Cote d'Ivoire's bourse sees strong performance, joins MSCI Frontier Markets Index

Côte d’Ivoire’s capital markets are closely linked to the broader fortunes of the eight-member UEMOA, of which it is a member. The country is also home to West Africa’s regional stock exchange, the Bourse Régionale des Valeurs Mobilières (BRVM), one of the fastest-growing stock exchanges on the continent.

On the back of strong macroeconomic growth, regional equity activity has been increasing steadily over the past five years, with a strong expansion in the volume of transactions. Indeed, the number of shares traded on the BRVM increased from 31.6m in 2010 to 194.8m in 2016, a six-fold increase.

Nonetheless, the BRVM continues to face challenges common to emerging and frontier market exchanges around the world, including liquidity issues. Trading churn tends to be relatively low compared with advanced economy exchanges, a result of a high preponderance of sit-and-hold investors and a low amount of speculative trades. “The BRVM has little speculation, as the mechanisms are practically ignored by domestic investors,” Patrice N’Zi, general director of Phoenix Capital, told OBG. “More speculation – and thus movements on the exchange or transactions – would increase the BRVM’s liquidity.” In 2016 just five stocks make up over 50% of the market. That said, the BRVM remains one of the largest and fastest-growing stock exchanges on the continent, with bright prospects driven by a high-growth outlook for the expansion of Côte d’Ivoire’s economy in the coming years.

Structure

The BRVM was established in 1998 following an effort by UEMOA to merge its stock exchanges. The BRVM acquired the 35 equities listed on the former Abidjan Stock Exchange, which had been operational since 1976. The number of listed firms has since grown somewhat, increasing in 2016 from 39 to 43. The BRVM, though headquartered in Abidjan, runs satellite offices in each of the eight member states of the UEMOA. Trades are handled electronically and settled through the Central Depository and Settlement Bank (Dépositaire Central/Banque de Règlement, DC/ BR). The DC/BR, which operates a guarantee fund to insulate investors from counterparty risk, selected Ecobank, a Togo-based institution that is the largest pan-African bank, to handle cross-border transactions, in part as it was the only bank with operations in all eight UEMOA countries at the time of the BRVM’s creation.

The statutory regulator for equities and bonds is the Regional Council for Public Savings and Financial Markets (Conseil Régional de l’Epargne Publique et des Marchés Financiers, CREPMF) established in 1996.

A company wishing to list its shares on the exchange must have a minimum market capitalisation of CFA200m (€300,000). In 2015 it was announced that companies must float at least 20% of their capital, within a range of 2m to 10m shares (see analysis).

Capitalisation

Market capitalisation (equity) tripled between 2010 and 2015, a bull run that calls to mind a similar trend between 2005 and 2007. In 2007 market capitalisation was up to CFA3.7trn (€5.6bn), before dropping to CFA2.8trn (€4.2bn) in 2009 due to the global financial crisis. However, in 2010 the bourse saw a recovery, with capitalisation increasing to CFA3.5trn (€5.3bn). The 2011 Ivorian crisis forced a correction of 10.2% year-on-year (y-o-y), dropping to CFA3.2trn (€4.7bn). By 2015 it had doubled to CFA7.5trn (€11.3bn).

Equities continue to make up the majority of the exchange’s market capitalisation, but bonds have seen significant growth. In 2010 shares made up CFA3.5trn (€5.3bn) of total capitalisation, while bonds accounted for CFA523bn (€785m). The latter, however, experienced a 53% y-o-y increase between 2010 and 2011, increasing to CFA700bn (€1.1bn) of the total market capitalisation, while shares lost 8% in 2011. Bond issuance continued to rise steadily alongside shares in the subsequent years to reach CFA1.6trn (€2.4bn) in 2015, compared to CFA7.5trn (€11.3bn) in shares, a 39% y-o-y increase compared to 2014 bond levels. As of January 2017 the total capitalisation of shares on the bourse was CFA7.5trn (€11.3bn), while bond capitalisation totalled CFA2.5trn (€3.8bn).

The bond market has increasingly been tapped by the governments of Burkina Faso, Mali, Senegal and Côte d’Ivoire especially to meet their funding needs over the past decade. The market capitalisation of the regional bond market grew from CFA83bn (€124.5m) in 1999 to CFA1.14trn (€1.7bn) at the end of 2014. In 2016 the market capitalisation of the bond market increased by 58.9%, from CFA1.58trn (€2.4bn) to CFA2.51trn (€3.8bn), while at the end of the year a total of 41 regional and state bonds were listed on the bourse.

Equity Structure

Most equities on the bourse are for companies based in Côte d’Ivoire. Though equity offerings are diverse and multiple sectors are present, a handful of companies account for the majority of trading and capitalisation. The BRVM continues to be dominated by five firms – Sonatel, Ecobank, Onatel, SGBCI and Solibra – which account for over 50% of capitalisation. The largest company, Senegalese telecoms operator Sonatel, alone continues to hold close to 30% of market capitalisation, valued at CFA2.3trn (€3.5bn) as of June 2016. The second-largest company, Togolese Ecobank Transnational, itself accounts for nearly 8% of market capitalisation, with CFA577bn (€866m). Burkinabe telecoms operator Onatel comes in third with a market capitalisation of CFA460bn (€690m), followed by Société Générale’s Ivorian subsidiary SGBCI with CFA451bn (€676.5m). Ivorian brewer Solibra comes fifth with CFA334bn (€501m), followed by French logistics operator Bolloré’s Côte d’Ivoire-based subsidiary Bolloré Africa Logistics at CFA322bn (€483m).

The rest of the top 10 are made up of downstream petroleum company Vivo Energy Côte d’Ivoire (CFA277bn, €415.5m), French oil major Total’s subsidiary Total CI (CFA226bn, €339m), Ivorian power utility CIE-CI (CFA225bn, €337.5m) and domestic automotive retailer CFAO-CI (CFA221bn, €331.5m).

Indices

The BRVM hosts two main indexes on top of its sectoral ones. The BRVM-10 tracks the most traded stocks and is reviewed on a quarterly basis, while the BRVM-Composite covers all listed equities. As of beginning of January 2016 the BRVM-10 was composed of 10 listed companies: Ecobank Transnational (Togo), Sonatel (Sénégal), Onatel (Burkina Faso), Filtisac (Côte d’Ivoire), Total CI (Côte d’Ivoire), SGBCI (Côte d’Ivoire), Saph CI (Côte d’Ivoire), Uniwax CI (Côte d’Ivoire), CIE-CI (Côte d’Ivoire) and Bolloré Africa Logistics (Côte d’ Ivoire). PALM-CI (Côte d’Ivoire) was previously listed, but exited the index in January 2016. The newest additon to the index is Bolloré Africa Logistics.

The BRVM-Composite has proven to be the most stable of the two shares indexes, registering broader market performances, while the BRVM-10 has proven more volatile, registering stronger y-o-y fluctuations. The global financial crisis, combined with the local Ivorian civil conflict, caused a 13% drop in the BRVM-Composite in 2011 compared to 2010 levels, and the BRVM-10 dropped similar rates over the same period.

The markets began recovering the following year, with the BRVM-Composite increasing by 20% and the BRVM-10 increasing by 16%. After a strong year in 2013 – when both indexes grew, by 38% for the BRVM-Composite and 32% for the BRVM-10 – growth remained steady, if slower, with the BRVM-10 growing by 9% y-o-y in both 2014 and 2015, while the BRVM-Composite gained 12% in 2014 and 18% in 2015, reaching 304 points by the end of 2015.

Bourse Drivers

All sectoral indexes have grown steadily in recent years, marking a change from a significant decline in performance as a result of the Ivorian civil unrest and compounded by trailing factors from the global economic crisis. In 2011 indices across the board fell or were stagnant – with the exception of agriculture, which grew by 45%. However, by 2012 the board saw a steady rebound: the Industry Index gained 22% in 2012 and 56% in 2013 before slowing to 8% and 9% in 2014 and 2015. The Public Services Index gained 25% in 2012 before growing by 40% in 2013, at 16% for 2014 and 2015. The Transport Index saw even higher recovery rates, with 46% growth in 2012, 126% in 2013, 54% in 2014, and 26% in 2015. The gains in public services and transport are a result of Côte d’Ivoire’s efforts to improve transport and utility networks.

Agricultural equities have experienced contrasting performance, having seen growth of 103% in 2010 and 45% in 2011. In 2012 growth slowed to 8%, before contracting 7% in 2013, 33% in 2014 and 28% in 2015. The performance can largely be attributed to the poor agriculture season, where adverse weather conditions affected cocoa output (see Agriculture chapter).

During 2015 the strongest listed equity on the BRVM was Uniwax, which grew by 257.5% in 2015 compared to 2014. The second-highest perfomance was Bernabe Côte d’Ivoire, an industrial retailer and distributor specialising in steel and other industrial material, which grew by 142.45% in 2015 compared to 2014.

The third-highest performance came from Tractafric Motors Côte d’Ivoire, a leading cross-continental automotive sales and service company, which grew by 139.64% in 2015 y-o-y. The remaining top performers in 2015 were airline services company Servair Abidjan Côte d’Ivoire, which grew by 118.51% compared to 2014; telecoms provider Onatel Burkina Faso, which was up 114.29%; and Crown Siem, which posted 95.55% growth.

Brokers & Funds

There are 24 accredited brokerage firms in the UEMOA region, of which 10 are based in Côte d’Ivoire, five in Benin and in Sénégal, two in Burkina Faso, and one each in Mali, Niger and Togo. Côte d’Ivoire-based Phoenix Capital, which was accredited in 2011, was the most recent Ivorian brokerage to join the market, while Senegalese firms Everest Finance and ABCO Bourse, as well as Benin-based Africaine de Gestion et d’Investissement were the latest registered overall, gaining their accreditation in 2016.

There are two types of mutual funds on the market: fonds communs de placement (FCPs) and sociétés d’ investissement à capital variable (SICAVs). According to the CREPMF, 17 asset management companies were active as of 2016, with 60 FCPs. SICAVs have seen a far more incremental increase, from one to two during the first quarter of 2014. The most active asset managers by number of mutual funds as of end of August 2016 were CGF with 11, up from five as of April 2014, Ecobank with seven and Attijari with six. Société Ouest Africaine de Gestion d’Actifs has managed one of the two SICAVs since 2005, with the second one owned by Attijari.

Listings

As of early 2016 the BRVM expected as many as 12 new listings by 2021. One of these mooted initial public offerings (IPOs) was for a subsidiary of Morocco’s BMCE Bank Group, Bank of Africa (BoA) Mali; the IPO, which took place in May 2016, represented Mali’s first listing on the BRVM. Not long after, in September 2016, the CREPMF gave Burkina Faso-based Coris Bank permission to launch an IPO on the BRVM to increase its capital by 20%. These 1.25m new shares, listed in December 2016, represented a significant announcement for the BRVM, as Coris Bank, which was created in 2008, is one of the largest banks in Burkina Faso. Ivorian textile company Uniwax launched a CFA10bn (€15m) new share sale to finance its CFA12bn ($18m) 2016-19 expansion programme in September 2016. As part of privatisation efforts taken by the government of Côte d’Ivoire, a month later sugar producer Sucrivoire also launched an IPO, offering for sale 1.127m shares held by the state. With a total market capitalisation of CFA68.5bn (€102.3m), the company’s shares were listed on the BRVM at the end of December 2016.

In addition, an IPO from power and water company Eranove was on the cards in 2016. Launched in April 2016 and expected to raise €200m, the IPO was put on hold in May 2016 due to changes in Côte d’Ivoire’s energy regulations, which are expected to lead to greater competition in the power market.

Share-Splitting

Due to a lack of movement in the market and liquidity issues, the authorities have worked on mechanisms to enhance liquidity. One of these is share-splitting “Share-splitting does not impact the value of the listed company,” said N’Zi. “The number of shares is multiplied, while the value of the individual share is divided, so as to boost liquidity.” The CREPMF revised the regulation in 2012 to allow share-splitting in order to re-evaluate share values and make them more accessible to small as well as larger investors. Sonatel and Onatel conducted 1:10 share-splits, respectively, in November 2012 and November 2013.

Islamic Finance

Sharia-compliant debt, known as sukuk, is gaining momentum in the UEMOA region, in line with rising interest in West African markets from places like the Gulf. As of the end of August 2016 Séné- gal-based Taïba Titrisation operated sukuk OPCVMs on the BRVM. Four sukuk OPCVMs are currently active on the BRVM. In July 2016 the government of Côte d’ Ivoire emitted some CFA150bn (€225m) worth of sukuk, valued at CFA10,000 (€15) per share.

Prior to that, the governments of Sénégal and of Togo both issued CFA150bn (€225m) worth of sovereign sukuk at CFA10,000 (€15) per share in June 2016. The government of Niger also issued CFA38.8bn (€58.2m) in sovereign sukuk at CFA10,000 (€15) per share in August 2016. The BRVM is currently working on the launch of a sharia-compliant equity index with technical assistance from the Islamic Corporation for the Development of the Private Sector, the private sector funding wing of the Islamic Development Bank. Launching such an equity index would entail screening all companies listed on the BRVM for sharia-compliance. Nevertheless, while Islamic finance has gained momentum in 2016, its development pattern remains relatively unclear.

“Classic methods of raising capital remain very much in demand,” Marc Giugni, head of corporate and investment banking at Ecobank, told OBG. “There’s therefore no rush to rapidly develop Islamic finance, though it remains interesting as a means to raise capital from outside the UEMOA.” Indeed, this would open the market to funding opportunities from investors in Islamic finance-dominant countries such as Saudi Arabia and other GCC member countries.

Msci Frontier Markets

Thanks to its strong performance, in May 2016 it was announced that the BRMV would be included on the MSCI Frontier Markets Index effective from November 2016. Being part of this index means listed equities on the BRVM join a selection of equities from several other major Middle Eastern, Asian and African economies. As of April 2016, 121 companies were listed on the index and total market capitalisation reached $88.2bn. Seven companies listed on the BRVM are on the MSCI Frontier Markets Index: Senegal’s Sonatel, Burkina Faso’s Onatel and BoA, as well as Côte d’Ivoire’s SGBCI, Bolloré Africa Logistics CI, Total CI and BOA CI. Joining the index is an opportunity for the BRVM to increase its visibility and attract investors. According to local media, the BRVM expects the number of foreign investors active on the market to rise three-fold in the coming years following the inclusion of the BRVM on the MSCI index. The BRVM expects the number of foreign investors to increase from 60 to over 100 after November 2016, with foreign investors’ market share – particularly from funds in the US, UK and GCC countries – increasing from 25% of the total value of the BRVM to 30%.

Outlook

The IMF expects stable but strong economic growth in the UEMOA, with a 6.6% projected growth rate for the region’s GDP until 2019. Such forecasts support continued growth in the BRVM and strong investor appetite for equities as well as bonds. Public investment throughout the region, but especially in Côte d’Ivoire where investments in infrastructure and construction are expected to continue, will support this bullish market and entice investors to place their money in stocks linked to domestic consumption.

Bond markets – particularly for sovereigns – may be impacted by rising levels of state debt, with UEMOA’s total public debt having reached almost 45% of GDP. While this is considered sustainable, the risk of complications remains high. However, the overall outlook is bright, as the BRVM continues to examines ways to implement a sukuk equity index and with a number of new equity listings expected in the coming years.