Deutsche Bank sees initial public offerings and bond sales driving South African deals this year after a record 2017.
The country’s capital markets are “buoyant,” driven by global sentiment, and a “backlog” of IPOs that were due to happen late last year will now happen in 2018, Simon Denny, head of corporate finance for Deutsche Bank’s Johannesburg-based unit, said in an interview.
“Sentiment has swung around and I am bullish around business prospects for the year,” said Denny. “There is still lots of liquidity looking for a home. On the local side, asset managers are highly interested in new issues, although the focus remains value.”
Business confidence in South Africa is rebounding after Cyril Ramaphosa succeeded Jacob Zuma as head of the ruling African National Congress and president. The rand and bonds have rallied, buoyed by increased demand for emerging-market assets. The country’s economy could grow at 2.3% this year, which would be the fastest since 2013, according to Johann Els, head of economic research at Old Mutual Investment Group.
“South Africa remains a relative safe haven given its legal framework, good corporate governance and liquid capital markets, which allow investors to come in and out,” Denny said. “Foreign investors are telling us that they have seen this cycle before and are ready to come back into the market following Ramaphosa’s win. There is a lot of money still waiting on the sidelines.”
The value of share sales in South Africa jumped 34% in 2017 to $10.45 billion, boosted by Barclays Plc’s reduction of its controlling stake in Barclays Africa Group, even as the number of transactions declined to 35 from 41, according to data compiled by Bloomberg. Impala Platinum Holdings’s refinancing of $400 million of convertible bonds also lifted deal values. Deutsche Bank worked on both transactions.
Total bond sales last year jumped 20% to R179.6 billion ($15 billion) from 2016, with financial-services firms and real estate companies raising the most, the data showed.
Here’s what else Denny said:
“Mergers and acquisitions will continue to be challenging, especially local consolidation,” although there could be some deals in the mining, real estate and construction and engineering sectors.There will still be instances of companies looking to divest or expand outside the country. Deutsche Bank is working on doing more deals with Nedbank Group after cooperating on a black-economic empowerment transaction involving Exxaro Resources, a South African coal-mining company.
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