Market Trends

The Johannesburg Stock Exchange Sees Resurgence in IPO Activity

The Johannesburg Stock Exchange (JSE), Africa’s largest trading platform, is experiencing a notable rebound from a spate of delistings, with an upswing in companies contemplating initial public offerings (IPOs). The financial sector is buzzing with the news that, influenced by a confluence of promising economic factors, the JSE might soon witness a surge in listings.

Signs of Recovery Spark Investor Interest

The South African bank sector, including esteemed entities like JPMorgan Chase & Co., has indicated a burgeoning interest among companies in going public on the JSE. "We are seeing a significant increase in capital market activity in 2024 and the pipeline for 2025 is also looking strong," declared Edward Bell, JPMorgan’s Johannesburg-based managing director. This optimism is in stark contrast to the previous two years, which saw a global downturn in IPO proceedings.

Bankers spotlighted several factors augmenting this revival – the allure of possible interest rate reductions, the forthcoming South African election, and proactive strategies to counter the persistent energy shortages that have hindered the nation's economy.

The JSE’s performance last year was rather subdued, as Bloomberg's records show, with a mere duo of IPOs and a tally of 11 delistings for 2023. However, current trends indicate a slowdown in companies departing the exchange, with only two noted this year. Looking forward, JSE Chief Executive Officer Leila Fourie projects an optimistic forecast of up to 10 listings in 2024. "We are optimistic it is looking better, but we’re cautiously optimistic," she remarked.

South Africa embarks on 2024 with renewed vigor after a period marked by economic skepticism, manifested by widespread delistings from the JSE. Inflation rates are on a downtrend while growth projections have improved, although from a modest starting point. Relief from the debilitating power outages plaguing the country is anticipated within the next couple of years.

Anticipating Political and Economic Stability

The impending general elections in South Africa symbolize a pivotal moment, marking 30 years since the inception of its democracy. There is widespread anticipation that the ruling African National Congress might experience a decline in public support. "Foreign capital is watching the 2024 elections carefully," noted Simon Denny, Goldman Sachs Group Inc.’s Chief Executive Officer for South Africa. He reiterated that favorable election outcomes, diminishing interest rates, and resolute energy solutions could significantly uplift the equity market.

Financial insiders reveal that several companies are thinking about spin-offs and carve-outs, employing these strategies within their listing plans in the forthcoming months. Conglomerates aim to capitalize on valuable subsidiaries by unbundling them, thus gaining capital and reducing their stretched balance sheets. Stephen Nyakudarika, investment banking advisory and origination director for Deutsche Bank AG, confirmed these endeavours.

Among the various firms rekindling their IPO ambitions is cannabis enterprise Cilo Cybin Holdings Ltd. Transaction Capital is getting set to unbundle its WeBuyCars unit in April, while Pick n Pay Stores Ltd. is planning to detach its Boxer discount supermarket chain. In addition, RCL Foods Ltd. has set in motion the spin-off for its Rainbow Chicken business.

High-Value Listings on the Horizon

Coca-Cola Beverages Africa, one of the most anticipated listings, has been on hold for three years due to less-than-favorable conditions. Now there's momentum to carry through with its listing on Euronext, and a secondary listing on the JSE is also in the pipeline. Bloomberg previously indicated that the value of this listing might reach an impressive $8 billion.

"Next year, we expect more traditional IPOs with companies seeking to list with a view to raise permanent capital and as a partial exit mechanism for shareholders," Nyakudarika shared on the matter. This expectation signifies a shift toward a more robust approach to equity raising on the JSE.

The JSE has been proactive in facilitating market access. Patrycja Kula-Verster, the bourse’s primary markets business development manager, mentioned that the JSE has reduced bureaucratic hurdles and now permits secondary listings for companies primarily listed on the Hong Kong Exchanges & Clearing Ltd.

JPMorgan’s Bell underscored that as global capital markets regain their footing, the trend often extends to emerging markets like South Africa, following the lead of major markets such as the US, UK, and Europe. This alignment suggests that the positive turn in the JSE’s affairs may well follow a global pattern of market resurgence.

For further insights on Europe’s market dynamics and IPO shifts, additional reading material is available in the article "Europe’s Battered IPO Market Shows Signs of Revival: ECM Watch."

Banking professionals anticipate that the drive for IPOs could stem from various sectors, including consumer goods, resources and industrial operations, financial services, and emergent fields like fintech and digital infrastructure.

However, the JSE isn't the only option for African companies aiming to raise equity capital. Given the greater liquidity and broader investor base knowledgeable in emerging market investments, many African enterprises have historically preferred offshore listings. The New York Stock Exchange (NYSE), London Stock Exchange (LSE), and Euronext often take precedence over the JSE for these reasons, Nyakudarika notes.

For those interested in related news, Airtel Africa's contemplation on the IPO of its TPG-Backed Mobile Money Unit provides a case study of offshore listing interest.

The report concludes with an acknowledgment and thanks to Adelaide Changole for her assistance, and a copyright notice crediting Bloomberg L.P., 2024.

Photo by Waldo Swiegers, courtesy of Bloomberg.

Market Experts Provide Key Insights

The narrative of the JSE's potential listings expansion has been supplemented by voices across the investment banking sector. Bankers across the sphere are observing a concurrence of favorable economic and political conditions that could facilitate a comeback for South Africa's primary stock exchange.

With South Africa's election right around the corner, there's increased scrutiny from international investors. Experts like Goldman Sachs' Simon Denny believe that the political climate post-election, coupled with financial and energy reforms, can significantly sway investment patterns.

Corporations Ready to Embrace the Public Market

Strategic corporate movements like the separation of profitable entities from their parent conglomerates are anticipated. This trend demonstrates businesses' confidence in the market and forecasts a period of restructuring designed to augment shareholder value and mitigate corporate debt.

Recent announcements by companies like Cilo Cybin Holdings and Pick n Pay Stores manifest a broader appetite for leveraging the public markets to fund growth initiatives and diversification strategies. Similarly, the food industry player RCL Foods is moving to distinguish its poultry division, recognizing the potential for focused growth.

The Global Perspective: A Bellwether for the South African Market

The connection between global financial trends and South African market activity cannot be understated. The return of capital market functions in the US and Europe portends positive implications for the JSE, given the interconnected nature of the world's financial markets.

With a diverse range of industries showing interest, from the evolving digital economy sectors to core industries like consumer goods and financial services, the JSE is positioned to attract a multifaceted array of new public companies.

Looking Beyond Borders for Growth Capital

African companies have a long history of tapping into global capital pools, seeking the benefits of scale, liquidity, and expertise that come with listing on well-established international exchanges. This underlines the importance of the JSE's ability to maintain competitive allure to retain and attract listings within the continent.

Conclusion

The upcoming period could mark a significant turnaround for the Johannesburg Stock Exchange, poised to transition from a period of retrenchment to one of expansion and growth. With corporations poised for public market entry and the JSE streamlining its processes, the stage is set for a dynamic phase in South Africa's capital markets, reflecting broader trends and instilling confidence in the financial future of the region.

This comprehensive analysis paints a picture of a market on the cusp of transformation, providing an optimistic outlook on what the future holds for South Africa’s chief trading platform, its constituent companies, and the investors who back them.

In a testament to this optimistic momentum, South Africa looks forward to hosting a spectrum of new IPOs and leveraging economic stability to regain its stature as a dominant force in the African economic landscape.