Côte d’Ivoire strengthens capital markets governance

The much-anticipated third board of the Bourse Régionale des Valeurs Mobilières (BRVM) that is dedicated to small and medium-sized enterprises (SMEs) was launched in 2017. With this new compartment the aim is to provide smaller companies – which account for around 80% of the economic structure of the UEMOA – access to long-term financial instruments and help them diversify capital to expand and boost their growth.

Financing

At the launch of the board in December 2017 officials of the BRVM said the new board was meant to help address the financing issues faced by many SMEs in West Africa. Smaller companies regularly complain about difficulties obtaining loans from banks. For their part, lenders blame SMEs for their poor governance, saying the documentation produced, including financial statement, often lack reliability.

“The interest of an SME board is two-fold: for the company, it is an opportunity to raise funds and improve visibility,” Kadi Fadika-Coulibaly, managing partner at independent stockbroker, Hudson & Cie, told OBG. “For brokers and investors it means that SMEs will get a chance to improve their governance, becoming stronger. The board may also be an alternative to financing, especially since the new regulations are making banks even more adverse to risks.”

Requirements

Taking into account the specific situation and vulnerabilities of SMEs, the listing requirements for the third compartment are less stringent than the other two boards. The minimum float has therefore been reduced to 10%, compared with 20% for the first two compartments, while companies are required to have a minimum social capital of CFA10m (€15,000) and to be active – thus having certified financial statements – for at least two years. Specific requirements have been added, namely that SMEs willing to be listed need to have a three-year business plan and a sponsor.

Nevertheless, some market observers say that only the largest and most formalised SMEs will be able to qualify. “For a company, listing on the exchange is a consecration. You show you are transparent and have strong governance. It provides natural publicity, allowing you to develop negotiating power, especially with banks,” Omo-Délé Egué, former director-general of NSIA Finance, told OBG. “If a company already struggles to get financing from banks or an investment fund, it will be complicated to list on the exchange.”

Elite Programme

To help companies get prepared for an eventual listing, the BRVM launched a programme aimed at strengthening their capacities. The scheme, known as Elite BRVM Lounge, was developed in partnership with the London Stock Exchange and is eligible for companies with a minimum annual turnover of CFA500m (€750,000) among other requirements. The first group of 10 firms took part in the two-year programme launched in March 2018. The selected companies – from Benin, Burkina Faso, Côte d’ Ivoire, Mali and Togo – operate in various sectors of the economy, including distribution, hospitality, financial services, construction and IT. A second wave of SMEs was expected to join the scheme in the short term. The BRVM said it was expecting the first two listings to come from the distribution and IT sector. As of December 2018, no initial public offering had yet been launched.

Private Equity

In the meantime the exchange is also looking into private equity funds – which, it says, are a transition channel between the bank and capital market financing – to develop the SME compartment. The BRVM is in discussions with a number of funds, including Tunisia’s AfricInvest, Mauritius’ Adenia Partners and US-based Emerging Capital Partners, to encourage them to list companies when they exit an investment.

In September 2018 the bourse signed a partnership agreement with private equity fund Enko Capital, which plans to set up a fund of CFA50bn (€76.2m) to invest in companies willing to be listed. The London-based fund has already approached companies that are part of the BRVM Elite Lounge programme. The private equity sector has risen from two funds in 2008 to 15 in 2017.