Professional services firm PricewaterhouseCoopers (PwC) on Thursday released its ‘African Capital Markets Watch’ report, which found that African equity capital market (ECM) activity declined in terms of both volume and value in 2018.

The decline comes in the wake of global economic, local economic and sociopolitical uncertainty.

“Despite 2018 starting on a positive note with some landmark transactions, capital markets activity declined year-on-year by 25% in volume and 40% in value,” PwC stated.

The report analyses equity and debt capital market transactions that took place between 2014 and 2018 on exchanges throughout Africa, as well as transactions by African companies on international exchanges. It lists all new primary market equity initial public offers (IPOs) and further offers (FOs) by listed companies, in which capital was raised on Africa’s principal stock markets and market segments.

Additionally, the report includes IPOs and FOs on international exchanges or non-African companies on African exchanges, on a yearly basis. 

PwC capital markets partner Andrew Del Boccio noted that while 2018 had started with several landmark IPOs and FOs, as the year progressed, companies retreated from the capital markets or suspended listing plans as uncertainty and volatility increased across Africa and the globe.

“In 2018, $2.2-billion was raised in 17 IPOs compared with $3.1-billion raised in 30 IPOs in 2017, representing a year-on-year decrease of 43% and 27% in volume and value of IPOs, respectively. FO activity also declined both in volume and value – $6.1-billion was raised in 77 FO deals in 2018, compared with $10.7-billion raised in 95 deals in 2017.

“The financials sector constituted 53% of the total number of IPOs recorded in 2018, followed by the consumer services sector, at 17%. With regard to FO activity, the financials sector dominated both the number of deals and proceeds recorded, contributing 41% and 47%, respectively.”

AFRICAN IPO MARKET

Del Boccio noted that South Africa continues to lead African capital markets activity despite the challenges facing the country’s economy.

Since 2014, capital raised from 43 IPOs recorded on the JSE was $5.9-billion, representing 57% of total African IPO capital raised and 34% in terms of transaction volume.

During 2018, four of the top ten IPOs by proceeds were launched on domestic exchanges in North Africa, three on the Egyptian Exchange (EGX) and one on the Casablanca Stock Exchange.

Three were launched on the JSE, and one each on the West African Bourse Régionale des Valeurs Mobilières, the Ghana Stock Exchange and the Uganda Securities Exchange.

Over the five-year period, the JSE was followed in terms of volume and value of IPO transactions by the EGX, with 17 issuances accounting for $1.6-billion. Third place in terms of volume was the Bourse de Tunis with 12 issuances, and third in terms of value was the Nigerian Stock Exchange with $571.1-million.

Over the past five years, there have been 130 IPOs by African companies on both African and international exchanges, raising $10.7-billion, which is a 14% increase in capital raised over the preceding five-year period from 2013 to 2017.

AFRICAN FO MARKET

“South African companies also continued to dominate FO activity in 2018, accounting for 63% of FO proceeds and 49% of FO volume. The nature of these FOs reflect a mixed landscape, with a significant portion of funds raised for debt refinancing and expansion strategies.

“Over the past five years, there have been 413 FOs by African companies, raising $44.7-billion on both African and international exchanges, a 2% increase in capital raised over the preceding five-year period from 2013 to 2017,” said Del Boccio.

He added that this was indicative of the change in the global investment climate and the political uncertainties witnessed across major African economies in 2018.

Meanwhile, cross-border ECM activity experienced a decline in volume and value of 86% and 88%, respectively, in 2018, compared with 2017, while outbound ECM activity saw a rebound in terms of proceeds in 2018, after a steady decline that was recorded over the prior four years, with $225-million raised in 11 transactions.

While volume in 2018 decreased by 21%, compared with 2017, proceeds raised from outbound activity saw a significant increase of 189%.

Del Boccio concluded that PwC has an outlook of a weakening economy, significant geopolitical uncertainty and reputational challenges for new entrants brought on by recent listing failures, which will shape future capital markets sentiment.

“Accordingly, we can expect the low level of activity seen in the African markets in 2018 to persist in 2019, despite the pipeline of announced and expected local and cross-border listings.

“Now, more than ever, with increased scrutiny around the quality of new listing candidates and their ability to meet expectations of investors and regulators post-listing, adequately preparing for an offering is vital.”