Published: May 10, 2013
Ibukun Adebayo, head of International Primary Markets, South Asia, Middle East, Africa, Americas at the London Stock Exchange, discusses London’s success at attracting African companies, burgeoning competition from the West, and which markets are worth keeping an eye on.
When it comes to attracting capital-hungry African businesses, the London Stock Exchange (LSE) is ahead of the competition. Its main market is home to 12 African companies, with another four listed on AIM, a junior exchange. Add companies incorporated outside of Africa that operate on the continent and those figures jump to 23 and almost 70, respectively. Throw in businesses that trade global depositary receipts in London, and the exchange has the second-highest concentration of African-focused companies outside of the Johannesburg exchange.
Ibukun Adebayo, the exchange’s head of international primary markets for Africa as well as South Asia, the Middle East and the Americas, tells EMEA Finance about efforts to ensure that the exchange continues to attract capital-hungry companies.
Why is the LSE attractive to African companies?
The benefits are three-fold. One is the international profile that companies get from listing overseas on an international exchange like London. The second is that here they can access an extraordinarily deep pool of capital focused on overseas companies. The third is the liquidity available on the secondary market – companies can to raise extra capital very cheaply.
Is it a simple move for companies to make?
The vagaries of coming to list in London are very small compared to some of the local pre-conditions needed to do an overseas listing. For example, a Saudi Arabian company is not permitted to list overseas. If it wants to do that it has to create a structure that is re-domiciled elsewhere. That type of vagary exists in many jurisdictions.
Where are the big opportunities?
In Nigeria there are opportunities in the oil and gas space, in particular. There is a new petroleum industry bill being written that will allow indigenous companies raising capital to buy marginal fields from exiting international oil companies. There is a lack of depth in the local market to offer the financial pool for that, so again London has its place.
Is it difficult to explain the benefits of a London listing to governments that are trying to develop their own exchanges?
We have a role in convincing them of the complementary nature of the London stock exchange to the growth of their local market.
It can be difficult, but the statistics speak for themselves. There are 18 Sub-Saharan exchanges, all characterised by a lack of depth, and many investors talk of things like information asymmetry and potential openness to market manipulation. The London offering reassures international investors that these markets are absolutely investible.
Do companies struggle to meet the standards of transparency and compliance required by the LSE?
I think there has been a realisation that, given the speed at which these markets are growing, you have to get access to international capital. New practices are being brought in by management teams that have been cherry-picked from overseas.
There is definitely now an emphasis on governance aimed at challenging the specific issues they face, which I think is really encouraging. As mature economies, there is a perception that our standards are the best. In fact the best standards are probably the hybrid types being built in places like Qatar and Dubai, which seek to address local challenges but also bring in international standards that are well proven.
Do you expect a lot of listing activity over the medium term?
London will see a lot of listings action over the next 12-18 months. Africa’s been growing at 5.5% over the last 10 years and is expected to do the same for the next five – it’s a straightforward bit of analysis and suggests that’s where the money will go.
There has long been pent-up demand, particularly for African financial services companies, to come and raise money in London. We have about 68 emerging-market banks listed in London – from Russian to Indian to Nigerian banks – and they are highly capitalised. The last Nigerian bank listed in 2007, Diamond Bank, and similar discussions continued throughout the unfavourable market conditions that followed. The [better] conditions we are seeing going forward mean that there can now be some tangible outcome.
Does London have any competition in attracting African business?
One thing that we are not is complacent. We have been very lucky in the relationship that we have with Africa but historical ties, in my opinion, count for very little.
We are still attractive because there is a depth of understanding of African businesses in London. The London buy-side community is familiar enough with Africa to understand the risks and once you understand the risk you are able to price it and then invest.
Places like Toronto are keen to try to develop this business, but for a lot of Africans, Canada is a lot further away than London. That’s not to suggest that the Canadian exchange, particularly for the mining and oil and gas industries, won’t be attractive. But for the complete picture London has expertise in the areas where Africa is growing – consumer and retail, the banking and financial side, as well as core capabilities around extractive industries. We will certainly see more transactions from Africa and Nigeria specifically.