OBG talks to Pierre Vandebeeck, Chairman and Managing Director, Société d’Investissement pour l’Agriculture Tropicale (Siat)

Interview: Pierre Vandebeeck

What were the main factors in listing Siat on the Central African Stock Exchange (Bourse Régionale des Valeurs Mobiliéres d’Afrique Centrale, BVMAC)?

PIERRE VANDEBEECK: In 2004, a convention development was signed under the condition that Siat Gabon would be 100% controlled by Siat Belgium, yet, when ready, it would open up its capital to local investors. Today, through this initial public offering (IPO), the company has complied with the original agreement. Regarding returns on investment, there are always risks linked to the market structure, though investors should be confident of Gabon’s agribusiness development. Selling existing shares is one way to increase the participation of local investors. With Gabon aiming to become an emerging market, the private sector is here to trigger the process. To this end, having many shareholders involved in a company is the best insurance it can have, as it minimises and diversifies the risks of failure.

To what extent can the challenges of going public in the Central African region be overcome?

VANDEBEECK: Administrative procedures can hinder the process of going public. Going through all the governmental bodies is time consuming, yet necessary to ensure a smooth IPO. For instance, preparing an IPO in Nigeria can take three months, while in Gabon it can take as long as three years. Furthermore, while the BVMAC should be a regional and united stock exchange, certain countries within Central Africa do not recognise the overriding authority of the Central African Financial Market Supervisory Commission. The more stable the market is, the better it would be, though unfortunately not all governments within the Central African region have realised that. Nevertheless, now that the path is clearer, many other companies are expected to go public. The Central African Economic and Monetary Community needs to emphasise greater harmonisation of its stock exchange, as only then can a strong and viable stock market emerge. On this level, ECOWAS is more advanced. At a corporate level, when going public, new shareholders might be looking more closely at managerial details than before. Companies must therefore be transparent and increase communication regarding their perspectives, objectives and results. Yet, as long as the company is well governed, there is no reason to fail throughout the process of going public. Moreover, on fiscal grounds, there are already advantages in terms of taxation. Listed firms pay less tax.

In what way does the commodity price volatility affect market capitalisation?

VANDEBEECK: By looking at patterns over the last 20 years the volatility of commodities markets is evident. History shows that rubber prices have ranged from between €3.88 and €3884, and palm oil prices ranged between €155 and €1554. Clearly, when your company is a commodity producer, those variations impact immediately on value, market capitalisation and profitability. Agribusinesses that depend on loans that are not properly leveraged should reconsider their financial strategy in order to avoid liquidity issues. Companies cannot afford to have a high debt-to-equity ratio; it is generally recommended to have around one-third debt and two-thirds equity.

Over the long term, commodities will become scarcer due to rising population numbers, higher standards of living, land restriction and environmental issues. As such, there will be an imbalance between demand and supply, which is good for profitability in agribusiness.

How can capital markets finance agribusiness?

VANDEBEECK: There has been a lack of interest among banks in financing projects over the long run, especially agricultural projects. A green field project, of which the cash flow becomes positive only 12 years from now, will not attract the attention of banks. Project financing must therefore be done with internally generated funds and with capital from shareholders. As such, going public can be seen as a solution to raising capital and finances in agricultural development.