Activity is picking up on the nascent regional exchange

The regional stock exchange based in Gabon is beginning to see an uptick in activity. Since the first listing in 2008, the market has been dominated by bonds. This is in part a result of factors common across most African economies: limited transparency among eligible corporates, for example, and a preference to avoid diluting ownership – both of which limit the number of firms willing to list. Gabon also has a surfeit of liquidity in the banking sector, reducing the need for companies to turn to the capital markets.

However, 2013 saw the region’s first initial public offering (IPO) and subsequent equity listing on the exchange, and, according to local press reports, others are likely to follow suit in the medium term. Obstacles to further growth include the existence of a rival exchange in Cameroon and comparatively low levels of awareness regarding the opportunities on offer from financial markets; however, regional governments and market actors are working to eliminate the rivalry between the two stock markets as well as increase levels of awareness and understanding.

Regional Bourse

Gabon’s capital, Libreville, hosts the regional stock market for the Economic and Monetary Community of Central Africa (Communauté Économique et Monétaire de l’Afrique Centrale, CEMAC), namely the Central African Stock Exchange (Bourse des Valeurs Mobilières de l’Afrique Centrale, BVMAC). The exchange was established in 2003, following the creation of a financial market regulator for the region, the Central African Financial Market Supervisory Commission (Commission de Surveillance du Marché Financier de l’Afrique Central, COSUMAF) in 2001. To date there have been nine bond listings on the BVMAC as well as three private debt issues approved by COSUMAF, with a combined capitalisation of CFA448.3bn (€672.5m) at the end of 2013, or CFA390.3bn (€585.5m) excluding private placements. This was up from CFA219.6bn (€329.4m) at the end of 2012, pointing to a near doubling in the size of the market in 2013 alone and illustrating its rapid growth.

Listings

Market activity on the BVMAC effectively began in August 2008, when the Gabonese government listed a sovereign bond with a six-year maturity period resulting from a CFA81.5bn (€122.3m) debt issue it had undertaken the previous year.

A year later, in July 2009, the exchange saw its first listing by the private sector in the form of a CFA400m (€600,000) bond issued by Prix Import, a Gabonese retailer, with a maturity period running from 2009 to 2014. The following November the International Financial Corporation (IFC), the World Bank’s private sector arm, listed another five-year bond issue on the exchange, worth CFA20bn (€30m).

The next listing came in October 2010, when Gabonese fuel retailer Petro Gabon introduced a CFA7bn (€10.5m) bond – the first listing by an entirely locally owned company – a move that was followed five months later in March 2011 by the Central African Development Bank (Banque de Développement des États de l’Afrique Centrale, BDEAC), which listed its CFA34bn (€51m) bond issue from the previous year. The instrument is due to mature in 2017.

In October 2011 Chad became the second state in the region following Gabon to list a sovereign bond on the exchange, with a CFA100bn (€150m), five-year debt issue due to mature in 2016. Following the success of the initial listing, the Central African state returned to the market in 2013 with another debt issue, this time worth CFA85bn (€127.5m) with a coupon of 6% and due to mature in 2018. Both of the bonds are listed on both the BVMAC and the Douala Stock Exchange (DSX) in Cameroon (see below). In the case of the latter, around 70% of the subscription amount was raised in Cameroon.

In September 2013 the African bank BGFIB ank came to the market with a CFA80bn (€120m) debt issue, with a 5% coupon and a maturity date of 2020. The bond was listed on the exchange in early 2014. 2013 also saw the market’s first equity listing, by Société d’ Investissement pour l’Agriculture Tropicale (SIAT) Gabon.

Two more bonds have been issued and listed so far in 2014. These are a CFA10bn (€15m), seven-year issue by local leasing firm Alios Finance Gabon (a subsidiary of pan-African finance company Alios Finance), the subscription period for which ran between June 2 and July 31, 2014. The bond has a coupon of 6.25%. The issue marks the third time a private company has sought a debt listing on the exchange – though some other firms have previously issued privately placed (that is, non-listed) debt in the local market, attracted by lower costs and a reduced regulatory burden. Alios said it was launching the bond in order to meet growing demand for its services, in particular in the real estate and equipment segments. Also in June 2014 the African Guarantee and Economic Cooperation Fund (Fonds Africain de Garantie et de Coopération Economique, Fagace), a pan-African loan guarantee institution, launched a 5.25%-coupon, CFA40bn (€60m) debt issue that is due to mature in 2019. Fagace’s bond will be listed on both the BVMAC and Cameroon’s DSX, while Alios’s issue is listed on the BVMAC only.

At least one more bond issue is in the pipeline for 2014; the BDEAC is due to return to the regional debt market in December with a CFA35bn (€52.5m) issue with a 4.5% coupon and a maturity period of seven years, to be listed on both the BVMAC and the DSX.

The three planned bond issues in 2014, the most of any year in the history of the exchange, point to rising levels of market activity and industry figures say that these are likely to grow further in coming years. “The prospects for further bond issues are good as firms often have difficulty getting funds from banks. In particular there is enormous potential from some countries that have yet to go to the market such as Guinea and Congo,” Léandre Bouanza Mombo, CEO of BGFIBourse, told OBG. “However, there is a need for more companies offering advisory services to firms considering a listing; partnerships between local companies offering such services and major international firms in particular would help to develop the market.”

Equity Listing

Up until 2013 all of the securities to have been listed on the BVMAC were bonds. Industry figures cite a number of issues that have slowed the development of an equity market.

“The main obstacles have been the lack of a local stock market culture and the existence of two exchanges in the CEMAC region,” said Danielle Bunduku-Latha, chief of staff at COSUMAF, referring to the rival DSX in Cameroon. “Regulatory requirements for IPOs regarding good governance, robust accounting standards and so on can also be an obstacle to equity listings,” François Binet, head of trading floor operations at BVMAC, told OBG. “However, the advantages, which people do not always readily understand, include the fact that a listing proves the vitality of a company and that such regulations will also ensure its continued good governance,” he added.

Although activity was previously limited to the bond market, 2013 saw the region’s first IPO by Gabonese firm SIAT Gabon, a subsidiary of Belgian agribusiness company SIAT that was created through the privatisation of several local agribusiness holdings ( AgroGabon, Hévégab and the Nyanga cattle ranch). The company floated a 30% stake of its capital, comprising a total of 1.17m shares initially valued at CFA28,500 (€42.80) each, in March and April, and they were then listed on the BVMAC in September 2013.

According Bouanza Mombo of BGFIB ourse, which organised the IPO, 852 investors, most of whom were from Gabon, bought shares in the firm during the period, a figure he described as unprecedented. “Most other market operations on the BVMAC have had 20 or so subscribers,” he told OBG. “Launching the equity exchange was a great success for the BVMAC,” said Binet. “It demonstrated the vitality of the market and allowed us to send a message to companies that the bourse is fully up and running and is a viable option for long-term financing.”

The publicity surrounding the listing is already attracting interest from other firms. “The SIAT IPO has raised awareness regarding the bourse’s potential and now other firms are approaching us regarding the possibility of raising funding on the exchange,” said Bouanza Mombo. “The most promising industries for further equity listings are strongly regulated sectors such as banking, insurance and telecoms, as firms operating in these areas are by default well-organised and managed, enabling them to meet the bourse’s regulatory requirements. Sectors involving large revenues such as energy are also promising, although the maturity periods involved in energy projects, for example, tend to be long, and it can also be difficult to persuade firms with access to international financing to go the local market.” Bouanza Mombo added, however, that more efforts to increase awareness and understanding of equity markets are needed.

Secondary Market

As of June 30, 2013 there were five market brokers licensed by COSUMAF: BGFIB ourse in Gabon, EDC Investment Corporation and BMCE Capital Cameroon in Cameroon, and AfricaBourse Congo and La Financiere in the Republic of the Congo.

Although listings are occurring, secondary market activity has traditionally been comparatively limited, in part because most listings are bonds, which generally tend to generate less trading than equities, and the bulk of the investors follow a sit-and-hold approach.

Nevertheless, the secondary market has seen exponential growth in recent years. In 2012 (the latest data available from COSUMAF) there were 28 transactions on the exchange, worth a combined CFA22.95bn (€34.4m), up substantially from 2011, when 12 transactions worth CFA734.8m (€1.1m) took place. Some 90% of orders in 2012 came via EDC Investment Corporation in Cameroon. Industry figures say that further growth will take time. “Liquidity is a problem and the prospects for a major improvement in secondary market activity in the near term are limited,” said Bouanza Mombo. However, he argued that growing activity in the primary market could help to improve the situation. “There is a need for more choice, and more securities being listed on the market should give rise to increased liquidity,” he told OBG.

COSUMAF has put regulations in place for the establishment of mutual funds, which could help encourage secondary activity as these funds frequently seek to rebalance their portfolios. However, unsurprisingly in light of the low number of securities currently available on the exchange, no providers have so far applied for a licence to do so, reinforcing the need for more listings before trading can take off.

Gabonese Eurobonds

As noted above, the Gabonese government kicked off activity on the BVMAC with the listing of a CFA81.5bn (€122.3m) sovereign bond on the exchange in 2008. Recently it has faced calls to issue more listed debt on the regional market to help invigorate its growth; for example, in May 2014 Pascal Houangni Ambouroué, the CEO of the BVMAC, proposed to the government that it finance its planned “social pact” – an initiative aimed at improving social development – via a CFA200bn (€300m) bond that would be listed on the exchange.

However, Gabon’s status as an oil exporter has also allowed it to tap international markets, and the great bulk (by value) of its recently issued debt has taken the form of Eurobonds. Most recently, in December 2013 the country issued a $1.5bn Eurobond and with a maturity period of 10 years and a coupon of 6.375%, which it used to conduct a partial buyback of outstanding debt from a $1bn Eurobond issue in 2007 (which itself was used to repay some of the country’s Paris Club debt) at a more favourable interest rate.

The 2013 Eurobond was part of a wave of sovereign bonds launched by a number of African states that year with a combined value of more than $8bn, issued as countries in the region sought to take advantage of the strong appetite for emerging market debt and the resulting low interest rates.

Gabon’s 2007 Eurobond, which was issued with a coupon of 8.2%, was yielding around 3.5% at the time of the 2013 Eurobond launch, despite the country having previously been late making two interest payments as a result of a legal dispute. Both Fitch and Standard & Poor’s currently give the country a sovereign risk rating of “BB-”, three notches below investment grade, with a stable outlook.

Rival Markets

One challenge to the development of the Gabon-based BVMAC is the existence of a regional rival in the form of the DSX in neighbouring Cameroon, a fellow member of CEMAC. Although the BVMAC is supposed to act as a regional exchange, Cameroon’s financial regulator, the Financial Markets Commission (Commission des Marchés Financiers, CMF), has worked to block the BVMAC’s activities in the country in the case of securities that are not listed on both stock exchanges.

For example, the CMF warned Cameroonian investors against buying shares in SIAT Gabon when it listed on the BVMAC in 2013 and said that promotional activities in Cameroon for the IPO were illegal, as SIAT had not received a licence from the CMF. “The success of the SIAT IPO was partly mitigated by Cameroon’s refusal to participate because it hosts a rival market,” said Binet. The CMF issued a similar warning regarding the bond issue from BGFIB ank.

Such rivalry is particularly damaging to the development of the stock exchange in light of the fact that that Cameroon has one of the largest appetites among countries in the CEMAC zone for investment in regional securities. For example, as noted above, around 70% of subscriptions to Chad’s second bond issue – which was listed on both the DSX and the BVMAC – were from Cameroonian investors.

“The rivalry between the two exchanges needs to be eliminated to encourage the development of regional capital markets, as the regional economy is not suitable for two exchanges, even if one of them is effectively a local one,” said Binet.

However, there are encouraging indications that the problem could be resolved in coming years. In October 2013 Théodore Edjangué, the chairman of the CMF, said that the two exchanges would be integrated by 2015 or 2016, and in July 2014 a regional piloting committee established to seek practical means of ending the rivalry between the two institutions held its first meeting in Yaoundé in Cameroon.

The committee is presided over by the governor of the Bank of Central African States, and it is composed of the region’s six finance ministers as well as the presidents of the two rival exchanges and their respective regulators. “The political authorities are intent on resolving the issue, so the prospects for putting an end to the rivalry between the two exchanges are positive,” said Bunduku-Latha. Other industry figures outside of the commission echoed her optimism. “COSUMAF has done a good job of elucidating the various possible solutions to the problem, and I am confident a solution will be found soon,” Bouanza Mombo told OBG.

Encouraging Development

Those involved in the sector say that in addition to eliminating the rivalry between the DSX and the BVMAC, there are other steps regional governments could take to encourage the development of the region’s capital markets.

“There is a need for more communication as well as additional incentives to list, such as tax exemptions,” said Binet. “Some countries such as Gabon already have these in place, but it would make sense for incentives to be unified across the CEMAC region, which they currently are not,” he told OBG.

Governments could also do more both to encourage listings and undertake market operations themselves. “Regional governments need to do two things in order to develop the market,” argued Bouanza Mombo. “Firstly, politicians need to push firms harder to open up capital and put more regulations in place to encourage them to do so, which is an approach that has worked elsewhere but so far hasn’t really happened in Central Africa. Secondly, regional states could boost the development of the exchange by seeking to meet more of their own financing needs locally rather than on international markets. Chad’s recent bond issues are encouraging in this respect, but more such listings would really help to invigorate the market.”

The market regulator has taken some of these suggestions on board. In order to raise greater awareness and educate local investors regarding financial markets in general and the bourse in particular, COSUMAF has made the holding of educational events such as seminars and workshops one of its primary objectives.

According to Bunduku-Latha, the commission also lobbies regional governments to hold privatisations via the stock exchange and to put in place further financial incentives to encourage its development. In addition, the BVMAC is working on the launch of a promotional “caravan” to inform investors in the region of the opportunities provided by the stock market.

Outlook

Although the regional market is still in its early days, the prospects for its long-term development are broadly positive. “Six years is not a long time, so it is understandable that the stock exchange is still at a comparably early stage of development,” said Bouanza Mombo of BGFIB ourse. “A market needs 20-25 years to develop properly. However, things are starting to move in the right direction.”

The launch of the exchange’s equity compartment in 2013 is particularly encouraging. “SIAT’s listing will without a doubt encourage other firms to come to the market,” said Bunduku-Latha. However, in the near term, industry figures say that bonds are likely to remain the bread and butter of the exchange, with strong prospects for further listings. “The listings pipeline is likely to be dominated by bonds rather than equities,” said Binet. “I can say that without any hesitation that the outlook for the regional bond market is very good.”