International firms show interest in listing locally in Africa
International companies with a presence in Africa are increasingly looking to list on the local stock exchanges to gain access to African institutional money, says BNY Mellon.
The bank has already done two so-called reverse depositary receipts in Africa. This means a foreign company with presence in Africa has issued its shares on a local stock exchange in local currency.
Depositary receipts (DRs) are a financial instrument used by banks to allow foreign companies to publically trade their shares abroad and list them on local stock exchanges.
Usually, these are used by companies from emerging markets looking to make their stock easily available to foreign investors. Through a DR, these companies can list their shares on a globally recognised stock exchange.
However, BNY Mellon is seeing more and more global companies looking to access the investor base in emerging or frontier countries through a reverse DR procedure.
The two companies that have already done a reverse DR through BNY Mellon are both Canadian mining companies that have operations in Zambia and Namibia, respectively.
Mary Gormley (pictured), regional manager for Sub Saharan Africa depositary receipts, says: “The listing has provided an investment opportunity to local pension funds that have not been able to or happy to invest through the Canadian stock exchange.”
Mining company First Quantum was the first international company to list on the Zambian stock exchange. It raised $20m through this DR, which is a large sum of money by Zambian standards.
The impetus behind the reverse DR for First Quantum was slightly different. The company wanted to give its employees the opportunity to participate in share schemes, and needed to be locally listed to do so.
Employees in Zambia could not afford the listed share price of the company, which stood at around C$140. Each DR issue in Zambia was worth only C$1.
Being listed on a local stock exchange also makes cross border settlement easier and quicker. Gormley says it takes a couple of hours to move equities between markets within this structure, while ordinary shares takes around two weeks to move between markets, which has a negative impact on liquidity.
BNY Mellon already has experience arranging reverse DRs in various local markets. The trend started around four years ago and has been picked up already in South Africa, as well as markets outside Africa, such as Hong Kong, Brazil, Mexico, Dubai and India.
In Hong Kong especially, the interest from global companies stems from the perception that China has a lot of wealth to spend on luxury goods. The Chinese consumer is the primary driver of growth in the global luxury segment.
Further geographical expansion of the product will depend on market demand, Gormley says.
The bank is preparing another reverse DR in Zambia at the moment. Gormley points to Nigeria, Botswana and Mauritius as the next destinations for the reverse DR offering in Africa.
“It’s quite rare at the moment to find an African market that is not interested in doing this. Local markets are quite small and illiquid, so they are looking for new products and ways to develop the market,” she concludes.