Published: October 15, 2008
Ecobank’s struggles in raising US$2.5bn in equity show that African equity markets are not immune to the global credit crunch.
Ecobank Transnational Inc (ETI), one of the largest banking groups in Africa, is struggling to raise the US$2.5bn it hoped to raise in a share offering at the beginning of October, in a sign that the credit crunch is making investors risk averse to African stocks.
ETI announced at the beginning of October that is has extended the closing date of its offer to the end of October, in an attempt to attract more investors into the deal. It is trying to raise money simultaneously on the three different exchanges where it is listed – the NSE in Lagos, the GSE in Accra, and the BRVM in Abidjan.
Philip Floyd, analyst at the Africa fund Scipion Capital, says: “ETI is a good bank in terms of the pan-African diversification it offers, with its presence in 25 African countries. But it’s not the best time to do a big deal. The NSE is in the middle of a significant correction.”
Having been the seventh best performer in the world last year, the NSE has lost 40% of its value this year, and financials have been the worst hit.
Stephane Bwakira, who manages Stanlib’s US$330mn Africa equity fund, says: “We think ETI will struggle to raise the amount it wants to raise, because local and foreign investors are not ready to support a deal of that size at the moment. There’s a general aversion to Africa stocks at the moment among foreign investors.”
Other African IPOs are also struggling. The Co-operative Bank in Kenya announced plans in September to try and raise US$130mn, in a deal lead managed by local broker Dyer & Blair.
However, the Nairobi Stock Exchange took the unusual step in late September of publicly suggesting the deal should be delayed, because of local market volatility. In early October, the bank announced it was pressing on with the deal, although the closing date was pushed back to the end of October.
No escape from credit crunch
The African market had appeared to be defying the global equity slump, with some big IPOs occurring earlier this year, such as the US$1.1bn IPO of Kenya’s Safaricom in June, and the US$220mn IPO of Celtel Zambia, also in June.
But the Safaricom deal, while it set an exciting new benchmark for Sub-Saharan African listings, has not fared well since listing, and is now less than half its year high, and 50% down on its offer price.
Floyd of Scipion says: “The issue there was the size of the deal. It was too big for the Nairobi exchange. It was like a snake swallowing a gazelle. It really clogged up liquidity in the exchange. So that could be a concern for the ETI deal as well.”
However, smaller IPOs have fared better recently. For example, Poulina, a holding company in Tunisia whose principal asset is chicken feed, managed to raise US$82mn on the Tunis exchange in August. The deal followed a similar-sized IPO by the Tunisian automobile company Artes.
The two deals have doubled the market capitalisation of the Tunis exchange. Floyd of Scipion says: “We like the Tunisia market a lot. It’s still up year-to-date, bank stocks are also holding up. It has a very good domestic market, with long-term, conservative investors.”
A number of Moroccan companies have been hoping to raise equity in the fourth quarter, including Maghreb Steel. However the Casablanca Stock Exchange is down 20% since March, and volatility may prevent any new issues coming this year.
Another big IPO planned for this year is Africa Petroleum, the Nigerian petroleum company that is trying to raise US$900mn, in a rights issue lead managed by Zenith Capital. The rights issue was launched in August, and is still in book-building phase.
Richard Gush, head of investment banking at Standard Bank, says: “We think it’s going to be a tough 2009 for African equity. Without doubt, there will be a few IPOs, but the depth of interest in African deals will be affected by the global credit crunch.”
Gush says hedge funds in particular may lose interest in Africa: “Hedge funds used to borrow in the west and invest in African securities. But that investor pool may no longer exist after the de-leveraging we are seeing now.”