African Capital Markets News » South Africa

JSE seeks more African equity listings in 2012, targets telecoms, mining and financials

Tom Minney — Tue, 10 Jan 2012 11:10:13 +0000

The JSE Ltd (www.jse.co.za), South Africa’s securities exchange, is hoping to attract more listings from the rest of Africa in 2012 and to expand its range of products and services. This year should also see the JSE installing its equity trading system in Johannesburg, to avoid dependence on a transatlantic cable connecting it to the London Stock Exchange.
Nicky Newton-King, who took up her post as CEO last week after succeeding Russell Loubser and the first woman to hold the post, told Business Day newspaper the plan was to offer more access to African companies and products such as exchange-traded funds products that enable people to access new investments: “With the rules of inward listing being relaxed, we would also like to attract more inward listings.” Besides IPOs, Newton-King said she expected to see more types of products, such as depository receipts and derivatives linked to companies being offered.
The JSE is in “good conversation” with several companies elsewhere in Africa over more potential listings. Last November she told Reuters: “We’ve got good conversations going … particularly on the continent.” She said the bourse is targeting mining, telecommunications and financial services: “Our approach is to look at issuers that need capital — need investors where their home markets might be too small. So we’ve got a lot of different segments we are looking at, but we are looking at particular issuers rather than trying to speak to everyone.”
The JSE already has 14 African companies listed, with 4 different debt instruments and 1 African ETF. Last year Reuters highlighted that some growing African firms preferred other international exchanges, particularly the London Stock Exchange and its AIM market, over the JSE for raising capital and listings, as highlighted in stories on this website. The JSE seeks closer cooperation with other African exchanges as it competes with other world bourses: “Clearly we need to be trying to find a way to cooperate with African exchanges, with African issuers to bring more African product to the table here in SA, where we have a lot of international investors everyday.”
The JSE attracted a total of 16 listings last year, with a combined market capitalisation of more than R35 billion (US$4.3bn), according to data from the JSE’s director of issuer services, John Burke. There were also a number of initial public offerings from the property sector. About 15 companies de-listed last year and 21 were on the suspended list. The number of new IPOs worldwide is lower since the start of the global financial crisis. Newton-King said there is a pipeline for potential listings in 2012: “Definitely there’s a pipeline, there’s always a pipeline. We never talk about the number since how many companies actually list and when they list is very much dependent on the economic circumstances of the country and whether the companies themselves are ready to list.
“We are looking forward to being able to attract a wider range of companies and investment opportunities on the JSE.”
The plan is still to use the same computer provider, Sri Lanka’s Millennium IT which is a subsidiary of the LSE. In terms of a February 2011 press release, the JSE is to migrate to a new system Millennium Exchange™, which the LSE has also adopted, in the first half of 2012. Millennium IT systems are used on many African stock exchanges.
Newton-King told Business Day she hoped this will minimise the outages experienced last year, which were linked to technical issues on the transatlantic cable. The JSE halted trading on its equity markets at least twice last year, which led to the exchange attracting criticism from trading houses, which often spoke anonymously to the media.
She said: “We are critically dependent on information technology (IT) and invest heavily in IT to ensure it is robust and able to handle increased volumes as the JSE grows. Our equity systems are run in London and there’s been some trading outages in the lines between us and London…. We are bringing the systems back to avoid that. We will continue to look at whether our technology is robust enough to withstand volumes.”
She did not give much information on rumours that the JSE is talking with SA Treasury on starting a trading market for carbon credits but said the JSE was looking at the possibility and how it would work with others.
Of the type of environment that she envisions at the JSE, Ms Newton-King says: “In 2012 I would like the JSE to be recognised as a place of excellence, a place where SA’s top talent would come and work, where our clients recognise that we provide products and services that are valuable to them.”
Her former post as deputy CEO no longer exists and duties that fell to her are being given to other people so that they can also grow.

FTSE Group working on Pan-Africa index with African Securities Exchanges Association

Tom Minney — Wed, 21 Dec 2011 09:02:16 +0000

Dateline – Marrakech
FTSE (www.ftse.com) is working on a FTSE-ASEA index with the African Securities Exchanges Association (www.africansea.org), which will help to unlock Africa an investment for larger portfolio investors. According to Imogen Dillon Hatcher, Executive Director, FTSE Group, speaking at the ASEA conference in Marrakech, Morocco, on 12 Dec, the index will make clear how much Africa is outperforming the rest of the world: “A ‘back-cast’ of the FTSE Africa index performs better than FTSE world index by quite a margin”. The index covers stocks on 16 exchanges and is adjusted for investibility, including free float and liquidity.
She said that FTSE Group was restructured on 12 Dec, with the London Stock Exchange Group buying out the 50% share owned by Pearson, owner of the Financial Times newspaper, “as of this morning”. The buyout transaction is set to close in the first quarter of 2012. FTSE calculates and manages over 200,000 indices worldwide, which are linked to over $3 trillion in global assets under management. These include the widely-used global benchmark, the FTSE All-World Index. She said FTSE is the top index group worldwide: “FTSE is known as a partner around the word, FTSE works with you to unlock the investment potential that is your market.” As markets mature, broader ranges of investible tools are needed including a reliable index that can promote the development of a wider range of investment products, including exchange-traded funds (ETFs).
The group had a strong commitment to Africa and already been working with South Africa’s JSE Ltd (www.jse.co.za) since 2002. In December 2010 they signed with the Casablanca SE (www.casablanca-bourse.com) to create FTSE CSE Morocco Index Series with two index products. On 8 November 2011 FTSE announced a partnership with the Nairobi Stock Exchange (www.nse.co.ke) to create new indices. FTSE NSE Kenya Index Series track the performance of the largest and most widely-traded stocks listed on Africa’s fourth oldest securities exchange.
Dillon Hatcher said FTSE China indices form the basis for $14 billion worth of ETFs, including giant funds by iShares. The group had worked to develop the indices with international and domestic managers including Xinhua Finance Ltd. She added: “We know something about building an index” and the ASEA index would “throw the light of transparency onto your markets”.
The work of developing the ASEA index had been led for over a year by Jonathan Cooper, Managing Director Middle East and Africa, working with a broad range of African exchanges. The target was to build an investible index, with clear and transparent rules and methodology. They started with all African companies; then filtered for those whose price information is available on Bloomberg and Thomson Reuters. They looked at securities types, adjusted for a minimum 15% free float (the proportion of shares potentially available for buyers) and did liquidity testing on the securities and then did country weightings. The index now covers 16 countries, which have securities which meet the requirements.
The new index will be reweighted twice a year. Dillon Hatcher added that FTSE would be working with a prospective client base to put forward this pan-Africa index: “We hope funds will come out of this and drive Africa as an investible destination, make sure the index stays fresh and make it sure it stays relevant, as the client base comes to us with ideas, such as sectoral indices.
She also explained how securities markets indices had evolved. It started as a general economic indicator, showing how share prices are moving as an indicator of investors’ expectations of business prospects. Then indices became a tool for benchmarking but were still simple measurement tools. From this they became an underlying framework for more passive asset management such as ETFs, and depending on market these could be simple or ever more complex, depending on the needs of organizations such as asset managers or investment banks. Eventually they would also develop into a tool to assess market risk, with much potential to get involved in top-end investment strategy, where “we are starting to blur the lines between passive and active management”.
She threw down the gauntlet to active managers “We would assert that over time it is very hard for an active manger to beat an index, we have done lots of work with academics.” She said indices bring market benefits including low-cost market access provided they are transparent, rules-based and useful. “All the name-brand indices have to be fit for purpose and they have to do a job. You know they will behave in a particular way.” At other meetings this author has heard exchanges have wondered about the future of securities markets when the volume and value of derivatives and ETFs traded far outweighs the trade in the actual shares.
Commenting on the transaction in which the LSE buys out Pearson, LSE CEO Xavier Rolet commented in a press release: “Fully aligning FTSE with one of the world’s most liquid and most international trading groups is an exciting opportunity. This transaction further delivers on our diversification strategy, expanding the London Stock Group’s existing offering deeper into indices, derivatives and market data products and services. This is a business we know well, and we expect that going forward our customers will directly benefit from greater choice, opportunity and innovation.”

Is lack of liquidity driving African issuers to list on London Stock Exchange and others?

Tom Minney — Thu, 03 Nov 2011 18:30:05 +0000

Reuters newsagency has put together stories on issuers’ and investors’ difficulties with African stock markets. These include lack of liquidity and sinking currencies. It notes that African companies are increasingly dual listing on international stock exchanges.
“Liquidity: the scourge of African stock pickers” quotes a range of institutional investors complaining that liquidity is a major constraint on markets such as Malawi Stock Exchange. According to the article: “Poor but fast-growing, Malawi and other sub-Saharan African countries would offer huge opportunities to international equity investors – if it weren’t for the liquidity scourge. Markets across the continent are hampered by a lack of liquidity, making it nearly impossible to take stakes in all but the biggest firms. “With the exception of South Africa, we feel all sub-Saharan African (markets) are illiquid,” said Ronak Gadhia, Africa equities research analyst at London-based frontier markets specialist Exotix. “Most of our investors are unable to invest outside the big 2 markets, and even then their investable universe is usually the largest 5-10 stocks,” he said, referring to the Nigerian Stock Exchange and Kenya’s Nairobi Securities Exchange, the two biggest markets outside Johannesburg.
It notes that Sonatel, the giant of the BRVM West African regional securities exchange, is concerned about liquidity on that market and thinking about a secondary listing. An earlier story said the pressure comes from investors.
“Africa’s growing firms shun Jo’burg for London” suggests that even when companies are thinking about dual-listing, they head to the London Stock Exchange or AIM market and don’t consider Johannesburg. The article quotes Zambeef executive director Yusuf Koya: “It was a tough decision. A key factor in the decision process was London’s reputation as the world’s financial centre, which allows us to access a potentially wider range of investors and liquidity.”
According to the article: “A total of 104 African companies are listed on the London exchange, with the majority on AIM. The combined market value of African companies listed in London is now bigger than every African exchange except Johannesburg. Just under $2.1 billion was raised by African companies on the London bourse in 19 transactions in 2010, representing about 90 percent of all equity capital raised by Africa-focused companies in 2010, said Ibukun Adebayo, the LSE’s head of equity primary markets. Dual listings are critical for companies that outgrow their home exchanges, where thin liquidity keeps large investors out. Big bourses such as London and Johannesburg also boast tougher disclosure requirements, reassuring investors concerned about Africa’s corporate governance.”
It also cites bankers that London-based investors tend to have a bigger appetite for emerging market assets than their South African counterparts and quotes a private equity manager: “South African investors don’t understand Africa risk in the same way UK investors do.” It also suggests London may be an easier sell to international investors unfamiliar with Johannesburg. Nicky Newton-King, incoming CEO of South Africa’s JSE Ltd, says Johannesburg offers a world-class standard of disclosure for a lower price and less hassle than London: “You can come to the JSE, you can raise the money here, and your shares will be traded in a very liquid environment, a very respected environment. Without going through the costs and the hoops of listing in London, but with exactly the same standards.”
African investment institutions are just starting to rise, it could be a great time to heed the call from ASEA Chairman Sunil Benimadhu for African securities exchanges to find ways to get more liquid. SADC Stock Exchanges already have a workable model, but what will cause anyone to initiate the change to move onto the next level before many more firms move activity to London , New York or elsewhere?

Private equity exits total $1.2bn

Tom Minney — Thu, 27 Oct 2011 09:10:20 +0000

Private equity managers (“General Partners” or GPs) have been able to exit some of their investments, spurred by good valuations, global private equity funds entering Africa and more interest from international companies. According to a story on excellent private equity website, www.privateequityafrica.com, data from research house Preqin (www.preqin.com) says that reported exits this year are worth $1.2 billion “as company values finally recover to reasonable levels despite uncertainty in the broader global economy.”
This compares with $79 million sold in the whole of 2010, according to Preqin data.
Here are some of the exits listed, plus a couple of others we added, which may not be included in Preqin’s data for various reasons. For more details take a look at www.privateequityafrica.com and other sites:
• Sweden’s Electrolux bought Egypt-based white goods manufacturing company Olympic Group Financial Invetment SAE for $404m, including a 52% stake previously owned by Egypt’s Paradise Capital Holding for Financial Investments SAE. The deal started in October 2010, and the price changed a bit during the revolution. Electrolux followed with a mandatory offer to other shareholders. A 2010 statement by Paradise Capital said the new funds would be put into other businesses: “Expanding the existing Paradise Capital business activities will help the Sallam Family realize its declared mission statement “80K by 2020” (to provide 80,000 jobs by the year 2020 in Egypt).”
• Mark Shuttleworth’s HBD Venture Capital sold its stake in South Africa-based mobile payment company Fundamo to Visa in a $110m trade deal.
• South Africa’s Ethos Private Equity Fund V sold a 70% stake in South Africa-based sporting goods company Holdsport (formerly Moresport), raising approximately $137m (R930m) through a pre-placement after a book-build by UBS. Holdsport listed on the Johannesburg securities exchange JSE Ltd in July, its first retail listing since 2004. According to reports, Ethos paid R681 million to acquire the retailer, including its debt, in a 2006 buyout with management, who retain their interest.
• Oil company Kosmos Energy Ltd raised $594m (more than expected) when it listed on New York Stock Exchange in May in an IPO, it had been backed by private equity firms Blackstone Group and Warburg Pincus.
• Aureos’ $381m Africa Fund achieved its first exit in February when it sold its stake in Nigeria-based biscuit maker Deli Foods to Tiger Brands, after holding the company for only 3 years. Tiger Brands paid a total of R275m ($35m) for the company. Aureos said it gained “solid” returns. In a press release, Ravi Sharma, partner for Aureos West Africa added: “Aureos’s involvement with Deli Foods has been about taking the company to the next stage in its development. As well as growing the company to the extent that it has been able to attract an international buyer, we are also proud that the improvements that we have made in health, safety and environmental procedures will bring significant benefits to the strong workforce, as well as the wider community in this part of Lagos.”
• Blackstar Group SE (linked to Blackstar Investors plc in UK) announced that it had reaped a 72% internal rate of return (IRR) in sterling and 4x returns on its sale of a 54% stake (shareholding and shareholder loans) in Ferro Industrial Products, after less than 3 years of holding the asset (it was acquired in January 2009 for GBP4.8m ($7.7m), according to a press release). The investor sold its stake in the company to Investec and Ferro management for R220m (about $30m at the time).
Other deals reportedly in the making include plans by Ethos and Actis to sell stakes in South Africa’s Savcio Holdings, an equipment repair company. This year’s arrival into African private equity Carlyle Group was understood to be one of the players looking at the company, estimated at $500m in value, according to reports General Electric and Siemens AG are also keen.

Look at the www.privateequityafrica.com for more and to subscribe to the October issue of the Private Equity Africa quarterly printed journal.

BRICS stock exchanges form alliance

Tom Minney — Sat, 15 Oct 2011 15:12:58 +0000

The securities exchanges of the “BRICS” emerging market bloc have announced a joint initiative to expose investors to the dynamic economies of the bloc members, Brazil, Russia, India, China and South Africa. China and India are among the fastest-growing major economies over the next five years, according to forecasts, and all are increasingly attractive to investors worried about stagnation on US, European and other major exchanges. The initiative was announced on 12 October, during the 51st AGM of the World Federation of Exchanges (WFE), held in Johannesburg.
The stock exchanges will start by cross-listing benchmark equity index derivatives on the boards of each of the other alliance members. Following that, the alliance will develop innovative products to track the BRICS exchanges.
This brings together Brazil’s BM&F BOVESPA stock exchange, MICEX from Russia (currently merging with RTS Exchange), Hong Kong Exchanges and Clearing Limited (HKEx) as the initial representative of China, and South Africa’s JSE Ltd (the Johannesburg Stock Exchange). The National Stock Exchange of India (NSE) and the BSE Ltd (formerly known as Bombay Stock Exchange) have signed letters of support and will join the alliance after finalizing outstanding requirements.
The seven stock exchanges represent a combined listed market capitalization of US$ 9.02 trillion (source WFE and RTS website) with listed 9,481 companies2, equity-market trading value of US$ 422 billion per month and over 18% of all exchange-listed derivative contracts traded by volume worldwide (source Futures Industry Association) as of June 2011.
Ronald Arculli, chairman of HKEx and of the WFE, says in a press statement: “Global investors are increasingly seeking exposure to leading developing markets. The close relationship of the BRICS stock exchanges is behind this initiative, through which investors worldwide will gain easier access to benchmark equity index derivatives, which will now be offered in local currency on these exchanges. These cross-listings are planned to take place by June 2012.”
He adds that this is an important moment in the history of developing countries: “The alliance enables more investors to gain exposure to the BRICS bloc of emerging economies, with its increasing economic power. From a global perspective this alliance points to the growing relevance of the BRICS economies and financial markets in the coming decade and further underlines the reason for the BRICS relationship.”
Russell Loubser, CEO of the JSE, says: “As well as being barometers of market performance, indices also form the basis of other tradeable products, including exchange-traded funds. As a logical second phase in the alliance, the exchanges have agreed to work together to develop new products for cross-listing on the respective exchanges.” These products would combine exposures to equity indices of all alliance partner exchanges. Edemir Pinto, CEO of BM&F BOVESPA, explains: “These products would then be cross-listed and traded in local currencies. They will also allow investors to gain exposure to other emerging markets through a locally listed product.”
A third phase may include product development and cooperation in additional asset classes and services.
Madhu Kannan, CEO of BSE Ltd, says: “The BRICS exchanges alliance holds great promise, as it will create avenues for Indian investors to diversify and expand into other emerging markets. It will also provide unique opportunities to investors in other BRICS nations to participate and contribute in India’s growth. BSE will actively work towards bringing world-class products to India as well as developing new products for other BRICS markets.”
Investors worldwide and those whose homes are in the BRICS economies are increasingly interested in investing in high growth emerging economies. Most of the BRICS countries are predicted to have above-average economic growth. They are going through shifts in that there is rising consumer power generated by a growing middle classes in each, which will accelerate demand.

JSE boosts net profit by 22% for first half

Tom Minney — Wed, 17 Aug 2011 19:35:36 +0000

South Africa’s JSE Ltd stock exchange (www.jse.co.za) reported a 22% increase in net profit after tax to R253.8 million (US$35.8 m) for the six months to June 2011. This is driven by a 7% increase in revenue combined with controlled operating costs and the group declared a special dividend of 210c/share.
CEO Russell Loubser said in a press release: “All divisions of the JSE reported an increase in revenue in the first half of 2011, with particularly strong performances from the cash equities, commodity derivatives and currency derivatives markets. This revenue growth, combined with lower operating expenses, indicates a better performance. We also retained the focus on our major strategies.”
The JSE says it offers investors “a truly first-world trading environment, with world-class technology, surveillance and settlement in an emerging market context. It is amongst the top 20 largest equities exchanges in terms of market capitalisation in the world.”

Sources of revenue

The JSE gets its revenue from different activities:
• Issuer services –This division handles company and debt listings and revenue climbed, 6% to R48.8 m (H1 2010: R45.8 m). In the first six months of 2011, 5 companies listed on the bourse, compared to 6 in the first half of 2010. Loubser said: “Though there is a listings pipeline, potential issuers remain hesitant about the current economic environment. This is in line with the experience of other World Federation of Exchanges members.” (www.world-exchanges.org).
• Equity market – The number of trades climbed 5% and value traded increased 4% pushing total equities revenue up 8% to R371.7 m (H1 2010: R344.5 m).
• Equity derivatives market – Revenue rose 5% to R55.9 m (H1 2010: R53.3 m) as a 4% dip in the number of contracts traded was countered by a 12% rise in value traded. Loubser said: “This year, the equities derivatives team has worked hard to encourage trading of single-stock futures on the central order book, which we believe is key in unlocking larger volumes and attracting international players. There was also strong growth in index derivatives and bespoke products traded on-exchange.”
• Currency derivatives market – Revenue climbed 44% to R7.2 m, attributed to a change in the billing model to stimulate trade, a wider range of instruments traded and the introduction of bespoke, on-market products. Currency derivatives are a small but growing portion of group revenue.
• Commodity derivatives – revenue grew by 15% to R23.6 m (H1 2010: R20.6 m) largely due to increased trade. Loubser explained: “Local maize and wheat contracts continue to make up most of the trade in this market, but the trade of foreign-referenced instruments under licence from the CME Group continues to rise.”
• Interest rate market - Strong secondary trade figures resulted in a 16% revenue growth to R19 m (H1 2010: R16.4 m).
• Information product sales – Data sales to existing clients contracted, both locally and internationally, but revenue grew 4% to R61.1 m as the team continues to grow its base of international clients.

Special dividend
The special dividend is to be paid because the exchange has sufficient cash reserves for its current needs. It sets aside cash to fund operations, guarantee central order book equities trades, maintain infrastructure and meet capital needs for expansion. Loubser said: “Testing of the new equities back office system is progressing well and the new system is set to be implemented in 2012. As the capital expenditure for this project comes to an end.. the Directors have declared a special dividend of 210 cents per share”. The dividend will be paid out on 12 September.
In the last six months, the JSE has:
• Completed the integration of the interest-rate market trading platforms so that there is now a single platform for trading.
• Delivered the first phase of the remote disaster recovery site
• Made good progress in implementing the new state-of-the-art data centre which is scheduled to be completed before year end.

South Africa’s Financial Markets Bill open for comment, due 2012

Tom Minney — Wed, 10 Aug 2011 19:13:54 +0000

South Africa’s Government has released the Financial Markets Bill for public comment, with comments due by 5 September. The new law would replace the Securities Services Act (No 36 of 2004) which took effect on 1 February 2005.
South Africa is committed to a global regulatory reform agenda after the global financial crisis, according to a Government press release. This means a stronger regulatory framework, more effective supervision, improved crisis resolution, and enhanced accountability through international assessments and peer reviews for the financial sector, including financial markets.
The Financial Markets Bill includes:
• Strengthening the self-regulatory organisation model of supervision (which has proven efficient and effective in delivering on the objectives of securities regulation)
• Aligning financial markets regulation with international best practice
• Giving effect to recommendations made by the 2008 World Bank and International Monetary Fund Financial Sector Assessment Programme
• Implementing South Africa’s commitment to the UNIDROIT Convention to improve investor protection in cross-border transactions
• Ensuring alignment between legislation that governs financial markets and the wider legislative framework, including the new Companies Act and the Consumer Protection Act
The 2004 Act governs the regulation of securities services including securities exchanges, central securities depositories, clearing houses, and their respective members. It consolidated the South African regulatory framework for capital markets and aligned the regulation and supervision of South African financial markets with the prevailing international developments and regulatory standards.
After consultation the Bill will be tabled in Parliament and is expected to be implemented in 2012. The Bill and accompanying documents are available on the National Treasury and Financial Services Board websites. Draft subordinate regulation to be issued in terms of the Bill will also shortly be released for public comment. An FSB policy document is available here.

JSE sets new trading record – 230,797 trades on 10 August

Tom Minney — Wed, 10 Aug 2011 18:40:45 +0000

South Africa’s Johannesburg Stock Exchange (www.jse.co.za) says that a record number of trades were executed on the exchange today (10 August). The JSE is the biggest securities market in Africa and its new trading record is 230,797 trades, valued at more than R29 billion ($4 bn).
The JSE FTSE All Share index rose 267 points to close at 28,658. The volume of shares traded was 531.5 million shares), according to a press release.
Head of Equities Trade, Leanne Parsons, said: “The JSE’s equity market moved sharply today, after yesterday’s holiday and following big moves on world markets. Our new record, of 230,797 trades, marks a 12% increase on our previous record of 205,784 transactions. That is a significant jump.”

Wind of change blows world markets, African stock exchanges unruffled

Tom Minney — Fri, 03 Jun 2011 17:43:26 +0000

I have the honour to be published on the opinions section of the Royal African Society website and the article can be seen along with their excellent blogs here. I also reprint the article, which is meant to spark debate, and I welcome your comments – is it time for change and what is the way forward?

“The wind of change” was Harold Macmillan’s famous 1960 phrase about Africans moving to political self-determination. Half a century later the world’s biggest securities exchanges are worrying who will survive a hurricane of globalization, technology and competition, but some of Africa’s capital markets still seem sheltered from the economic winds of change.
The giants of securities trading are slugging it out in a wave of mergers and acquisitions and London Stock Exchange (LSE) chief executive Xavier Rolet said: “In five years there will be three, four international exchange groups with global distribution capabilities”.
In the world of mega-bourses the LSE launched a £4.3 billion merger with Canada’s TMX Group of exchanges but a “Maple consortium” of Canadian financial institutions has launched a hostile bid, seeking to block the marriage. New York’s NYSE Euronext and Germany’s Deutsche Börse want a $9.5 bn union, but US stock exchange NASDAQ and its partner IntercontinentalExchange are offering $11.3 bn to snatch the New York bride. NASDAQ is reportedly worth $5.7 bn and worried it may become a takeover target if it stays single. Many other leading exchanges are busy with strategic transactions.
Africa however has not seen much change at least in the last decade. Some of Africa’s stock exchanges are making a few operational changes, but structural transformation is not on the agenda. The continent has a couple of world-class stock exchanges – in 2010 South Africa was rated the world’s best-regulated capital market – and three or four better exchanges with enough liquidity for international and big local institutional investors. The rest of the continent features a small regional exchange and more than 15 national stock exchanges where activity could drop to a few deals a day and liquidity is too small for the market to work efficiently or provide scope for minimum transactions for international investors. Some don’t even open their doors every working day.
Stock exchanges and securities markets evolved worldwide as the most efficient way to channel capital from savers to entrepreneurs, governments and others who can use it most productively, i.e. profitably. Savers with capital are more than eager to invest billions of dollars into Africa, dubbed the “final growth frontier” for its vast opportunities and favourable pricing. Meanwhile in Africa, entrepreneurs and governments are calling for billions in capital to build roads, rail, power, water and telecommunications/IT infrastructure up and down the continent and to transform farmlands, build industries and hopefully improve livelihoods sustainably through business.
Nationalist politics and comfort zones are among the factors holding back African securities exchanges, which have traditionally been seen as national institutions. Sovereignty has been more highly prized than liquidity and efficiency. In 2009 South Africa’s JSE Ltd sought to acquire a stake in the Stock Exchange of Mauritius (SEM) after two years of talks, but regulators blocked it. Nationalism about stock exchanges is not just an African concern, it is currently in the news in Canada and Australia.However, now technology is available to transform exchanges without losing national regulation or denting pride.
Some African exchanges are improving their own operations fast. The two NSEs – the Nigerian and Nairobi stock exchanges – have taken stern measures to improve governance, regulation and transparency. In Nigeria this included a morning in August 2010 with armed police on the Lagos trading floor after regulators fired the Director-General. Other exchanges such as Mauritius Stock Exchange (SEM) are noted for continuous improvements and innovation. However, only the Egyptian Exchange, the JSE (Johannesburg Stock Exchange) and SEM have attained the exalted membership of the World Federation of Exchanges.
In some countries trading in debt is improving faster than equity markets. Kenya’s NSE launched effective automated bond trading, backed by much improved settlement, and trading volumes and liquidity are soaring. The Government is responding with a deft series of issues that balance the domestic market and stretch it with long-dated 25- and 30-year bonds. Better maturity in the national fixed-income market enables lenders to offer locals long-term housing and other finance with paybacks over decades rather than a few years. Electricity company Kengen, telecoms operator Safaricom and others have raised hundreds of millions of dollars through bond issues, many aimed only at local savers. The overall effect on the economy is likely to be huge.
But change is coming slow to some African exchanges where liquidity is too small and action too slow. International investors complain that many don’t have enough trading to accommodate the minimum buy or sell amounts required and they lament the quality of market and business information and transparency. Coupled with the operational problems and uncertainties that dog local and international businessmen in many African countries, some are still “off the map” for investment.
London, New York and other international stock exchanges benefit if companies and bond issuers seek listings and cross-listings internationally in order to get closer to investors and sources of capital and because efficient marketplaces make their capital raisings more attractive to investors. London has a tradition as the world’s capital marketplace and the LSE’s Main Market lists 18 equities for trading that focus on Sub-Saharan Africa. In 1995 the exchange created the Alternative Investment Market (AIM) as an international marketplace for smaller, growing companies seeking growth capital, including early-stage and venture-capital, as well as more established companies. Sub-Saharan Africa scores 55 out of 3,000 listings, mostly mining firms, but also farming, finance and machinery.
NYSE Euronext Inc says trading in 16 African equities listed on its New York and European stock exchanges has boomed. Stefan Jekel, managing director for Europe, Middle East and Africa, says main activity stems from South Africa but interest in Africa is growing: “The volume (number of shares) traded has increased by factor of 12 over the last ten years to 7.9m shares, and the value is up by a factor of 21 times to $204m per day”.
London is to the fore when it comes to international Eurobond issues as African countries rush to issue sovereign debt and benefit while world interest rates are rock-bottom. Interest is also growing in African derivatives such as Exchange-Traded Funds (ETFs) available on London, New York and other international markets and one or two African markets. NYSE says the number doubled in 2009 to ten ETFs, six in Europe and four in New York, and they have over $1bn in assets.
It is an historic opportunity for Africa’s capital market structures. However much national exchanges improve, they need radical restructuring to create liquid and more efficient markets or they will be blown off the map by the winds of change.
Kwame Nkrumah (1909-1972) and many others transformed the continent driven by their vision of a mighty Africa that grew strong by unshackling the borders that colonial powers had drawn on maps. The African Union is founded to achieve regional and economic integration for Africa to take its rightful place in the world. Capital markets have an opportunity in that technology and proven models exist for African stock exchanges to pool trading while still maintaining national exchanges and regulation and being adaptable to meet local requirements.
Sunil Benimadhu, President of the African Securities Exchanges Association and CEO of SEM said in November 2010 that world investors see the continent as “a very promising investment destination with tremendous present and future growth potential”. African countries have achieved growth rates exceeding 5% in recent years after embracing fundamental structural reform programmes. The growth is set to continue but it must be fuelled with capital, skills and improvements in the investment and business climate.
African capital markets have an opportunity and a challenge.

Tom Minney is a consultant, speaker, financial journalist and editor of the blog www.africancapitalmarketsnews.com

Paladin private equity lists education firm on AltX

Tom Minney — Fri, 03 Jun 2011 03:24:19 +0000

South African private equity firm Paladin Capital (www.paladincapital.co.za) has listed its 76% subsidiary Curro Holdings (www.curro.co.za) on the JSE’s AltX on 2 June. Curro, which offers private schooling, aims to raise another R322.4 million ($48 million) through a rights offer after the listing, according to a news report on Fin24.com, in order to reduce the weight of debt on the balance sheet.
The rights offer will be partially underwritten as JSE-listed Paladin (PLD) will retain its majority stake and PSG Financial Services (www.psggroup.co.za), a diversified financial services firm which owns 80.6% of Paladin, will underwrite the offer. Previously Curro’s expansion was funded by debt finance provided via Paladin, including a 10-year loan of R73 mn ($10.8 mn) from the International Finance Corporation.
Curro was founded in 1998, with 28 learners receiving tuition in a church building in Durbanville. It has grown to over 5,500 learners at its 12 schools in the Western Cape, Gauteng, Mpumalanga and Limpopo, all in South Africa. It plans to add 40 more in the coming 9 years and each school requires R30 mn-R70 mn capital outlay.
Curro CEO Chris van der Merwe says: “The public education sector has a huge responsibility to supply enough schools for the ever-increasing number of children, and many state schools are becoming overcrowded. Curro Holdings can complement the public sector and ease the pressure by supplying affordable private school education for children aged 4 to 18.
“Our schools are staffed by trained and experienced teachers and our tuition fees are lower than those charged by high end, more expensive private schools. As a result, we have experienced sharp growth and there is ongoing demand for our schools,” he said.
Noah Greenhill, the JSE’s head of marketing and business development at the JSE, said the AltX gives an opportunity for good quality, high growth companies to raise capital to fund future growth. “Education is a critical element in the development of South Africa and AltX plays an important role in facilitating the growth and development of companies such as Curro.”
Last year Paladin paid R52 mn ($7.7 mn) to boost its stake in Curro to 76%. Paladin chairperson Jannie Mouton wrote in the annual report: “Without downplaying the other segments, education is an industry in which Paladin believes above-average potential exists. This is where management sees significant growth in the foreseeable future.”
He said Curro offered fees of up to 40% lower than its competitors: “Curro aims to be a high-quality, value-for-money alternative.” He pointed out that only about 3% of pupils attend private schools, while 22% of South Africa’s population received private healthcare. He said few new schools were being built in middle- and upper-income areas, and waiting lists at private schools were long.
Paladin’s annual report valued the 50% stake in Curro – before the latest additional 25% stake was acquired – at R100m, representing 9% of Paladin’s total R1.167bn. portfolio. Curro operated a loss of R300,000 in 2007, then had an after-tax profit of R300,000 in 2008, R1.9m in headline earnings in 2009 and R5.2 m in 2010. Mouton said profits would not rise fast while Curro was in a growth phase “due to the amount of leverage used”.
Advtech is the only private education company listed on the JSE has a market capitalization of R2.4bn. It is the owner of brands like Crawford Colleges and Abbotts.
Last year Paladin made an after-tax profit of R208 mn when it received R354 mn from the sale if its 123.47 mn shares in Namibian fast-moving consumer goods group CIC, also listed on the JSE, to Imperial Holdings. The compounded return was 64.8% over 4 years. It also sold its stake in Lesotho Milling for R26 mn after investing R21 mn and receiving R7 mn in dividends.
Paladin’s portfolio includes listed investments such as Capitec bank, the JSE Ltd and Steinhoff as well as unlisted investments such as Curro, empowerment investment group Thembeka Capital and Protea Foundry. Paladin spent R30 mn on another 10 mn shares in Petmin, R23 mn on another 17 mn shares in Erbacon and bought another 3.8% stake in Spirit Capital and provided R50 mn of debt funding so Spirit could acquire skin care and beauty distributor Annique and fashion accessory distributor Honey. It has also recently bought a 45% interest in Energy Partners.
Full details of the portfolio can be found in Paladin’s annual report to February 2011, downloadable here.