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CAPITAL MARKETS ROUND-UP - Nairobi bourse opens derivatives market.

Summary: Our expert on African capital markets presents his round-up of activities over the past quarter.

Futures trading on an equity index and single stock futures have come to the Nairobi Securities Exchange since the NEXT deriva- tives market launched on 11 July. It follows six months of tests and a trial week of trading limited to key investors.

It is the second derivatives market in sub-Saharan Africa after Johannesburg and aims to help investors and institutions better manage risks, hedge, and arbitrage; and speculate over the future value of the participating stocks and the index. Other financial and commodity derivatives will be added later.

The bourse, already East Africa's financial hub, expects derivatives trading will boost liquidity including in its 65 listed shares.

Speaking at the launch, NSE Chief Executive Geoffrey Odundo said: "We anticipate the newly launched NEXT derivatives market will pull more foreign investors into the capital markets because it will enhance investors' portfolio performance by availing risk- management tools in the wake of increasing asset-price volatility in both domestic and international markets."

Initial trading is in five single- stock futures -- Safaricom, East African Breweries, Equity Hold- ings, Kenya Commercial Bank (KCB) and BAT -- and in futures on the NSE 25 Index, which rep- resents the performance of 25 blue-chip listed firms and was launched in October 2015 as part of preparations for the NEXT derivatives market.

Abraaj executive pleads guilty

A top private equity managing partner choked back the tears in a Manhattan court on 28 June as he admitted wrongdoing in the world's biggest private-equity insolvency. The collapse of the Abraaj platform, with $14bn in funds under management, has hit flows into Africa and Middle East focused private-equity funds and some in the industry expect a slowdown for up to three years. Former Abraaj managing partner Mustafa Abdel-Wadood was told he could face up to 125 years in prison. He is cooperating with New York prosecutors after pleading guilty: "I knew at the time that I was participating in conduct that was wrong. I ended up drifting from who I really am. For that, I am ashamed." He is under house arrest subject to a $10m bond.

Abdel-Wadood, 49, a citizen of Egypt and Malta, was arrested in April in New York while travelling with his wife and son to look at universities. He is one of six former Abraaj executives facing racketeering and securities-fraud charges.

Founder and chief executive Arif Naqvi, from Pakistan but a UK resident and a regular participant at the Davos World Economic Forum, was arrested in London, also in the April swoops, and detained at Wandsworth Prison.

In May he was released on con- ditional bail of Au15m ($19m) while fighting extradition to the US. Other former executives charged were Chief Financial Officer Ash- ish Dave and managing directors Sivendran Vettivetpillai (who was CEO of Aureos Capital and joined Abraaj after it bought Aureos for $1.2bn in 2012), Rafique Lakhani and Waqar Siddique.

On 15 July, private equity house Actis, which manages some $12bn in assets, said it had agreed to take over management rights of the $1.6bn Abraaj Private Equity Fund IV -- from which as much as $300m may have been removed, and Abraaj Africa Fund III.

This includes investments in 14 portfolio companies. Actis has been cleared to acquire 16 Abraaj funds covering Africa and Asia, but for each fund they need to speak to its investors (limited partners/LPs).

In May, US-based TPG said it would become custodian for the $1bn Abraaj Growth Markets Health Fund (AGHF), and renamed it Evercare Healthcare Fund.

Dubai-based Abraaj was founded in 2002 and was one of the most influential emerging- market investors. Analysis of the governance lapses show that operating expenses at Abraaj had been running higher than income from management and performance fees on the funds, resulting in multimillion-dollar operating losses.

The group borrowed to fill the hole and hoped to sell assets to avoid a cash crunch but the deals were repeatedly delayed. Instead money was moved out of the funds to cover losses, according to the US Securities and Exchange Commission (SEC).

The Bill & Melinda Gates Foun- dation and the International Finance Corporation were among four investors (limited partners or LPs) that raised concerns, hired investigators and commissioned an audit into the healthcare fund.

After other investors heard, Abraaj went for liquidation in the Cayman Islands and the United Arab Emirates in April 2018. AIML was set up to manage the funds in 2018 and Naqvi was removed from being CEO.

Lessons from the collapse could lead to tighter regulations on private equity firms and their auditors, such as a requirement to change auditors regularly and rules on conflict of interest with a focus on its previous auditor, KPMG.

Airtel Africa's $750m IPO

Shares in Africa's second-biggest telecom company, Airtel Africa Plc, had a weak start after its $750m initial public offer (IPO) closed and results of the book-build were announced on 28 June.

By the time of going to press (mid-July), UK-based Airtel Africa was trading at 69.90 GBP pence (87 US cents), well down from its offer price of 80p, which was the bottom of the proposed range of 80p-100p. It is listed on the Premium Board of the London Stock Exchange from 3 July and on the Nigerian Stock Exchange from 9 July. The offer of 744.0m shares raised some Au595 million ($750m), including a domestic offer to Nigerian institutional and high net worth investors of 39.2m shares at NGN363 each.

According to an announcement on the stock exchange news service RNS: "The offer was oversubscribed with strong interest from a variety of reputed global investors across the UK, United States, Africa, Europe, Middle East and Asia. Dominant allocation to global long-only, strategic and pre-IPO investors."

Airtel Africa is the holding company for Bharti Airtel's opera- tions in 14 countries, including Kenya, Tanzania, Nigeria and Ghana. The telco has over 94m customers, and is ranked in the top two carriers in most of the countries where it operates, offering 2G, 3G and 4G services, plus mobile commerce through Airtel Money.

Investors before the IPO, who invested at higher valua- tions, include SoftBank Group, Singapore's sovereign wealth fund Temasek, Singapore Telecommu- nications and private equity firm Warburg Pincus; and in January 2019, Qatar Investment Authority invested $200m.

African issuers raised $341m in 6 months

Businesses based in Africa raised $341m through equity issues in the first half of 2019, down 28% on $472m raised in the same period in 2018. Law firm Baker McKenzie says this was mainly because only $85m was raised from four initial public offerings (IPOs) on African exchanges, down 80% from $419m from four IPOs in the first half of 2018.

Baker McKenzie uses figures from Refinitiv and excludes mega issues by Africa-focused issuers based outside the continent, such as $750m raised in June through an IPO for UK-based Airtel Africa and $196m raised on the New York Stock Exchange in April by Jumia Group, the pan-Africa e-commerce trailblazer headquartered in Germany.

Wildu du Plessis, Head of Capital Markets at Baker McKenzie in Johannesburg, says: "The drop in African IPO values in H1 2019 was mostly because of political and economic uncertainty on the continent. Investors wanting to raise capital in Africa are thinking twice and waiting for political and economic stability to return before going ahead. Also eroding inves- tor confidence in Africa are the escalating global trade tensions."

Baker McKenzie says Egypt is generating a buzz around its pipeline of IPOs, with some speculating this could be the busi- est year for listings in Cairo since the uprising in 2011. Commenting on South Africa, du Plessis says: "Capital-raising has decreased substantially in recent years, also due to economic and political uncertainty. Political stability will hopefully begin to return now that the country's elections are over, but there is still a lot of work to do to stabilise the economy."

He adds: "There are also signs of life returning to Nigeria's capital markets. Political instability was also to blame for a big collapse in capital-raising in Nigeria in recent years, but the country looks to be recovering." n

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Publication:African Banker
Geographic Code:60SUB
Date:Aug 5, 2019
Words:1375
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