In 2016, over 110 IPOs were launched by African companies who were able to raise $6.5bn on both African and international exchanges. Eight of the top 10 IPOs by proceeds in Africa were launched on domestic exchanges in North Africa or on the JSE.
The majority of IPOs in Africa have launched on the Johannesburg Stock Exchange (JSE) which is ranked as the 19th largest stock exchange in the world by market capitalisation and recognised as the largest exchange in Africa, representing 42% of total African IPO capital.
This may be indicative of the transparency and quality of management of organisations on the exchange. It may also show the comparative weaknesses in other markets on the African continent. The low liquidity of stock markets and relative paucity of company data have deterrent effects on companies considering IPOs in some African states.
The Main Concern
African stock exchanges may benefit from working more closely with private equity funds to provide a better opportunity for deal exits through public listings. Several structural changes will need to be made to support such collaborative efforts.
In East Africa, private equity funds nearing maturity have been reported to find Initial Public Offers unattractive as an exit route due to bureaucracy and expenses incurred.
Kenya’s Capital Markets Authority cut listing fees to encourage more firms to list their shares, but underperformance of IPOs is a major concern for the Nairobi Stock Exchange and its investors.
For the Nigerian Stock Exchange, liquidity challenges augmented by the economic crisis in 2008 are considered to be major reasons for the slowdown in IPOs in Nigeria. The NSE experienced the strongest IPOs activity between 2006 and 2008, with about 88 IPO’s in the period.
Too Much of a Family Affair
The global economic meltdown in 2009 made the capital market less efficient in channelling the required capital that is needed for business expansion.
The CEO of the francophone West African regional exchange, Bourse Régionale des Valeurs Mobilières (BRVM) finds that an impediment to more IPOs in Africa stems from the fact many companies are family owned.
Many family-owned companies are hesitant to give control to the markets. Partial privatisation of state-owned entities contributed to significant increases in IPO capital raised on exchanges in Ghana, Morocco, and Botswana.
From State-owned to Private
As more governments across the continent engage in the privatisation of state-owned entities and listings, regulatory frameworks may be developed. The development of these frameworks may inspire market confidence in bourses across the continent.
As Patrick Mathidi of Momentum Asset Management stated, “There’s never a good or bad time to list” – a company with a good story and prospects of growth will always have a market. For Africa, significantly more IPOs are possible, but are they necessary? IPOs may simply serve as an illusion of progress for many companies in Africa. Moving towards their own expressions of financial maturity may better serve their long-term goals.
IPOs are not to be feared, but they are to be scrutinised in great depth. In the long-term, the markets will support IPOs on the continent, but many critics will not support the headaches that come with them. The markets have spoken.
Africa may not need IPOs as they are currently presented. For now, Africa needs CEOs, not just IPOs. Meticulous management of its organisations will, for now, prepare them for inevitable expansion.