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Lack of information deterring intl companies from listing on African stock exchanges

Lack of information deterring intl companies from listing on African stock exchanges

Photo by Reuters

11th September 2014

By: Creamer Media Reporter

  

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Despite growing interest and investment in Africa, the lack of complete and good-quality information about African stock markets was contributing to a continued hesitancy by international public companies to list on Africa’s stock exchanges and by foreign investors to invest in domestic companies listed on African stock exchanges, KPMG has noted in a new report.

“Perceptions by international investor communities about Africa have changed substantially from those of a decade ago. In fact, today there is little doubt that Africa is attracting increasing interest as a potential investment destination.

“While this change in investor behaviour is largely due to the fact that developed markets are not expected to grow as they have done previously, Africa is also seen to be becoming more politically mature and easier to access and this, together with its growing population and rise in consumption, is adding to its attractiveness for foreign investors,” commented KPMG partner and head of merger and acquisition advisory services in South Africa Nick Matthews.

In its ‘Listing in Africa’ report, released on Thursday, KPMG pointed out that increased investment on the continent should lead to increased interest in African stock exchanges.

“International public companies with significant interests in African markets or looking to take advantage of the ‘African opportunity’ find a local listing advantageous as it helps to facilitate the expansion of the company’s business in that jurisdiction, enables the company to take advantage of demand for foreign assets by local investors, helps facilitate the meeting of local ownership requirements by the company and increases the company’s ability to incentivise its local employees through employee share schemes,” the firm noted.

KPMG associate director of merger and acquisition advisory services in South Africa Robbie Cheadle added that companies also benefitted from a local listing, as it facilitated trading in the company’s shares by local investors, with a resultant increase in publicity and brand recognition in the local market.

Further, it enabled the company to fund its local requirements using equity rather than debt funding, which could be limited in the local market.

However, listing on a stock exchange required not only substantial consideration and preparation “but also keen insight” into the listing market, Cheadle added, noting that there were a number of African regulatory structures that worked well.

“For example, the Botswana Stock Exchange has a strong regulatory framework that ensures markets run efficiently and the capital markets continuously perform well due to strong and consistent political governance, sound national economic management and social stability.

“The Nairobi Stock Exchange was voted as the most innovative stock exchange in Africa in 2013. The Zambian securities market has been designated as a ‘unified’ market and virtually all trading is conducted through the stock exchange, which has a number of benefits including enhanced liquidity and market depth.

“Something along these lines may be beneficial in South Africa in light of the Financial Services Board’s recent directive and guideline in terms of which all companies that facilitate over-the-counter trading in their shares are required to register themselves as an exchange,” he suggested.

The ‘Listing in Africa’ report set out an overview of the considerations for listing, listing criteria, listing processes, documentation requirements and continuing obligations relating to the selected African exchanges detailed above, as well as an overview of the current composition and liquidity of the equity in these markets.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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