African IPOs see dramatic drop in first half of 2019

Jun 26, 2019
Political uncertainty behind fall, but positives remain

The African IPO market saw a 28 percent decline in the first half of 2019, with capital raised falling to $341 mn, compared with $472 mn during the same period in 2018, according to data compiled by global law firm Baker McKenzie.

The sharp fall can be attributed to the 80 percent fall in domestic capital-raising in Africa – standing at only $85 mn from four IPOs, compared with $419 mn from the same number of IPOs in the first half of 2018.

The data reveals the largest African IPO in 2019 so far to be Cairo-based petrochemicals company Carbon Holdings, expected to raise as much as $250 mn in London and Egypt in the next few weeks.

Political uncertainty is at the heart of the problem, says Wildu du Plessis, head of capital markets at Baker McKenzie in Johannesburg, in a statement: ‘The drop in African IPO values in H1 2019 was mostly because of political and economic uncertainty on the continent. Investors wanting to raise capital in Africa are thinking twice and waiting for political and economic stability to return before going ahead.

‘Also eroding investor confidence in Africa are the escalating global trade tensions, which have culminated in, for example, the so-called US-China trade wars and the possibility of a no-deal Brexit – both have the potential to impact African economies significantly.’

In South Africa, du Plessis notes that capital-raising has decreased substantially in recent years – again, due to economic and political uncertainty.

‘Political stability will hopefully begin to return now that the country’s elections are over, but there is still a lot of work to do to stabilize the economy,’ he says. ‘The World Bank recently downgraded South Africa’s growth rates and I think there is at least another year of hard work before the economy starts to recuperate and capital markets in South Africa recover.’

That said, there is good news for some countries in Africa. ‘In addition to the healthy pipeline of IPOs in Egypt, there are also signs of life returning to Nigeria’s capital markets,’ du Plessis observes. ‘Political instability was also to blame for a big collapse in capital-raising in Nigeria in recent years, but the country looks to be recovering and, according to Baker McKenzie’s recent Global Transactions Forecast, there is a predicted return of IPOs in Nigeria in the next three years.’

A case in point, he says, is telecommunications company Airtel Africa, which has announced its intention to try raising as much as $750 mn in London in a July 3 listing and simultaneously in Nigeria. ‘Hopefully this is the start of a long upswing in capital-raising activity in the country,’ notes du Plessis.

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