According to a senior official at Thomson Reuters, which is the leading source of intelligent information for businesses and professionals in the world, Tanzania was only beaten by South Africa and Mauritius on the SSA ECM league table in 2017.
AIM Market Development expert Franita Neuville from Thomson Reuters said Tanzania’s performance was noteworthy because IPO activity outside of South Africa in SSA has not been encouraging in recent years. She told Smart Money via email that the Vodacom IPO was one of the few that took place outside South Africa in 2017.
She said it was also one of the largest deals in the first half (H1) of 2017. Shares of Tanzania’s largest mobile operator were issued in March but the offer ended in August after being extended twice following under subscription.
“Encouragingly, Tanzania was the third most active issuing nation in the Equity Capital Markets space in SSA in 2017, only to be beaten by South Africa and Mauritius,” Neuville noted when commenting on how the country fared in the value of announced merger and acquisition (M&A) transactions following Thomson Reuters’ release of its 2017 Investment Banking Review for the SSA region.
“This is very positive, as IPO activity outside of South Africa in SSA, has been very sluggish over the last couple of years and it is certainly an area that needs to be encouraged to grow, to enable more diversified investment portfolios for both institutional and retail investors,” she told Smart Money.
“Not only was the Vodacom Tanzania deal one of the few IPOs which took place outside of South Africa in 2017, it was also one of the largest deals in H1 2017,” she added.
According to her, Vodacom Tanzania was the first big Tanzanian company to go public over the last five years, noting that this further illustrates the sluggishness of the IPO market outside of South Africa. In March 9, 2017, the company placed 560 million shares at 850/- each in Tanzania’s biggest IPO seeking to raise 476bn/-.
The IPO was part of government-imposed requirement for all telecom companies to list at least 25 per cent of their shares locally. The offer was set to close on April 19, 2017, but was extended for three weeks in what was claimed as to allow government officials to buy the shares.
The offer was again extended to the end of July to allow foreigners to participate in a bid to enable the company realize the targeted 476bn/-. Vodacom was allowed to extend the offer period to July 28, a week after the government changed its laws to allow for foreign participation in buying shares on the Dar es Salaam Stock Exchange (DSE).
The IPO was fully subscribed after this extension and allowing foreign investors to participate in the sale. The offer had initially been restricted to Tanzanians. Foreign participation in the offer was 40 per cent and the shares were listed on the Dar es Salaam stock mart on August 15, 2017.
Last week, the chief executive officer of DSE, Moremi Marwa, said there have been eight (8) IPOs in Tanzania and listings at the bourse in the last five years. The Vodacom offer and listing was the only one last year.
“The eight (8) equity IPOs are Swala Oil and Gas Plc, Yetu Microfinance Plc, Maendeleo Banks Plc, Mkombozi Commercial Bank Plc, Mufindi Community Bank, Mwalimu Commercial Bank Plc, Dares Salaam Stock Exchange Plc and Vodacom Tanzania Plc which in total raised more than 650bn/- of capital and added more than 2.2trn/- to DSE market capitalisation. These exclude corporate bonds IPOs for Trade and Development Bank (formerly PTA Bank), Exim Bank Retail Bond and NMB Bank Plc Bond,” Marwa said.
According to the Thomson Reuters 2017 SSA Investment Banking Review, the value of announced merger and acquisition (M&A) transactions in SSA topped US$32.4 billion, the lowest since 2012.
Commenting on the Thomson Reuters 2017 SSA Investment Banking Review’s results for East Africa, the head of Corporate Communications and Public Relations for Thomson Reuters in Africa, Sonwabise Sebata, said: “large M&A transactions in East Africa for this reviewed period are mostly dominated by Kenya and Uganda.”
Neuville said it was worth noting that the Thomson Reuters SSA Investment Banking Review only highlights top deals in the region. According to her, if a country is not highlighted, this just means that the deals of that country didn’t feature amongst the top deals during the reviewed period.
The AIM Market Development expert has it that companies start looking for M&A opportunities when they need to protect their market share and ensure better returns for shareholders. Another key factor is improving economic conditions in the market, which is certainly seen with Tanzania’s thriving macroeconomic performance recently.
Another big determinant is ensuring that company valuations are attractive to investors; so if companies are perceived to be over-valued or expensive, potential acquirers will rather look at other opportunities in the region, she explained.
“A regulation which could be impeding to foreign M&A activity in Tanzania is the foreign ownership restrictions for regulated sectors such as insurance, tourism and communications and mining. There are, however, numerous other attractive sectors in Tanzania that are drawing the attention of foreign investors, such as construction, banking, telecoms, energy, oil and gas as well as transportation and agriculture,” Neuville noted.
“Tanzania’s commitment to transitioning to a market economy and M&A activity is massively important as part of that process,” she added.
Thomson Reuters SSA Investment Banking Review states that investment banking fees in the region was about US$527.9 million during the year. It also has it that equity and equity-related issuance totalled US$9.6 billion during 2017 – second highest since 2007 while debt issuance raised a total of US$28.5 billion in proceeds during the same period – up 27 per cent.
Debt capital markets’ underwriting fees accounted for 20 per cent of the overall SSA investment banking fee pool, the highest first half share since 2012. Both completed M&A and equity capital markets generated 18 per cent and 27 per cent of the total fee pool respectively, while syndicated lending fees accounted for 34 per cent.
Domestic and inter-SSA M&A totalled US$5.8 billion, down 1.9 per cent year-on-year. South Africa’s overseas acquisitions accounted for 65.6 per cent of SSA outbound M&A activity, while acquisitions by companies headquartered in Mauritius and Seychelles accounted for 31.7 per cent and 2.6 per cent respectively.
In equity capital markets, SSA equity and equity-related issuance stands at its second highest volume since 2007, totalling US$9.6 billion during 2017, 11 percent more than the value recorded during the same period in 2016.
Follow-on offerings accounted for 71 percent of the ECM activity in the region by value, while IPOs and convertibles accounted for 18 percent and 11 percent, respectively. Morgan Stanley topped the Sub-SSA ECM league table during 2017 with a 19 percent share of the market.
“M&A activity is among the main factors that contribute to a country’s industrial and trade growth. It greatly improves competition in the economy which leads to better service delivery and enhances the quality of products delivered to consumers,” Neuville said noting that M&A is particularly useful to strengthen companies and empower them to compete with bigger firms and at a global level.