Gabon's companies look to the exchange for funding

The country is home to the Stock Exchange of Central Africa (Bourse des Valeurs Mobilières d’Afrique Centrale, BVMAC), which has been operational since 2008 and is the regional exchange for the CEMAC economic bloc. The market has seen only light activity, in particular as regards equity listings. In its 2014 Article IV Consultation for Gabon published in February 2015, the IMF described the regional bond market as having “limited depth and short maturity profiles” and able to “only meet a limited amount of domestic financing needs”.

Trading levels also remain low, although they appear set to grow substantially in 2015. However, 2014 saw a record number of listings and the market authorities are working on various initiatives in order to help the exchange develop.

Market Overview

In total 10 securities have been listed on the BVMAC since its inception, starting with a Gabonese government debt issue in 2008. Nine of the securities listed to date have been bonds, with just one listing taking place on the equity exchange so far, in the form of a share issue by agribusiness firm SIAT Gabon in 2013, the local subsidiary of Belgium’s Société d’ Investissement pour l’Agriculture Tropicale. The exchange’s early years saw a consistent pipeline of entrants – two bonds were listed in 2009, one in 2010 and another two in 2011. Subsequent years saw a slowdown, with no securities listed in 2012 and just one in 2013, namely SIAT Gabon’s equity stake.

Looking Up

However, since then there has been an uptick in primary market activity, with 2014 witnessing a record three new listings. The first of these came in February, when a bond issued by the government of Chad the previous year was listed – the second Chadian bond to be traded on the bourse. In total the Chadian government raised CFA31.95bn (€47.9m) of debt through the issue, 77% of which was taken up by banks. The bond has a coupon of 6% and a five-year maturity period. Next came a CFA69bn (€103.5m) bond also issued in 2013 and listed in June 2014, this time by Gabon-headquartered regional financial group BGFI Holding. The bank had been seeking CFA80bn (€120m) in funding, but the bond, which has a maturity period of seven years and a coupon of 6.25%, was slightly undersubscribed, likely in part due to local economic factors such as reduced cash flow at some institutional investors and other economic operators following a decision by the Gabonese government to suspend debt repayments during the first half of 2014. Around 79% of subscriptions to the security were from local investors in Gabon.

On the Market

Then in November 2014 non-bank lender and leasing company Alios listed a CFA6.36bn (€9.54m), seven-year bond with a coupon of 6.25% on the exchange. As with the BGFI bond, the security was undersubscribed. The firm had been seeking to raise CFA10bn (€15.0m) in funding, but faced local economic challenges. “Investors had problems with cash flow in 2014 because of issues such as the government’s debt repayment freeze,” Faissal Chahrour, CEO of Alios Finance Gabon, told OBG, adding that 96% of the bond’s subscribers were banks and insurers. Alios had previously issued private debt on the local market. However, this latest issue represented the first time it has listed a bond on the exchange. “The market is still somewhat slow, with many institutions suffering from a lack of liquidity, so it will be some time before we return to it,” he said.

However, Chahrour added that Alios will definitely be returning at some point in the coming years as more promising prospects appear. He explained, “Previously, we were refinancing from banks, which represent our competition, and the rates were not very attractive. Furthermore, it is also difficult to get long-term bank loans, while the bond issue will allow us to issue longer-term loans of our own.”

One listing has taken place so far in 2015, namely that of a 5.25% five-year bond issued by regional finance body the African Guarantee and Economic Cooperation Fund listed in late June. The bond had been issued in June 2014, when the fund raised CFA40bn (€60m) in financing. Further listings are also in the pipeline, notably several sovereign debt issues. The Gabonese government is scheduled in August 2015 to list a second sovereign bond on the exchange, following the launch in March 2015 of the first in a series of bond issues it intends to make. Pascal Houangni Ambouroué, director-general of the BVMAC, told OBG that he believed Chad would also soon return to the market with a third debt listing, most likely in 2015 – the Chadian government reportedly seeks to raise CFA130bn (€195m) in sovereign debt over the course of the year – and that fellow CEMAC member Equatorial Guinea would likely follow suit with a bond listing in 2016.

Equity Market

There has only been one listing on the equity exchange to date, the 2013 issue of agro-industrial firm SIAT Gabon shares. Houangni said that its development would take time. “For the equity market to take off, companies seeking to list need to be able to respect various best practice and corporate governance criteria, which in turn requires an improvement in the regional business environment,” he told OBG, adding that it would take around a decade for this to improve to the extent needed for a well-developed equity market.

Marcel Ondele, secretary-general at the regional capital markets regulator, the Oversight Commission for the Central African Financial Market Supervisory Commission (Commission de Surveillance du Marché Financier de l’Afrique Centrale, COSUMAF), said that another barrier to equity listings was the fact that local business owners were often reluctant to dilute their ownership share in their firms by opening up their capital. “Many companies still are not well-informed about opportunities presented by the market,” he told OBG. However, he added that the development plan on which COSUMAF is working would look in depth at how better to persuade firms to enter the market.

Despite such obstacles, industry figures remain on the lookout for further candidates for the share market as further listings are likely in coming years. “Since the SIAT Gabon listing more companies have been coming to see us to discuss a possible entry onto the market of their own,” said Houangni, adding that he was hopeful that another firm, a hotel operator, would list on the exchange in 2015 and that the market was seeking to also persuade Gabon-headquartered regional banking group BGFIB ank to list in the near future. “BGFIB ank has already demonstrated their interest in the exchange by listing a bond in 2014, and we are encouraging them to now open their capital to the market,” said Houangni. The firm does appear open to an eventual listing. Henri-Claude Oyima, BGFIB ank’s CEO, told Bloomberg in January 2015 that the bank was “considering” a listing on the BVMAC by 2020, as well as a listing on Cameroon’s Douala Stock Exchange (DSX).

Another option to boost the equity listing pipeline would be to relax current regulatory requirements to allow riskier investments than are permitted at present. “Investors in some sectors such as forestry are seeking to exit companies with cash-flow problems, and brokers have shown interest in organising initial public offerings to allow them to do so. However, this is currently not possible as companies need to be in good financial health and to have registered at least three consecutive years of profit in order to be able to list,” Houangni told OBG. “One potential answer may be the creation of another exchange with less stringent listing criteria.”

Development Efforts

The authorities are undertaking a number of initiatives in order to help the market grow. Prominent among these is a study being worked on by COSUMAF, with the support of the World Bank, to realise BVMAC’s potential. Speaking in April 2015, Ondele told OBG that the study was due to be completed before the end of the year. “The objective is to look at all the bottlenecks and other problems that need to be addressed in order to develop the market,” he told OBG, adding that the study would be accompanied by a medium- to long-term action plan identifying the necessary steps to attract more listings. It will also be followed by a conference bringing together market authorities and firms targeted under the action plan.

Houangni told OBG that in order to further boost the development of the BVMAC, the market authorities had approached the government to suggest that large companies operating in the region should be required to list 5% of their equity (3% in the case of state-owned firms) on the exchange. “There is a need for the state to help stimulate the development of the market, and such listings would also help raise regional awareness of the companies in question,” he said. However, he added that the government had resisted the proposal for the time being, calling on the exchange to instead first identify 10 large companies willing to list voluntarily.

Rival Markets

As an integrated financial market, CEMAC member countries are supposed to share a single exchange, but that has not been the case for the past 14 years. Despite the regional nature of the BVMAC, Cameroon established the DSX in 2001, which has also sought to attract debt and equity. Ondele said that the issue had to be resolved in order for regional capital markets to properly get off the ground. “A market that can make a real contribution towards financing regional development will not emerge without first addressing the problem,” he told OBG.

Despite numerous discussions over the issue between regional authorities, little progress has been made. However, Houangni said a possible solution would be to create a single regulatory framework and pricing system, while allowing for the continued existence of both markets. He told OBG, “The challenge is not so much the existence of two exchanges but rather the fact that companies need permission from both COSUMAF and Cameroon’s market regulator if they want to be listed on both exchanges. Bringing the two markets closer together from a regulatory standpoint could therefore work as an alternative solution to a merger.”

Houangni added that such a regime – under which Cameroon maintained a locally based exchange – could complement plans for the Libreville-headquartered BVMAC to open local branches in each of the CEMAC states, allowing companies to list locally in their own countries (though sovereign bond listings would still take place on the main exchange in Libreville). He told OBG that the BVMAC was currently in negotiations to open the first such local branch in Chad, with a target date of 2016.

Trading

The total value of trading on the BVMAC in 2014 stood at CFA11.1bn (€16.65m), down from CFA18.9bn (€28.35m) the previous year. However, the value of transactions appears set to grow in 2015, having reached CFA4.9bn (€7.35m) for the year to February 24 alone, according to the latest available data from the BVMAC. The most heavily traded security by far in 2014 was the first bond listed by the government of Chad, accounting for 85.5% of total transactions. The only other securities to be traded during the year were a bond listed in 2011 by the Banque de Développment des États de l’Afrique Centrale, which accounted for almost all of the remaining transactions, and SIAT Gabon shares, which made up a mere 0.01% of the total. However, trading in SIAT Gabon picked up in early 2015, with the company accounting for almost all (97%) of trading in the period to February 24.

Trading on the market is dominated by two brokers, namely EDC Investment and BGFIB ourse, which together accounted for all transactions in 2013. However, new players are also entering the market. In 2013 Congolese firm La Financière received a brokerage licence, while another Congolese company, LCB Congo, has applied for one.

“The entry of these firms demonstrates both that they believe the prospects for the development of the market are good and that Congolese companies have long-term financing needs that are not being met by banks and could be fulfilled by the stock exchange,” Houangni told OBG.

Outlook

Early indicators suggest that transactions on the BVMAC will grow significantly in size in 2015. The BVMAC is set to see further listings in coming months and years, in particular of sovereign debt issued by CEMAC member states. Several private firms have also indicated an intent to list both debt and equity shares in the near future, though the bond market is set to remain dominant in the coming years and the establishment of a liquid equity exchange will depend on a variety of factors such as the development of a local stock exchange culture and improvements in the business environment. Whether the market can maintain the pace of listings experienced in 2014 is as yet unclear. However, there are a number of initiatives being put in place by the authorities to develop the BVMAC.