The Central African Stock Exchange (Bourse Régionale des Valeurs Mobilières d’Afrique Centrale, BVMAC), headquartered in Libreville, is one of two regional bourses – both of which are located in CFA zones – on the African continent. The bourse was founded in 2003, and began trading in 2007, with the aim of serving the six countries of the Central African Economic and Monetary Community (Communauté Économique et Moné- taire de l’Afrique Centrale, CEMAC), with both debt and equity trading. Despite its geographic scope, the BVMAC is a small institution when compared to the continent’s biggest and most liquid exchanges in Johannesburg, Cairo and Lagos. The first activity on the bourse was the 2007 listing of a CFA100bn (€150m) regional bond by the state of Gabon, offering a coupon of 5.5%, due to mature in 2013. Since then, the exchange has listed five additional bonds and three private placements. Equipped to trade listed equities, the BVMAC’s first initial public offering came in 2013, when Société d’ Investissement pour l’Agriculture Tropicale (Siat), a company active in the agro-industrial sector, opened up 30% of its capital on the exchange.
RECENT ACTIVITY: The past few years have seen only occasional activity on the bourse, in spite of the region’s improving headline growth and the sizable expansion plans of some of its largest firms. In 2011, for example, the state of Chad issued a CFA100bn (€150m) regional bond maturing in 2016, with a 6% coupon, while diversified holding company KOMO issued a five-year private placement of CFA10bn (€15m), carrying an annual interest rate of 5.25%. 2010 also saw two listings, a CFA7bn (€10.5m), seven-year note of 6% issued by Petro Gabon and a seven-year, 5.5% note of CFA30bn (€45m) issued by the Central African Development Bank (Banque de Développement des États de l’Afrique Centrale, BDEAC). The secondary market of the region has so far seen a limited increase in trading, with 2010 witnessing two transactions, rising to six in 2011, although down from a peak level of 10 in 2008. Such low levels of trading can be explained by a diverse set of factors, ranging from the regional division of capital markets to the character of actors owning the majority of listed instruments, specifically governments and international institutions, which often prefer to hold their assets over the long term instead of engaging in secondary trading in the short term.
In 2011, sovereign debt accounted for 65% of listed instruments on the BVMAC, while regional and international organisations, like the BDEAC and the private sector arm of the World Bank Group, the International Finance Corporation, made up 11%, and private corporations 24%. By contrast, 2013 has brought with it the first IPO of stock, with Siat Gabon opening up 30% of its capital to the regional market, a move that could contribute to diversifying market composition and boosting activity in the medium to long run. In the meantime, a recently announced government plan to mobilise CFA508.7bn (€763m) over four issues, to be held in July, September, October and November, should raise the level of sovereign debt listed on the BVMAC.
THE FIRST OF ITS KIND: Siat Gabon is a subsidiary of the Belgian Siat Group, and is active primarily in three agro-industrial segments across the country: rubber production in Woleu-Ntem and l’Estuaire, oil palm plantations in Moyen-Ogooué and cattle ranching in the south at Nyanga. The decision to open up 30% of its total CFA39bn (€58.5m) in capital in March is in line with a push to upgrade and expand its current activities, along with a number of other factors, including the respect of an engagement to share its capital once it started running a profit, after taking the enterprise over from the state of Gabon in 2004. The company put up 1.17m of its shares on offer at a price of CFA28.5 (€43.7) each, bringing in a total CFA33.3bn (€50m), with the IPO handled by the BGFI Bourse Holding Corporation and a set of placement syndicates. The subscription period was originally intended to last until April 19, 2013, but was later extended until May 10 to address a number of investor concerns raised during this time span. As of June 2013, the subscription operation had yet to be assessed, but once the period is closed, the stock should take one to two months to be introduced in the exchange. Being the first operation of its kind to be held on the BVMAC, a positive performance could be expected to inspire similar movements in the future. With it, Siat Gabon became the third agro-industrial company in the region to have list on an exchange, following Cameroon’s Socapalm and Safacam.
STRUCTURE: The BVMAC is a private firm owned by a diverse set of institutions from across the region, including amongst others the Banque Gabonaise de Développement (BGD) and BGFI Bourse, which at end-2012 respectively held 66.67% and 10.19% of BVMAC’s CFA3bn (€45m) capital. The exchange is regulated by the Central African Financial Market Supervisory Commission (Commission de Surveillance du Marché Financier de l’Afrique Centrale, COSUMAF). Also in Libreville, COSUMAF has three roles: monitoring information provided to investors; supervising handling of investment funds; and ensuring efficient operation of the regional market. Under this framework, the regulator is responsible for overseeing broker activity, issuing licences and regulating fees on transactions.
COSUMAF last granted a licence in February 2013 to the Congo-based La Financière, raising to five the number of brokers registered with the regional regulator. Two such entities are now located in Brazzaville, (Africa Bourse and La Financière), two others are established in Douala, (BMCE Capital and EDC) and one is in Libreville, (BGFI Bourse). Ultimately, “the aim is to have at least one broker per CEMAC country,” Marcel Ondele, COSUMAF president advisor for service coordination and supervision, told OBG. For now, BGFI Bourse, a broker majority-owned by BGFI Corporation, leads the market, having raised CFA138bn (€207m) since it opened in 2006. According the 2012 annual report of BGFI Bank, BGFI Bourse signed contracts with Internet Gabon and Alios Finance Gabon in 2012 to issue bonds of CFA5bn (€7.5m) and CFA10bn (€15m), respectively. For 2013, the broker sought to finalise five lines, valued at CFA215bn (€322.5m), for clients in banking, consumer credit, real estate and new technologies. BGD, meanwhile, aims to raise CFA10bn ($15m) in seven-year bonds on the BVMAC during 2013.
REGIONAL COMPETITION: Despite its regional breadth, the BVMAC is not the only CEMAC area stock exchange. Founded in 2001 and located in Douala, the Douala Stock Exchange is the official securities market for Cameroon, trading in both bonds and stock. The exchange currently lists three bonds and three stocks, making for a total market capitalisation of about CFA290bn (€435m), while the BVMAC itself lists six bonds, amounting to a total market capitalisation of approximately CFA219bn (€328.5m). The existence of two stock exchanges with respective regulatory entities in the region has made it challenging for the CEMAC capital markets to reach a critical mass in both listing and trading, raising issues of illiquidity and legal uncertainty for investors and issuers. According to Ondele, the market is too small. “One of the tasks that should be undertaken,” Ondele told OBG, “is overcoming this handicap.” The difficulties experienced as a result of this regional division have been made to see clearly on at least two occasions. In 2010, Cameroon issued a domestic CFA200bn (€300m) bond without COSUMAF authorisation. While domestic bonds do not require the regulator’s approval, regional ones do, and Cameroon, unable to fully subscribe its instrument at home, ultimately reached out to the region in this case, a move that would have required COSUMAF’s visa approval.
In 2013, a similar event took place. Siat Gabon opened up 30% of its capital by means of an IPO on March 25. Programmed to last until April 19, the subscription period was extended until May 10. According to local media, institutional investors largely adhered to the operation, but smallholders, especially in Cameroon, did not. During the subscription period, the president of the Financial Markets Commission of Cameroon (CMF) raised legal concerns about the operation because it had not received CMF approval. Yet after COSUMAF reached out to investors, reminding them of its authority to approve such financial operations in CEMAC, the CMF shifted its attention from the legal character of the subscription to issues of quality and viability instead. Although it is still unclear to what extent this debate may have affected the operation itself, the argument illustrates the difficulties experienced as a result of the current market division in the region.
INTEGRATION EFFORT: The resulting problems from the divided markets are clear, and integrating the two exchanges has been a priority for CEMAC member states in recent years. In 2010, the 10th Conference of CEMAC Heads of State tasked COSUMAF to work out a proposal to combine the two bourses. Together with CEMAC, the regional regulator enlisted the technical and financial support of the African Development Bank (AfDB), which produced a study on the subject of financial market integration in the region in 2011. The study presented CEMAC member states with three options: a complete merger; the creation of two specialised exchanges for debt and equities located in different places; or, the separation of the regulatory and trading aspects of the exchange system.
While member states have yet to reach a consensus, they have nonetheless given a political boost to the project. The 12th Conference of CEMAC Heads of State, held in 2012 in Brazzaville, reaffirmed the importance of a single financial market for its member states. “The region needs to make this fusion happen,” COSUMAF’s president, Tung Nzue Bilogo, told OBG, “in order to avoid both liquidity and perception problems.” The course ahead currently remains unclear, as there is no consensus around one option in particular. The AfDB study, Ondele told OBG, had the benefit of launching a fruitful debate, but given the lack of consensus, further reflection is required. The AfDB has decided to continue providing assistance, launching in 2013 a request for expressions of interest regarding “the Development of a Comprehensive Project for the Merger of the Two CEMAC Financial Markets & Action Matrix,” for which the original AfDB study is set as a starting point.
OTHER OBSTACLES: To regional division, add a number of other obstacles that currently constrain the development of dynamic capital markets in the CEMAC area. A COSUMAF study undertaken in 2009 listed among other elements a weak capital market culture, limited dissemination of financial information, difficult conditions of access for small and medium-sized enterprises (SMEs), and a company mistrust of exchanges.
To tackle these challenges, the regional regulator has developed a matrix for the development of a regional integrated financial market. This matrix displays six sets of priorities: strategic marketing activities to be carried out with companies and other potential issuers; actions targeted at public authorities and senior managers of major companies; initiatives for reinforcing financial actor competences; the adoption of measures aimed at improving market attractiveness; adapting SME financial market access conditions; and, improving market visibility and culture.
A number of initiatives already have been undertaken under this framework. In order to improve market visibility and culture and reinforce financial actor competences, COSUMAF has over the past years organised multiple seminars, open days, workshops and trainings, some of which were done in collaboration with key actors, such as the BVMAC, CEMAC member states and foreign financial institutions. These actions have over time targeted the general public, students, journalists, and economic agents in both the public and private sectors. The BVMAC has furthermore developed an initiative of its own in recent years. Conceived under the framework of its 2012-14 Business Plan, the “Caravane BVMAC” is generally designed to promote market integration through engagement with the CEOs of the nation’s companies, while also reaching out to other political and economic actors, regarding their projects for regional development and integration.
ENLISTING STATE SUPPORT: CEMAC member states, for their part, can contribute to market development in at least two ways. First, they can act as partners, voluntarily engaging major economic actors, such as multinationals and their respective subsidiaries, with the purpose of persuading them to list on the BVMAC. Second, they can boost market activity themselves directly, opening up public enterprises via the regional exchange, including when undertaking privatisations.
COSUMAF has since 2012 sought to enlist the support of CEMAC member states to stimulate financial market development, and in this sense has engaged with them on a regular basis to discuss this topic. For Ondele, the approval of regional legislation, according to which member states would commit to working towards enlisting a given number of firms per year (for example, two per year over a five-year period), would help with developing the scale of regional market activity and building the bourses in the medium term.
TARGETING COMPANIES: Targeting companies directly to improve market awareness and achieve further listings is a way of boosting market activity. To do so effectively, COSUMAF requires a database of firms with potential for listing debt or equity. In June 2013, the regional regulator was in the process of recruiting a consultant for carrying out a prospective study on the potential and depth of the regional financial market and supporting measures. The project, partly financed by the World Bank, should help identify which regional private companies may enter the capital markets.
Despite existing incentives – a 2007 law offers up to a 25% reduction on corporate taxes for firms that list 10-15% of their capital on the regional exchange – many companies, and in particular SMEs, still refrain from using capital markets, even though they often find it difficult to access conventional credit. This is due to a number of factors, including a lack of knowledge of capital markets and their advantages, as well as a lack of compliance with the level of corporate governance standards demanded by the market and the level of disclosure required by such market operations as public offerings. Given their importance to the economy, SMEs are a target for COSUMAF and the BVMAC, which have sought to support them, notably by creating an alternative market for SMEs in the regional exchange. Other measures contemplated in the matrix for development, for instance, relate to the creation of a guarantee fund for SMEs, which would help companies in resorting to capital markets.
DEBT IN DEMAND: Despite the constraints to financial market development so far observed, demand for debt issued on the BVMAC is strong. Listing today a total of nine bonds set up over the past six years, the regional exchange is expected to potentially register three to four additional ones over by the end of 2013.
International demand for regional sovereign debt is also strong. Gabon was the second CEMAC member state, after Congo, to issue a Eurobond. Other countries in the region are expected to follow suit. The International Monetary Fund (IMF) expects at least nine sub-Saharan nations to take advantage of the appetite for African sovereign debt to issue dollar bonds in the next few years, including first time issuers in the region, notably Cameroon. In May 2013, yields for Gabon’s $1bn Eurobond had fallen 478 basis points to 3.13% since its 2007 issue, reflecting the country’s lower borrowing costs. Yields for benchmark dollar-denominated debt issued by Nigeria, Ghana, Côte d’Ivoire, Namibia, Congo, Senegal and the Seychelles also declined.
While international debt is often viewed as a source of investment for financing infrastructure projects, Gabon’s Eurobond was designed from the start as a part of a strategy to reduce its debt. The proceeds were used for the partial repayment of the country’s Paris Club debt. Issued in 2007, the $1bn bond matures in 2017 and carries an interest rate of 8.2%. It was about two times over-subscribed, with global ratings agencies Fitch and Standard & Poor’s giving it a “BB-” rating at the outset. Since its issue, Gabon has experienced delays in coupon payments twice: once in 2008, as a result of a complaint levied by a Dutch firm, and a second time in 2012, due to a dispute with the South African conglomerate Aveng. Both of these were nonetheless resolved during their respective grade-periods, with the aforementioned ratings agencies keeping their rating at “BB-” in July 2013. Fitch held a stable outlook of the bond’s evolution, but Standard & Poor’s had a negative one, arguing it could lower the rating if the country did not continue to improve its poor payment culture or if higher government spending on infrastructure did not boost economic growth.
OUTLOOK: Despite the low level of activity registered on the BVMAC, as compared that of other African stock exchanges, some progress has been made since the regional exchange first started operating in 2007. The BVMAC has gradually consolidated its collection of listed bonds, with more listings expected during 2013. The regional exchange has also inaugurated its stock component, with Siat Gabon opening up 30% of its capital, a move that could ultimately inspire similar operations across the region. To further boost the development of the regional financial market, a key set of obstacles is being addressed, chief among which is the co-existence of two financial markets in the region. If this issue is to be overcome, a solution must be found and agreed upon by CEMAC member states. Their support for financial market integration initiatives is key. Other measures can contribute to the development of the regional financial market.
Ongoing BVMAC and COSUMAF efforts, together with a stronger state commitment, are likely to be key to attracting new companies to list on the regional exchange. With the strong demand for African sovereign debt and the ensuing evaluation of such debt by ratings agencies, including Gabon’s Eurobond, a degree of fiscal discipline and transparency in the region is ensured as other CEMAC members resort to international markets. This may also offer security for investors.
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