Angola sets sights on capital-markets reform
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Angola sets sights on capital-markets reform

The development of Angola's capital markets has been long promised but recent indications from the country's capital-markets commission suggests secondary public-debt trading could begin as early as next month. Nevertheless, it's unclear when the stock exchange will open its doors.

The long-awaited Angolan securities exchange is due to open its doors as early as December, starting with a secondary public debt market, according to statements made by officials from the Angolan Capital Markets Commission at a conference on October 23, say market players. 

Equities trading – which the government hopes will reel in international interest given Angola’s strong growth – could follow in 2016, officials have indicated. 

Tiago Dionisio
 While other African countries were developing their own exchanges,
the Angolan authorities were focusing on
rebuilding their country

Tiago Dionisio

Nevertheless, market players are generally sceptical that the long-promised bourse will open as early as then, citing a lack of progress in improving corporate governance, the challenges of capital-account liberalization to attract foreign savings and question marks over likely IPO candidates.

Tiago Dionisio, assistant director at asset management and brokerage firm Eaglestone, says: “We believe that the secondary market for public debt will open at the end of this year, or at the latest in January 2015. Equities trading will take a little longer to come into play."

Anthony Lopes-Pinto, managing director of Imara in Angola, who attended the conference in Luanda, adds: "Introducing secondary bond market trading is the first step and will be a way for the Capital Markets Commission of Angola to test the waters."

“In its nature, secondary bond markets are not as dynamic so it will give the authorities some time to adjust the system if needed.”

Plans to open a securities exchange in Angola dates back long before 2002, when the 30-year civil war that ravaged Angola’s economy finally came to an end. As early as the idea was planted, plans came to a standstill.

“While other African countries were developing their own exchanges, the Angolan authorities were focusing on rebuilding their country,” says Eaglestone's Dionisio. "Plans for a securities exchange were rightly put on the back burner."

Reliance on oil

Following the global financial crisis, Angola’s economy took another blow and further delayed the opening of the exchange. With heavy reliance on oil exports, the crisis saw prices for Angola’s crude plummet from around $140 per barrel to $60. Unable to pay back loans secured by oil revenue, construction came to a halt. Angola was forced to turn to the IMF for support.

After the crisis, the development of the securities exchange took a different direction: leadership was changed, the premises were moved and the trading platform was updated. The commission now has more than 100 permanent staff working on the budding exchange.

“The impact of the global financial crisis brought other issues in Angola to the fore, including problems with corruption and fraud in government and in the central bank, which further delayed any progress to opening up an exchange,” says Imara's Lopes-Pinto.

“As a result, there have been some high-level changes in government, the central bank, the Capital Markets Commission and even at middle management, all aimed at trying to clean up the system.”

Angola is ranked number 153 out of 177 country by Transparency International compared with 168 in 2010. 

Outside of the market being opened to foreigners,
what can the stock market really offer investors at this point?

Chris Becker

Governance issues and a lack of transparency at the corporate level have also added to delays.

“According to regulations, corporates need at least three years of fully audited information before they can list,” says Dionisio. "But this is something that many of the larger corporates in the country are working on. All of the major international auditing firms have a pretty large presence in Angola and are helping corporates reach their goals."

Banks will be among some of the first companies to list, say analysts. 

“The sector is much more developed, banks are regulated, and most meet the conditions of auditing and reported required by the regulators,” says Dionisio. "Telecoms companies such as Unitel and construction companies may be among others that follow."

However, large state-owned companies such as Sonangol – which oversees petroleum and natural gas production in Angola – and Angola Telecom, which have already caught the eye of international investors, are unlikely to list as they remain cash cows for the government.

“We may see sections of these businesses going to IPO,” says Lopes-Pinto. "The previous capital markets commission suggested that Sonangol Logistica, which owns most of the petrol stations and downstream products, could list, but we haven’t heard anything more recently on this."

The Angolan authorities have not released any estimates regarding the initial market capitalization of the stock exchange.

Waiting game

There remains scepticism around the reported 2016 push for the stock exchange's opening.

“I have been waiting for the Angolan exchange since 2008 when the infrastructure was first all put in place, but all we have had since then is an official stating that it will be next year, and then the next and then the next,” one African equities analyst based in Europe. "I don’t have high hopes that this time things will be different and the exchange will open alongside the time frame given.

“There has been no movement forward and I think it is because Angola doesn’t really need the financing as yet. Right now, Angolans are trying to buy more of the foreign companies operating in Angola and they will only start selling to the public only when they have to.”

From 2007, foreign-owned banks, especially Portuguese banks, in Angola have been encouraged to sell their domestic subsidiaries to local investors. This has dominated activity in the financial sector and distracted the bid to develop an exchange, says the analyst. 

Banks, including Banco Português de Investimento, Banco Comercial Português and Banco Espírito Santo, were among those that sold half of their business to domestic investors.  

“Angola has such shallow capital markets with low public savings rates an Angolan stock market will mostly consist of high-net-worth individuals buying and trading some local financials and maybe a sprinkling of telcos and other industrials," says Chris Becker, lead macroeconomic and equity strategist at African Alliance Securities in Johannesburg. "So outside of the market being opened to foreigners, what can the stock market really offer investors at this point?”

“In all reality, it just doesn’t seem a viable business proposition right now. Moreover, they’d have to liberalize the capital account to attract foreign savings. But it’s debatable whether the ruling party really wants this to happen as there are many complicating factors to policy-making once foreigners are allowed in, especially in this world of hot-money flows driven by quantitative easing in the western world.”

While capital-account liberalization is on the agenda and was also debated during the conference in October, the process is likely to be staggered to monitor the effect on the currency and the economy, especially as oil prices have been trading below the budgeted $81 per barrel at around the $75 mark, say analysts. 

“We may not see a flurry of listings on the exchange either,” says Pinto. "Some companies, ready for the launch of the exchange back in 2008, have been burnt so they are more willing to wait and see what happens than rush and list."

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