Companies listed on the Johannesburg Stock Exchange (JSE), operator of Africa’s largest equity and bond markets, raised the most money from share sales in at least nine years in 2014 to fund expansions outside their home market.
Equity sold on the JSE jumped 58 per cent this year to 147 billion rand ($13 billion), the most since at least 2005, according to data provided by the JSE in an e-mail on Dec. 19. The bourse had 23 companies list their securities this year, eight of which were real estate businesses, the data show.
“A lot of companies raised capital so they could do acquisitions in other markets,” said Donna Oosthuyse, director of capital markets at the JSE. “The rate of economic growth in South Africa is below what our corporates are seeing in some other markets.”
Companies including Woolworths (WHL) Holdings Ltd, a clothing and food retailer, and Steinhoff (SHF) International Holdings Ltd are making purchases that expand operations outside of Africa’s second-largest economy to escape the slowest pace of growth since the 2009 recession. Property businesses led the number of initial public offerings after the JSE last year changed listing requirements to allow for Real Estate Investment Trusts.
“Real estate is an industry that is popular with investors,” Oosthuyse said by phone on Dec. 12. “It’s a sector that gets good coverage in terms of analyst support.”
The FTSE/JSE SA Listed Property Index gained 19 per cent this year, outpacing a 7.4 per cent increase in the FTSE/JSE Africa All Share Index (JALSH). Pivotal Fund Ltd (PIV), a property investment and development company, listed on December 8, followed a day later by Acsion Ltd, which swelled the number of real estate companies to 51 with a combined market value of about 544 billion rand.
Acquisition drive
Woolworths raised 10 billion rand in a rights offer at the end of September to help pay for David Jones Ltd, Australia’s oldest department store. Steinhoff sold 18.2 billion rand of stock in August and three months later South Africa’s biggest furniture company agreed to buy Pepkor Holdings (Pty) Ltd for 62.8 billion rand to gain discount clothing chains across Africa, the largest non-food retailer in Poland and Australia’s Best & Less.
The outlook for listings and capital raising depends on what happens with U.S. interest rates as foreigners account for 30 per cent to 40 per cent of trade on the JSE, Oosthuyse said. Global equities surged last week after the Federal Reserve pledged to be patient on raising rates. Volatility in the market helped lift equity trading values on the JSE to a record 53.7 billion rand on Dec. 18, the bourse said in an e-mailed statement last week.
Listings Pipeline
“We still do have a pipeline of listings to come,” Oosthuyse said. “A lot of it is going to depend on where the values are in the exchange and what the general economic sentiment is and how corporate leaders are looking at their own growth prospects.”
The FTSE/JSE Africa All Share Index dropped five per cent since reaching a record high at the end of July. Electricity shortages and strikes are hampering growth and the ability to create jobs in a nation where unemployment stands at about 25 per cent.
The National Treasury forecasts the economy’s expansion will slow to 1.4 per cent this year. Sub-Saharan growth, excluding South Africa, will probably average six per cent, according to International Monetary Fund estimates.
The JSE is in line to attract some interest from renewable energy companies with South Africa planning to triple electricity production from clean sources through a program estimated at $12 billion, Oosthuyse said.
Energy Space
“The whole renewable energy space and the energy space in general might be an interesting space for listings,” she said. “We’ve had a lot of companies and advisers approach us to talk about the ways that renewable energy equity investors can exit through listing or raise additional capital through a listing.”
The JSE was ranked first for a fifth consecutive year for the effectiveness of regulation and supervision in the Global Competitiveness Report issued by the World Economic Forum.
“We’ve got 8 trillion rand in assets of non-bank financial institutions; it’s almost twice the assets of the banks,” Oosthuyse said. “There’s a large pool of liquidity here.”