African equities: Listing gets bigger and busier


Dominic O’Neill
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So much for Kenya’s Kibaki/Odinga rivalry derailing the Africa boom.

Kenya’s Safaricom, the largest ever IPO in sub-Saharan Africa outside South Africa, was poised to come to market at the end of April, as Euromoney was going to press. Early indications are that the deal, which will be listed on the Nairobi Stock Exchange, will be heavily subscribed, with data showing that more than 1.5 million investors have placed orders.

The Kenyan government looks set to comfortably raise $800,000 by selling a 25% stake in the mobile phone company. How things change. "In the past, international investors would have demanded a price-to-earnings ratio below 10. Safaricom is at 15, and the money is still coming in," says Ayo Salami, a veteran Africa analyst.

Salami, Nigerian by birth, is helping to set up the Duet Victoire Africa Index fund, one of the latest in a series of Africa funds that have emerged over the past 12 months.

The Kenyan shilling strengthened during the Safaricom IPO. Salami reckons this is thanks to émigré remittances pouring in to take advantage of the offering.

There are a number of sizeable sub-Saharan African IPOs to look forward to this year, mostly from telecom companies. Christopher Hartland Peel, African equities analyst at esoteric markets specialists Exotix, says these could include offerings from Telcel Zambia, Ghana Telecom, Mauritius Telecom, and Onatel (which has operations in Burkina Faso, but is listed on a regional bourse in Côte d’Ivoire).

"These are well-run, profitable companies. They are growing rapidly and have low penetration rates," he says.

Elsewhere, the Angolan stock exchange is eagerly awaiting its first listing, which it is hoped will be a flagship in the form of Endiama, the national diamond miner. The Angolan authorities have indicated that Endiama will come to market by the end of the end of the third quarter. The Rwanda stock exchange is expecting its first stock this year too, an insurance company called Sonarwa.

"Five or six years ago, $50 million was a big IPO. But some investment bankers going around Africa these days won’t get out of bed for less than $500 million," says Salami.

After the telecom IPOs are out of the way two years or so hence, analysts expect independent power plants and refineries to list, eventually being followed by steel, car and aluminium plants. Africa’s infrastructure needs are indeed massive.

The shining light of African bourses in the past has been Nigeria, which had the biggest sub-Saharan IPO of last year, Dangote Sugar for $450 million. Nigeria’s success stories have spurred the region’s other markets into action.

Roelof Horne, who is setting up an Africa-focused fund for Investec, expects some crashes on the way, although he says they would be geographically isolated.

The exchanges’ volatility is not helped by the predominance of local retail investors, which Horne estimates might take up 40% to 60% of markets such as Kenya and Nigeria. Pension reform in Nigeria has given institutional investors a leg up, however.