African firms eye London Stock Exchange to raise capital

The number of African-focused companies listing on the London Stock Exchange (LSE) is increasing as firms seek to raise capital beyond their home borders. Research by global law firm Baker & McKenzie shows there were 10 Africa-related initial public offerings (IPOs) on the LSE in 2013, more than double the previous year.

London’s Alternative Investment Market (AIM), a market for smaller companies, is increasingly emerging as an exchange of choice for natural resources businesses.

Nigerian oil exploration and production company Lekoil listed on the LSE last May. Another Nigerian oil company, Seplat Petroleum Development, is expected to list in London this year.

Other Africa-focused natural resources companies listed in London include African Barrick Gold, African Minerals, African Potash, Eland Oil & Gas, Afren, Heritage Oil and Mart Resources.

Africa is experiencing a natural resources boom with exploration and development of gold, diamonds, titanium and oil and gas ongoing in most parts of the continent.

“[Companies] are… no longer limiting capital-raising options solely to their home jurisdictions. Issuers and investment banks are increasingly weighing the often substantial benefits of listing abroad,” says Amar Budarapu, chair of Baker & McKenzie’s global securities practice group.

The largest Africa-related listing in London last year was ex-Barclays chief Bob Diamond’s new investment vehicle which listed on the LSE’s Main Market. The $325m Atlas Mara vehicle is expected to buy up African financial services companies.

There are more than 100 African companies listed in London, the majority of them on the AIM.

IPOs in Africa to increase

IPO or stock market launches on African exchanges are also expected to increase in 2014 after a year of less activity. US investment banking firm Goldman Sachs recently predicted a wave of sub-Saharan IPOs as private equity companies seek exits and investors line up to buy into new offerings.

Africa has 23 stock exchanges of which South Africa’s Johannesburg Stock Exchange (JSE) is the largest with over 400 listed companies and a combined market capitalisation of about $900bn.

Although capital raised in cross-border IPOs makes up roughly 20% of the global IPO market, Baker & McKenzie predicts that by 2018 they will account for nearly $1tr and more than 60% of all capital raised by IPOs.

“The question is going to be where that capital flows to. London, Hong Kong and New York remain the global financial centres of choice for now, but they face increasing competition from emerging regional hubs such as Johannesburg for sub-Saharan Africa and Dubai for the Middle East,” says Budarapu.