IPO Mania shuns Africa, where fast-growing companies prefer to go into debt


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By Loni Prinsloo and Roxanne Henderson

(Bloomberg) –

A global increase in initial public offerings has so far escaped sub-Saharan Africa.

The companies raised a record $ 467 billion on global stock exchanges in the first eight months of this year, according to data compiled by Bloomberg. Yet in Johannesburg, home of Africa’s largest stock exchange, 21 companies were instead delisted in 2021. Smaller stock exchanges in Accra, Nairobi and Lagos were also quiet.

The world’s highest unemployment rate and lack of confidence in South Africa’s economic recovery are pushing companies towards more affordable sources of finance. Businesses in the continent’s most industrialized country, especially small businesses, find it easier and cheaper to take on debt to finance their growth than to issue stocks, said Mate Munalula, co-head of corporate finance. Citigroup Inc. markets in the country, in an interview.


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“Getting listed can be seen as more onerous, procedural and administrative when running a small entity,” he said.

Another reason is that technology and digital startups in the country are scarce, yet this sector has been a significant part of the global rush for IPOs. Chinese rideshare giant Didi Global Inc. raised $ 4.4 billion in the United States in June, while KakaoBank Corp., South Korea’s largest internet-only lender, sold $ 2.2 billion of shares and climbed over 70% in its trading debut.

South Africa has two fast-growing tech companies in branchless lender TymeBank, backed by billionaire Patrice Motsepe, and payments firm Yoco, but both have secured liquidity outside of the equity capital markets. TymeBank raised $ 109 million in February, for a valuation of R 8 billion ($ 530 million). Yoco drew $ 83 million in July.


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In Nigeria, FinTech companies are emerging on the radar of leading investors. But U.S.-based Stripe Inc. has agreed to pay $ 200 million to buy out Lagos-based Paystack, and Flutterwave Inc. has said it will view New York as a potential destination for the IPO.

Mobile phone operators MTN Group Ltd. and Airtel Africa Plc have indicated that they are ready to part ways with fast-growing fintech or mobile money, valuing them at billions of dollars. Although in either case, an IPO can take years.

“When you look at the disruptors showing up to attract capital, in South Africa we’ve been pretty lagging behind,” said Kyle Wales, portfolio manager at Flagship Asset Management. “South Africa’s e-commerce penetration is 3%. In China, the same ratio is 25%.


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Three companies that withdrew

British Airways’ South African partner Comair Ltd. has been placed under bankruptcy protection amid Covid-19 travel restrictions. The carrier was then rescued by private investors and delisted. Cartrack Holdings Ltd., a data transport company, was privately held by its founder and listed on the Nasdaq as Karooooo Ltd. The company needed more exposure to international technology-focused investment funds, CEO Zak Calisto said. Revego Africa Energy Ltd., an investor in South African renewable energy projects, had planned to raise up to R 1.5 billion, but instead opted for a private market capital raise, CEO Reyburn Hendricks mentioned.


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The lack of IPOs and the exodus of JSE Ltd. could also be linked to South Africa’s near-stagnant economy and skyrocketing unemployment figures. Former President Jacob Zuma’s corrupt tenure and the ensuing coronavirus pandemic weakened investor risk appetite, Citi’s Munalula said, while a riot and looting that followed the Zuma’s arrest in July only exacerbated the situation.

“Basically it’s the economy of South Africa that is the most important factor,” Munalula said.

Still, there are reasons to believe in a recovery. Economists polled by Bloomberg predict that gross domestic product will rise 4.2% in 2021 after contracting the most in a century last year. Increased investment in renewables around the world should also bode well for South African businesses, which could benefit from a new government policy allowing more private power generation.


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A number of companies are considering going private from 2022, according to Richard Stout, head of equity capital markets at Standard Bank Group Ltd.

Among those who made their intentions public included medical cannabis company Cilo Cybin Pharmaceutical Ltd., while Bushveld Minerals Ltd., a London-listed vanadium miner, said it remained interested in possible JSE listing. .

Large South African state-owned companies may also have the opportunity to raise funds through a sale of shares, although this may “require a change in mindset,” according to John Slettevold, head of South Africa at UBS. Group AG.

“We certainly don’t subscribe to the view that the JSE is facing an existential crisis,” Stout said.

© 2021 Bloomberg LP



In-depth reporting on The Logic’s innovation economy, presented in partnership with the Financial Post.


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