Archive for the 'Stock Exchanges' Category
August 17th, 2011 by Tom Minney
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.
August 10th, 2011 by Tom Minney
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.
August 10th, 2011 by Tom Minney
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.”
August 8th, 2011 by Tom Minney
The Nigerian Stock Exchange (www.nigerianstockexchange.com) has placed 24 companies on full suspension for failing to submit their financial statements for the year ended 31 December, 2010 (including some since September). The NSE is reported in Nigerian media as making the suspension effective from 2 August, after the companies were given a 1-month technical suspension from 1 July. The NSE has also suspended trading in 3 nationalized banks with effect from 5 August.
In addition, 9 companies were placed on technical suspension for failing to submit their audited accounts for the year ended 31 March, 2011. This means trading is allowed, but no price movement. Further action could be taken if they do not submit results.
Full suspension means there are no transactions on the shares of the companies until the suspension is lifted. Initially 48 companies were placed on technical suspension on 1 July, but 24 of them had submitted their account statements and the technical suspension was lifted. The compliance rate is now 89% of listed companies.
According to reports, affected companies include Dangote Flour Mills, African Alliance Insurance, UNTL Textiles Plc, Daar Communications Plc, Omatec Computers, African Alliance Insurance Plc, Great Nigeria Insurance Plc, Guinea Insurance, Standard Alliance Plc, MTI Pl, and Investment & Allied Assurance. According to one report, Omatek and UNTL had submitted results on 3 August, within 24 hours of being suspended.
The bourse CEO, Oscar Onyema, was reported as saying it was painful to place companies on suspension, but that the exchange would ensure that it enforces its rules.
3 banks suspended pending delisting
The banks were suspended after being sold to the Asset Management Corporation of Nigeria (AMCOM). According to an announcement by the NSE: “Pursuant to the nationalization of AfriBank Plc, Bank PHB Plc, and Spring Bank Plc by the Nigerian Deposit Insurance Corporation (NDIC) on Friday, August 5th, 2011 and subsequent purchase of the banks by AMCON, the NSE has placed the shares of the affected banks on full suspension as a first step towards their delisting from the Daily Official List. “This means that no trading will occur in the shares of these banks as these banks no longer exist following the revocation of their licenses by Central Bank of Nigeria
The Central Bank of Nigeria on 5 August revoked the 3 banks’ licenses and the Nigeria Deposit Insurance Corporation (NDIC) transferred their assets and liabilities to newly-formed “bridge banks”, which were then bought by AMCOM, which is to provide enough capital to restore the banks to capital adequacy. According to news reports the AMCOM statement read: “AMCON has identified independent and credible persons with significant and required experience to fill the board and senior management positions for the banks and will be seeking the approval of the CBN for their appointments. AMCON is confident that the new teams will manage the banks to establish strong market positions and effectively compete in the Nigerian banking sector, providing quality service to their customers and value to shareholders.”
AMCON would evaluate its options and consider the optimal exit strategy to maximize returns. According to a breakdown, AMCON would inject N285 billion into Mainstreet Bank, formerly Afribank, N283 billion into Keystone Bank, formerly Bank PHB, and N111 billion into Enterprise Bank, formerly Spring Bank.
Dr. Kingsley Moghalu, Deputy Governor, Financial System Stability, was reported as saying the move was to ensure all 9 banks rescued would be recapitalized by 30 September. The banks had failed a 2009 stress test. Recapitalization agreements signed with investors by 4 of the other rescued banks would solve around 80% of the banking crisis and the bailout package would be recouped from all rescued banks: “We believe we have drawn a line under the banking crisis. By September 30, all banks in Nigeria will be fully capitalized.”
Several organizations, including Nigerian Shareholders Solidarity Association, Afrinvest Research and Chartered Institute of Bankers of Nigeria (CIBN), were reported to have criticized the CBN move and said it should have waited until the 30 September deadline.
July 25th, 2011 by Tom Minney
Tullow Oil plc (www.tullowoil.com) is expected to start trading on the Ghana Stock Exchange (www.gse.com.gh) from 27 July after allocating 3,531,546 ordinary shares of 10p each in a successful offer of up to 4,000,000 shares. The company says this is the largest primary share offer completed on the GSE and will more than double the market capitalisation.
The offer was open between 13 June and 4 July and shares were offered at 31 Ghana Cedis. During this period, 10,147 valid applications were received for 3,531,546 shares, representing 109.5 million Ghana Cedis ($72.3m). Everyone who submitted a valid application is to receive their shares in full, applicants are to have their GSE Securities Depository Accounts credited with their allotted shares today (25 July) and can start trading the shares on 27 July.
Tullow is also applying to the UK Listing Authority (www.fsa.gov.uk/pages/doing/ukla) to admit the extra shares to the Official List (they rank pari passu with previous shares) and to the London Stock Exchange plc (www.londonstockexchange.com) for the shares to be admitted to trading, also expected for 27 July. The same would apply to the Irish Stock Exchange (www.ise.ie).
Aidan Heavey, chief executive, said in a company announcement: “I am delighted by the success of our offer on the Ghana Stock Exchange, the largest primary share offer ever completed in Ghana. Ghana remains at the heart of Tullow’s investment decisions and underpins our long-term future in Africa.
“I would like to welcome all new shareholders, including Ghana’s National Basic Pension Scheme, to Tullow and thank them for their investment in the company. I look forward to updating all our shareholders with news of our progress, both in Ghana and beyond, over the coming years.”
BLOG PREDICTION: Look out for the rise of African financial institutions such as pension funds and life assurance. What do you think?
July 7th, 2011 by Tom Minney
Kenyan private equity firm TransCentury (www.transcentury.co.ke) is to list through introduction at the Nairobi Stock Exchange on 14 July at a price of KES50 (USD0.58) a share. The firm began as an investment club and is valued at KES13.35 billion ($148.7 million). The listing price is based on the closing price on 3 June when it stopped trading on the Over-The-Counter market operated by Dyer & Blair. The aim of the NSE listing is to widen the share register and clear the way for future capital raising.
Listing by introduction means that no new shares are issued and was previously used by Equity Bank in 2006. Transcentury will list on the NSE’s Alternative Investment Market Segment (AIMS), which requires that a company must have at least 100 shareholders, with more than a fifth of the shares in the hands of investors who are not employees or relatives of the principal shareholders. To be listed on the main board, Transcentury would need at least 1,000 shareholders, net assets of KES 100m and paid-up share capital of KES 50m. TransCentury does not have 1,000 shareholders but could move to the main board if it increases its shareholding.
Transcentury started in 1997 as a small business club run by an elite group of 20 well-connected leading businessmen. It used the OTC market to widen to 430 share owners who have agreed to list 418 million shares, of which 151m will be reserved for buyers of a convertible bond on sale in Mauritius. Another 182m shares are in reserve.
Gachao Kiuna, TransCentury chief executive, was reported in Business Daily newspaper saying the listing provides a broader base of investors with an opportunity to participate “in significant growth potential” and offers TransCentury the opportunity to raise capital more easily in the future. He said the company is not in a hurry to raise more capital: “We have a bond programme in place that will serve us in the medium term. After about 24 months we might need to look at other ways of raising funds.”
Transcentury founders will be able to sell up to 50% of their shareholdings but must keep the rest for 2 years, in terms of rulings by Kenya’s Capital Markets Authority. According to the newspaper, 13 shareholders have more than 3% each, amounting to 190m shares or 71% of Transcentury. The largest single owner is the estate of the late James Gachui with an 8.37% stake worth KES1.12bn. Kenya Revenue Authority’s Commissioner General, Michael Waweru, has a 7.96% per cent stake worth KES Sh1.06bn, followed by businessman Peter Kanyango with a 7.17% stake worth KES957m, Dyer and Blair chairman Jimnah Mbaru and TransCentury’s chairman Zeph Mbugua with stakes worth KEs830m each.
Mauritius Eurobond
Transcentury has taken the interesting approach of raising low-cost financing through a $75m 6% convertible Eurobond, issued by Mauritian subsidiary TC Mauritius Holdings Limited which has already issued $35m. The company plans to list the Eurobond on the Mauritian stock exchange.
Private equity investment portfolio
According to its website, Trancentury invests in:
• Power Infrastructure: Manufacture of Electrical Cables, Conductors, Transformers and Switchgear
• Transport Infrastructure: Operation of the Kenya-Uganda Railway Concession
• Specialised Engineering: Distribution of Mission-Critical Industrial Equipment and Construction of Electrical Installations
“The philosophy is to pursue markets that display underpenetration and inefficiency”. Africa suffers a chronic under supply of power and transportation, and even when these services are available, the costs are multiples of comparable services in developed markets.
TransCentury owns stakes in cable factories which include East African Cables in Kenya and Tanzania, Cableries du Congo in DR Congo and Kweberg Cables in South Africa, which manufacture wires and transmission cables under its power infrastructure division. The company recently acquired 80% of Pende Electrical, based in the copper-belt region of Zambia, through its Tanzania subsidiary Tanelec Ltd. It is busy in energy in 5 countries.
The Information Memorandum indicates that TransCentury intends to invest KES 2.2bn raised through the bonds “in the KES 23bn capital expenditure programme to revitalize Rift Valley Railways and unlock the significant value of the railway.” Shareholders in the Kenya-Uganda railway are contributing additional funds to shore up the company’s capital base to repair the railway and buy new locomotives. The project had been held up by rows with Egypt’s Citadel Capital.
The remaining KES 3.87bn raised will be invested in other mega projects. The Information Memorandum states: “This will allow TCL to pursue additional investment opportunities in the power and transport infrastructure as well as in specialized engineering that meet our expected rate of return of 25%.” These could include a 100MW geothermal power station in Menengai for which the company has submitted an expression of interest and for which the value of the investment could be KES 8.1bn. South Sudan is another area with promise and the company would hope to benefit if the Kenyan Government privatizes key stakes in major industries.
“Our plan is to invest in infrastructure across the region with focus on mines, engineering and transport,” said Dr Kiuna.
Trading results
The company doubled net profit to KES 468m in 2010 compared to 2009, while revenue grew by 25% to KES 7bn. It increased its dividend 4-fold, from 5 cents to 20 cents. Earnings per share were KES 1.29, showing a conservative dividend policy and the company boasted compound annual growth in profit after tax of 52.9% between 2003 and 2010.
July 6th, 2011 by Tom Minney
The dynamic Stock Exchange of Mauritius (www.stockexchangeofmauritius.com) is pushing ahead with a wide range of activities aimed at building its role as a secure base for international funding transactions and an African alternative to international listing venues. It is moving to becoming a multi-product exchange aimed at the international market, through rapid development from its origins as an exchange focused only on the domestic market.
According to the website: “In the years to come, the split of listings on SEM is expected to overwhelmingly consist of international funds, international issuers, specialized debt instruments, Africa-focused Exchange-traded funds and other structured products. As SEM also aspires to emerge as a capital-raising platform for Africa-focused investments routed through the Global Business Sector, the SEM platform will growingly (sic) be used to channel investment flows from SA/Europe/Asia into Africa and from USA/Europe into Asia.” Mauritius combines good regulation with flexibility and has been a key base for funds including private equity funds investing into Africa and into India.
The bourse is aiming for a wide range and growing numbers of issuers, players and investors, increasing the breadth and depth of the Mauritius market and integrating the Mauritius financial services sector within the international financial system.
It made major changes to the Listing Rules (early 2010) to align them with the government’s Collective Investment Schemes Regulations 2008, positioning SEM as an attractive venue for listing Global and Specialised Funds, in line with the strategic shifts. The Listing Rules are more flexible to reflect the specific attributes and characteristics of the specialised funds to be listed. SEM aims to be platform of choice for listing a wide variety of funds such as Specialised Collective Investment Schemes, Professional Collective Schemes Export Funds, Global Schemes as part of diversifying product offerings and emerging as an international exchange. The management also commits to aggressive timing in processing listing applications and a competitive listing fee structure. In May 2011, SEM introduced Chapter 18 in the SEM’s Listing Rules, to cater for the listing of specialist companies and specialist debt instruments, targeted at qualified investors.
It is one of the African leaders in multi-currency trading and (since 2010) can trade and settle equity and debt products in Euro and GBP. From June 2011 it was the first exchange in Africa to list, trade and settle equity products in USD.
It supplies real time data through top global vendors such as Thompson Reuters, Financial Times and Bloomberg (since early 2010). The data coverage by global vendors is a powerful marketing medium to enhance SEM’s visibility internationally and put the exchange on the radar screen of a wider spectrum of international investors, thus attracting more foreign investor interest on our market. Mauritius is one of the few African exchanges to be connected to Bloomberg and Thompson Reuters real-time. Growing interest from international investors has prompted index and data providers including Standard & Poors, Morgan Stanley, Dow Jones and FTSE to include SEM in new indexes recently launched to track the evolution of key frontier emerging markets.
Over the last 10 years, the Mauritius Bourse has attracted strong foreign investor interest, generating positive investment inflows into many listed companies. 2010 was a record year for net foreign investment inflows. “For 2011, we are already stepping up our efforts via international conferences and roadshows, to place the SEM on the radar screen of institutional investors who are keen on frontier emerging markets that are well regulated and adhere to international best practice”, says the website.
SEM also has ambitions to contribute more broadly to the development of the Mauritian economy and to help grow capital market activities nationally and throughout Africa.
Highlights of recent history
SEM became a full member of the World Federation of Exchanges (WFE – www.world-exchanges.org) in November 2005. This is a high standard and shows that SEM is in the top rank in terms of stringent standards and market principles required to be accepted to this status by the WFE, which sets the standards for registered securities markets worldwide. The standards are recognized by industry, regulators and supervisorss. The WFE membership helps ensure that foreign investors play a growing role – “in a typical year, foreign investments represent 25–35% of trading activities on our market” according to the website.
The Development & Enterprise Market (DEM) was set up in 2006 This is the market for small and medium-sized enterprises (SME’s) and newly set-up companies with sound business plans and showing growth potential. Companies can use the advantages and facilities of an organised and regulated market to raise capital for growth, to improve liquidity in their shares, to obtain an objective market valuation and to enhance their corporate image.
Since March 2010, the SEM was designated by the Cayman Islands Monetary Authority (CIMA) as an “Approved Stock Exchange” by virtue of its membership of the WFE for the purposes of CIMA’s Mutual Funds Law, Banks and Trust Companies Law, Insurance Law, Companies Management Law and Securities Investment Business Law. This raises SEM’s profile as a well-structured and properly regulated exchange and enhances SEM’s position as an attractive listing venue for global and specialised funds.
From 31 January 2011, SEM has been designated by the United Kingdom tax authorities, Her Majesty’s Revenue and Customs (HMRC), as a “recognised Stock Exchange” under section 1005 (1) (b) Income Tax Act 2007. This means that securities admitted to trading and listed on the Official Market of the SEM will meet the HMRC interpretation of “listed” as set out in section 1005 (3) (a) and (3) (b) Income Tax Act 2007 and for Inheritance Tax purposes. This designation confers potential benefits such as permitting UK pension schemes to hold securities listed on the Official Market of SEM, giving companies and funds listed on SEM access to a larger market of sophisticated, well-capitalised investors. The designation reinforces SEM’s attractiveness as a listing venue for global funds and specialized products. Securities listed on the Official Market of the SEM may be held in tax advantaged Individual Savings Accounts (ISAs) and Personal Equity Plans (PEPs) by UK investors. Holders of debt securities satisfying the Eurobond exemption and listed on the Official Market of the SEM are exempted from withholding tax on distributions underlying these debt securities. Inheritance tax advantages may accrue to UK holders of securities listed on the Official Market of the SEM.
June 3rd, 2011 by Tom Minney
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
June 3rd, 2011 by Tom Minney
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.
May 31st, 2011 by Tom Minney
Many foreign investors have investments in Africa but hold them in international custody in London or New York and perhaps wish to trade them on international securities markets such as London Stock Exchange or New York’s NYSE Euronext. They would choose to hold their equities in the form of Depositary Receipts, usually known as “American” (ADRs) if issued in the US, “Global” (GDRs) in London and there are DRs in several other countries including South Africa (SADRs).
The idea is that shares listed on an international exchange are transferred to a strong financial institution, who then issues a DR security which can be more easily traded on an international exchange or over-the-counter (OTC) market. BNY Mellon dominates the field but other issuers include JP Morgan Chase, Citi and Deutsche Bank. The total value of DRs traded in 2010 worldwide was $3.5 trillion, up 30% on 2009, and 89% of this trading was in the US.
Michael Cole-Fontayn, CEO of BNY Mellon Depositary Receipts (www.bnymellon.com), explained to African Capital Markets News that when institutional investors request, either for a capital raising or for more trading, BNY Mellon approaches the company and other stakeholders to set up a DR programme, usually under English or New York law. The details of the new DR security, including its currency, can be adapted to suit the international investors.
BNY Mellon holds the underlying security in the local market through a custodian, usually Standard Bank, while the newly issued DR clears and settles through the usual international clearing houses. An investor who has bought the shares in the local market can also approach BNY Mellon to convert them into DRs, which are often cheaper to own and easier to trade and settle.
When an investor holding a DR wishes to sell, he may first look for an international buyer for the DR. If not, his broker can find a buyer in the home market, then BNY Mellon would cancel the DR and deliver the shares for settlement in the local market. This can be done overnight if there is a time difference, but cancellation was suspended for Egyptian DRs when the Egyptian Exchange closed for two months in January-March 2011.
BNY Mellon currently offers DRs in shares in South African, Nigerian and Egyptian companies and offers indices based on the DRs. South Africa’s Anglogold Ashanti raised $705m through issuing DRs in New York in September 2010. Egypt’s Orascom Construction and Remco Tourism Villages created DR programmes for the US OTC markets, while Orascom Telecom traded $1.8bn of DRs on the LSE’s International Order Book (IOB) market. Four African companies – Malawi’s Press Corp, two Nigerian Banks and media house Naspers of South Africa – have GDRs listed on the LSE’s Main/Professional Securities Market.
Mary Gormley, Vice President at BNY Mellon Depositary Receipts, said that one big advantage was the speed of clearing and settlement and reduced costs. For instance, Oando plc, listed on the Nigerian Stock Exchange then cross-listed on the JSE in 2005. Movements between share registers could take 40 days, while equivalent changes using the DR system would be much quicker. She believes the DR programme will grow, with growth businesses in Kenya and Ghana interested and Senegal, Togo and Zimbabwe also considering it: “DRs come out of a need for capital raising.”