested’ retail investor is therefore totally excluded from directly participating in the capital market. Their only access is indirectly via a collective investment scheme that, if they did, would further perpetuate the shrinking of our capital market.
“The concentration of order flows to fewer institutional brokers is detrimental to efficient and transparent market pricing. With thin net margins, institutional brokers use their balance sheets to secure revenue flow by engaging in principal trading, high-frequency trading (HFT), and facilitation trading, including dark pools.”

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

Stokvel comedy, Zambezi Magic DSTV.

Africa IPO round-up

A roundup of some recent initial public offers (IPOs) of shares on Africa’s stock exchanges to raise capital

In early October, MTN launched plans to sell up to 35% of shares on the Ghana Stock Exchange. Ghana’s Securities and Exchange Commission Director General Adu Anane Antwi confirmed they had started the listing process and were working on the prospectus but no timeline had been given. According to local reports, MTN received its 15-year 4G licence in 2015 after spending $67.5m and on condition that it lists. It hopes to raise up to $500m.
MTN Nigeria is also working on plans for an initial public offer (IPO) of shares on the Nigerian Stock Exchange in 2017 which could raise up to $1bn. Nigeria is among several African governments encouraging telcos to list on local bourses and listing is among conditions to settle a record NGN330bn ($1.1bn) fine for failing to disconnect 5.1m unregistered subscribers. Nigeria contributes a third of sales and profit for the Africa’s biggest phone company, which is listed in Johannesburg with market capitalization of ZAR212.8bn ($15.3bn) in early October.
Listings and capital-raising momentum has been maintained on the Nairobi Securities Exchange. Deacons Kenya is the first listed fashion retailer, after joining the Alternative Investment Market Segment (AIMS) of the NSE on 2 August. CEO Muchiri Wahome said the extra funds were to fund expansion into towns with “a vibrant middle class” across Kenya, spurred Kenya’s rapid and ambitious devolution and setting up 47 counties under its 2010 Constitution. Deacons is also eyeing opportunities in neighbouring Rwanda and Uganda. It will also help existing shareholders who want to sell. The retailer listed about 123m shares at an opening price of KES15 ($0.15) each, but by early October the price had slumped to KES8.55.

 

Nairobi centre (credit www.kenya-advisor.com)

Nairobi centre (credit www.kenya-advisor.com)

In June, leather and shoe retailer Nairobi Business Ventures, which operates the brand KShoe, had become the fifth listing on the NSE’s Growth and Enterprise Market Segment aimed at smaller businesses. It was listed through introduction and valued at KES118m ($1.2m). Previous 2016 share issues included Longhorn Publishers in May. In June power generator Kengen succeeded in the Kenyan bourse’s largest rights issue, raising KES26.4bn ($262.1m) by offering 4.4bn new shares at KES6.55 each, with a 92% subscription rate. Kengen has projects to generate another 700MW of power, of which 605MW is geothermal.
However, Fusion Capital had to cancel its IPO despite extending twice after only getting 38% uptake and four investors for its KES2.3bn offering and failing to meet the minimum threshold.
The Johannesburg Stock Exchange had its second private equity listing. Universal Partners raised R1.3bn ($93.7m) in an IPO which was only open for 4-5 August and started trading on the Alt-X market on 11 August. The company was registered in Mauritius in April and also listed on the Stock Exchange of Mauritius. Its mandate is to invest in properties across Europe, at £10m-£30m ($12m-$37m) each and it aims to start investing within six months. The IPO was for 72m shares at R18.07 each. Several companies aiming to raise capital for African and international investments have dual-listing on the Mauritius and Johannesburg exchanges.
Liberty Holdings is likely to follow up its Kenyan IPO success with a South African Real Estate Investment Trust (REIT) called Liberty Two Degrees in December. This will include some ZAR6bn of its existing portfolio, including iconic malls around Gauteng, and ZAR4bn of new money. As in Kenya, the property investments are managed by Stanlib.
West Africa’s integrated regional stock exchange, Bourse Regionale des Valeurs Mobilieres (BRVM), based in Abidjan, Côte d’Ivoire, plans to build a platform for listing mining shares and raising capital locally. The exchange is talking with Canada’s Toronto Stock Exchange (TMX Group), a favourite bourse for early-stage mining entrepreneurs. BRVM General Manager Edoh Kossi Amenounve says it could open by 2018 and will be for companies exploring or operating mines in the region. There is likely to be a waiver to the usual requirement for 2 years of trading history. The BRVM links eight West African countries, including gold exporters Mali, Burkina Faso and Côte d’Ivoire, and fourth-largest uranium producer, Niger.
Egypt’s Minister of Investment Dalia Korshid says the Government aims to raise up to $10bn over the next three to five years with IPOs of government-owned companies in the oil sector but will start with restructuring state-owned electricity companies.

New South African stock exchange ZAR X to start 3 October

Trading is to start on South Africa’s new ZAR X securities exchange on 3 October. It gained a licence on 2 September and the first listings will be Senwes and  Senwes Beleggings, with up to 5 listings planned for first week October.

Another exchange is also being readied, 4AX also called 4 Africa Exchange (see story below).

South Africa’s regulator, the Financial Services Board, announced on 2 September that it had granted licences to ZAR X and 4 Africa Exchange Licences. It said: “The Registrar of Securities Services.. received and considered applications for exchange licences from ZARX (Pty) Ltd (“ZAR X”) and 4 Africa Exchange (Pty) Ltd (“4AX”) and has, in terms of section 9(1) of the Act, granted ZAR X and 4AX exchange licences with conditions after careful consideration of objections received as a result of a notice referred to in section 7(4).”

Initially FSB gave ZARX a conditional licence but in August a court ruled in favour of an application by the JSE, which had argued there was no provision for conditional licensing. JSE CEO Nicky Newton-King said at the time there were concerns about the complexity and the potential for systemic risk that multiple exchanges could bring.

ZAR X has a different level of risk as it requires to be pre-funded, which means that participants must lodge scrip and cash before they trade and settlement is then the same day (T+0). In July the JSE and other market participants moved their market from T+5 settlement to T+3 without any problems. Most institutional investors prefer transferring stocks or money after they have traded, when they know the exact amounts to transfer.

Etienne Nel, CEO of ZAR X, said: “We need to create a level of co-operation within the market space to make it as simple as possible for all participants to coexist”.

Speaking to Business Day TV, he said: “..we are very happy, obviously, delighted since it’s been a long time coming. To give you some context around the conditions, it’s obviously what we applied for. We initially said we were not going to be offering derivatives to the market and obviously as a result one of the conditions is we may not offer derivative trades on our market. Similarly, we cannot offer shares already listed on another exchange, but that was never in our application so we are obviously delighted with the licence that we finally got.”

Nel said in September they were busy getting brokers on board and putting investors through necessary screening and checks of the Financial Intelligence Centre Act (38 of 2001 “FICA”)

Nel says ZAR X has less onerous rules on admitting companies for trading (listing requirements): “In our approach to listings.. we will have a conversation with the issuer and we are taking what is called a principles-based approach to listing rather than rules-based. Now what that achieves is if we get the slightest inclination that something is awry within a company we would actually rather walk away rather than doing the listing.. A rules-based environment .. becomes a tick-box exercise and in that environment you would end up with a situation where people end up finding loopholes, which a principles-based approach does not allow for”.

It breaks over 100 years of monopoly Africa by the Johannesburg Stock Exchange, as the JSE was founded in 1887 but there were several stock exchanges around during the first South African gold rush. Speaking after the licence was issued, 4AX CEO Fay Mukaddam said in a press release: “We are delighted to have secured our licence. South Africa is a vibrant, growing market with enormous potential and we are confident that there’s a strong appetite for an additional licensed exchange to further develop and deepen the capital markets in the country.. 4AX can stand as a vehicle for diversity, which in turn, will drive real economic inclusion”. It will be an “empowered exchange” and will aim at retail investors but also attract institutional trading.

Both ZARX and 4AX will use Strate as their central securities depository (CSD).

 

Etienne Nel, CEO of ZAR X (credit timeslive.co.za)

Etienne Nel, CEO of ZAR X (credit timeslive.co.za)

About 4AX – new South African securities exchange

South Africa’s second new exchange, which also got a licence according to the 2 September announcement by the Financial Services Board (FSB), is 4AX, also known as 4 Africa Exchange. It plans to trade securities that are currently traded over-the-counter (OTC) and to go live early in 2017.

Speaking after the licence was issued, 4AX CEO Fay Mukaddam said in a press release: “We are delighted to have secured our licence. South Africa is a vibrant, growing market with enormous potential and we are confident that there’s a strong appetite for an additional licensed exchange to further develop and deepen the capital markets in the country.. 4AX can stand as a vehicle for diversity, which in turn, will drive real economic inclusion”. It will be an “empowered exchange” and will aim at retail investors but also attract institutional trading.

According to the background on its website: “A unique situation in South Africa has however created the need for 4AX. Previously, a number of South African companies issued shares and facilitated trading in the over-the-counter (OTC) market using unregulated OTC platforms. The current OTC market boasts a combined market capitalisation in excess of R30 billion ($2.2bn).

“As the OTC market expanded, the FSB recognised a need for greater regulation to protect shareholders and ensure a fair, orderly and transparent marketplace for issuers. The FSB determined that all operators of unregulated OTC platforms must cease operating or apply to become licensed exchanges under the Financial Market Act of 2012 (FMA). Board Notice 68 of 2014 reaffirmed the view of the Registrar that operators of exchange infrastructure should be licensed and that a proliferation of exchanges should not be allowed. This has caused significant upheaval in the market, for both issuers as well as shareholders.

“As a result of the regulatory amendments a substantial number of OTC companies are now in breach of the FMA. Faced with significant potential penalties under the FMA these companies have either stopped operating their OTC platforms or applied for extensions from the FSB, whilst searching for an alternative to unregulated OTC platforms. 4AX provide the solution.

Maponya Group has a 15% shareholding, other shareholders listed on its website include Global Environmental Markets Ltd, Capital Market Brokers which is a leading member of the Stock Exchange of Mauritius, independent fiduciary Intercontinental Trust Ltd,  agricultural firm NWK, and investment banking firm Pallidus.

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.

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.