Debt raised in Africa in 2021 points to possible economic turnaround

by ashley

Despite the ongoing health and economic impact of Covid-19 worldwide, PwC’s annual Africa Capital Markets Watch report shows that African markets have continued with a modest recovery through 2021, reflected in higher values of non-local corporate, sovereign and supranational debt raised during the year. Average issuances were larger than the prior year, with 94 issuances valued at $47.5 billion (2020: 81 issuances worth $28.5 billion).

Global investors continue to assess the repayment burden on African sovereigns, which was exacerbated by the pandemic, leading to higher levels of indebtedness. Concerns about African sovereigns’ ability to repay debt remain, with all African sovereigns issuing foreign-denominated bonds in 2021 experiencing budget deficits sometimes as high as 8% of GDP. However, global investors seem undeterred, with several issuances being oversubscribed by more than three times.

Despite economic frailty, several African issuances attained an improved coupon rate in comparison with their previous issuances. Cameroon’s Eurobonds issued in 2021, as one example, had a coupon rate of 5.95% – a marked improvement on the country’s 9.5% Eurobonds in 2015.

African IPO activity below global trends

While there was a global surge of Initial Public Offerings (IPOs) on the world’s exchanges, African companies seem to have systematically shied away from equity markets. The reduction of IPOs and capital raising in Africa throughout the year indicates that the continent may be falling behind the international market’s ability to leverage the private sector to create investment and wealth.

Sub-Saharan Africa reported a reduction of around 73% in equity capital raised from the prior year.

African equity capital markets (ECM) activity continued its downward trend, with declines in value and volume down by 28% and 23% respectively from the prior year. This represents the lowest ECM activity in the last five years.

Fast-growing tech companies in major African markets continue to source growth capital from outside the equity capital market, due to perceived onerous regulations, among other reasons. Not a single IPO was recorded in South Africa – the largest bourse on the continent – in 2021, while the exchange experienced a large number of delistings at 24 – four more than in 2020.

Listed African companies also wary of further equity issuances

In terms of further offers (FO) by companies already listed, 2021 recorded the lowest activity of the last five years, declining by 39% and 28% in FO value and volume respectively from 2020. The largest FO transaction recorded was Pepkor Holdings, the South African investment and holding company, recording a share sale by Steinhoff International to raise $850 million, representing 34% of the total FO value for the year.

The JSE accounted for 82% of all FO activity by value in Africa during 2021.

African companies tend to raise capital domestically

Analysing the sources of funding, domestic deals accounted for 57% and 82% of ECM volume and value respectively in 2021. Only one cross-border transaction was recorded during the year, raising $177 million for Mauritius-based real estate investment company Lighthouse Capital.

There was an increase in outbound ECM activity in 2021 from the prior year, with 13 transactions recorded for a total value of $165 million (2020: 11 transactions worth $75 million).

African debt market issuances exceed pre-pandemic levels

African issuers on debt markets raised $193.4 billion in foreign currency-denominated debt, in 566 issuances, through 2021. The number of corporates issuing debt in 2021 was more than double the number pre-pandemic (11 in 2019, 27 in 2021). The $15.2 billion total proceeds are almost double the highest annual value of the last ten years.

25% of corporate bonds in 2021 were issued for the purposes of refinancing or repaying debt, compared with only 7% used for the same purpose in 2020.

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