Many corporates from other African countries are currently under-leveraged and can tap into the SA debt markets for long-term finance, especially for infrastructure projects


Helping companies with regard to corporate debt is something the JSE is well positioned to do – in 2012 and 2013, it was the fourth-largest World Federation of Exchanges member bond market in the world in terms of value traded.

Many African companies make use of short-term debt finance. According to Tamsin Freemantle, the JSE’s Business Development Manager: Issuer and Investor Relations, a more viable option ‘is for corporates in Africa is to leverage the South African debt markets’.

She says the JSE has large numbers of foreign investors who use the bond market, and together with SA institutional investors, the bond market allows corporates access to a very significant pool of debt capital. In addition, the need to comply with the Basel Convention gives rise to many African countries currently increasing the capital requirements of their banks in order to comply. ‘This means that short-term debt finance for corporates will become less available and turn debt markets into an alternative source of funding.’

Sovereign debt is another area where the JSE would like to partner with African governments to provide an additional capital-raising platform, says Freemantle, pointing out that the exchange already has Namibian sovereign debt listed on the SA market.

‘We see the JSE as an important platform for other African countries to list sovereign debt. Capital requirements and infrastructure development on the continent are enormous.

‘These all need long-term finance to facilitate economic growth in Africa and we believe that the many African countries that issue debt offshore in euros and dollars can very successfully use the JSE’s deep pools of capital as an alternative funding source.’ She says that this would raise the capital the region needs – for Africa, in Africa.

There is little doubt regarding the continent’s growth aspects. The recently released PwC Valuation Methodology biennial survey details general deals activity in African markets, emphasising the interest in infrastructure development.

The amount spent globally on infrastructure is expected to grow from $4 trillion a year from 2012 to $9 trillion annually in 2025, says Jan Groenewald, valuations and economics leader for PwC Southern Africa, in a press release.

Infrastructure was included in the PwC survey, in which the views of nearly 80 financial analysts and financiers worldwide were canvassed. The questions relate to general deals activity in African markets – the countries and industries that have attracted the most investor interest on the continent and the challenges faced when performing valuations in local markets.

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‘Infrastructure assets have a unique set of characteristics that set them apart’

‘The amount and propensity of investment in capital projects in Africa, both by the public and private sectors, have made the valuation of infrastructure projects an area of growing importance. Infrastructure assets have a unique set of characteristics that set them apart from traditional equity or debt instruments, requiring special considerations.’

Some 70% of respondents value infrastructure investments using a discounted cash-flow methodology, while a significant number of valuations are also being carried out in respect of African targets for local investors in the same country. One change worth noting is the rise in interest from pan-African investors in African opportunities.

Regarding deal-making, the survey shows an increase in deals activity across the continent. In 2012, 6% of respondents had considered more than 20 transactions on the African continent. This number increased to 23% in 2014, and may also be a result of the general improvement in deal activity post the 2008 recession. The rise is most pronounced in the Southern African market.

Respondents also reported a high level of activity in most major markets across East Africa, West Africa and Southern Africa. A wider range of states are being considered and the level of activity by industry is wider than before.

‘This may be an indication of the increase in investor interest as the profile of investors has also widened,’ says Groenewald. ‘The current edition provides further information for investors to consider when valuing opportunities on the African continent.

‘As formal markets mature, investment analysis will become easier and this in turn is likely to spur continued growth in deal activity.’

By Louise Brougham-Cook
Image: Fredrik Broden/