The year ahead is expected to be positive for equity capital market (ECM) activity in Africa, driven by the expectation of continued exits by private equity investors, reforms to certain capital markets legislation and growing investor confidence in and familiarity with African markets.

Following last year’s performance, which saw the highest level of activity in African ECMs over the previous five years, financial firm PwC’s inaugural ‘Initial public offering (IPO) Watch Africa 2014’ report stated that $11-billion was raised in 2014 in African ECMs – almost equal to the combined $11.1-billion raised in 2012 and 2013.

“The performance of African markets was strong in 2014, with an increase in ECM activity of 40% in terms of [the] volume of offers and 100% in terms of [the] capital raised, compared with prior year activity.

“We noted a few instances of management following a dual-track approach aimed at increasing value for existing shareholders and consistent with the growth in other forms of capital raising activity across Africa,” PwC Africa capital markets leader Nicholas Ganz said.

IPO activity also increased overall – from 20 to 24 IPOs – and doubled in terms of capital raised from $0.8-billion in 2013 to $1.7-billion last year.

The report analysed ECM transactions that took place between 2010 and 2014 on exchanges throughout Africa, as well as transactions by African companies on international exchanges.

A significant share of capital was found to have been raised in markets outside South Africa, with Johannesburg listings accounting for only 32% and 44% of total IPO capital raised in 2013 and 2014 respectively – a notable departure from its more prominent position in prior years.

Meanwhile, PwC South Africa capital markets partner Coenraad Richardson noted a counterpoint in further offers (FOs). “While IPO activity across the continent increased its share vis-à-vis the JSE, FOs remained dominated by capital raising in South Africa, which accounted for 87% of proceeds in 2014.

“This is a reflection of the depth and stability of the South African listed company and investor base, underpinned by a securities exchange regulatory framework ranked number one in the world by the World Economic Forum’s 2014/15 Global Competitiveness Report,” he advised.

Overall, FO activity during 2014 increased by 50% in terms of the volume of transactions and doubled in terms of capital raised to $9.3-billion from $4.6-billion in 2013.

On a sector basis, the financial services sector, which included real estate; industrial products and services and consumer products dominated the market, with the financial services sector representing 57% of combined IPO and FO volume during 2014. Growth in these sectors reflected shifting economic and social demographics, namely an increase in urbanisation and an emergent middle class across Africa. By contrast, the resources sectors collectively represented a comparatively smaller proportion of 2014 activity.

In addition, $1.2-billion of FO capital was raised by African companies on international exchanges since 2010. FOs in this context included those companies seeking to expand their investor base by way of a secondary listing, as well as those raising further funds from existing international listings.

The JSE safely retained its position in 2014 as the most active African market in terms of total ECM transaction volume and proceeds. The Tunis and the Nigerian stock exchanges held the second position on the continent in terms of volume and proceeds raised, respectively.

However, PwC Nigeria capital markets partner Darrell McGraw cautioned that, “owing to recent movements in commodity prices and relative depreciation of local currencies against the dollar, there are some headwinds that may affect the momentum of the capital markets in Nigeria and other territories heavily involved in resources.

“That said, Nigeria has already recorded an IPO in January and has a strong pipeline of listings likely to be brought to market later this year,” he concluded.