JPMorgan Sees a Busy Season for London IPOs Out of Africa

(Bloomberg) -- JPMorgan Chase & Co. is having one of its busiest years yet for African companies looking to trade their shares in both London and local equity markets such as the Johannesburg Stock Exchange.

The New York-based investment bank has seen interest from at least six companies considering dual listings, said Barry Meyers, the head of JPMorgan’s U.K. capital markets and sub-Saharan Africa business. The inquiries come amid a $2.7 billion share sale by Vivo Energy Plc last month in London’s largest initial public offering this year, with the stock of the pan-African seller of fuels and lubricants also trading in Johannesburg.

“The market wants high growth, and it’s hard to get that at the moment in the U.K. and Europe,” spurring increased investor demand for assets in South Africa and the rest of the continent, Meyers said by phone. “That’s why these emerging-market deals are becoming more prevalent. Dual listings could become a bit of a trend.”

JPMorgan joins the Johannesburg-based units of Citigroup Inc. and Deutsche Bank AG in seeing a bigger pipeline of deals as economies across the region stabilize from a drop in commodity prices and growth picks up. South Africa, the continent’s most developed market, is also experiencing a rebound in investor confidence after Cyril Ramaphosa succeeded Jacob Zuma as head of the ruling African National Congress in December and as president in February.

High Expectations

The bank opened its second South African office in Cape Town this year as part of a strategy to increase its wholesale reach outside of the U.S. and expand its existing footprint on the continent. Deutsche Bank on the other hand has said it will terminate its advisory, corporate-broking and sponsor-services units in Africa’s most-industrialized economy over the next six months as part of a global drive to cut costs.

The second half of the year will have to see a bumper haul of deals if that optimism is to be met. Equity-linked transactions across sub-Saharan Africa total $3.2 billion so far this year compared with $6.3 billion in the same period in 2017, a record year for deals, according to data compiled by Bloomberg.

Consol Holdings Ltd., a South African glass-packing maker, in April pulled its IPO, citing weak demand, while the nation’s economy shrank more than expected in the first quarter. In March, Helios Towers Plc abandoned plans for an IPO, with Mergermarket reporting that it could merge with another telecommunications tower operator in Africa, Eaton Towers Ltd.

More to Come

JPMorgan has advised on two major deals this year aside from the Vivo transaction: the IPO of Libstar Holdings Ltd., a Johannesburg-based food producer that issued stock at the bottom of its price range, and a share sale in which Cape Town-based insurer Sanlam Ltd. raised almost 6 billion rand ($473 million).

Dangote Cement Plc, the Nigerian cement producer owned by Africa’s richest man, is considering a share sale in London in the next two years, Bloomberg News reported in April. Bharti Airtel Ltd. is weighing the sale of a quarter of the equity in its African unit by early 2019, people familiar with that transaction said.

There will be more IPOs like Vivo, Meyers said. Some real-estate companies with pan-African operations had recently come to see JPMorgan regarding potential London listings, he said, declining to be more specific or to identify any of the firms.

Here are some more insights from Meyer:

On investments in Africa:

• “Africa looks like a very viable growth alternative to Russia, Turkey and China.”
• “Investors are very interested in Africa and South Africa at the moment. There is a lot of international flow coming back into South Africa. When we did the Sanlam deal in March this year, we saw a lot of international interest, which was not unexpected.”

On IPOs:

• “The IPO market is extremely busy this year, busier than any other year. However, investors are now being more selective in what they choose to invest their money in. More than half of the deals have been emerging-market deals.”
• “It’s an IPO market of winners and losers. Companies need to capture the market’s attention to draw the money.”
• “For these African-London IPOs to work you need to be best in class, and it needs to be quite big as well and have a track record.”
• “Companies shouldn’t be over leveraged because of perceived geographical risks, but more importantly need to spend their money on growth. Investors want diversification. If you want to get the bigger global investors, being bigger also does help.”

To contact the reporter on this story: Loni Prinsloo in Johannesburg at lprinsloo3@bloomberg.net

To contact the editors responsible for this story: Rebecca Penty at rpenty@bloomberg.net, ;Stefania Bianchi at sbianchi10@bloomberg.net, Vernon Wessels, Karl Maier

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