After four years of high gains following the end of the political instability in Côte d’Ivoire, indexes at the Bourse Régionale des Valeurs Mobilières (BRVM) – headquartered in the Ivorian commercial capital Abidjan – were set for a third consecutive year of decline in 2018. If the situation is leaving many investors worried, market observers say that the bourse is going through a necessary period of readjustment.
The big picture remains good. The last five years have seen a significant boost in the number of companies listed, liquidity has improved and the market has become increasingly sophisticated with the launch of new instruments such as a board dedicated to small and medium-sized enterprises (SMEs), and the listing of sharia-compliant bonds (sukuk). The BRVM is also reaping the benefits in the promotion of its market, whose visibility has increased, both at home and abroad.
Structure & Oversight
In late 2018 the BRVM boasted 45 companies listed. The bourse has operated since 1998 and is dominated by Ivorian-listed firms and market participants. After a period of stagnation linked to the civil conflict in Côte d’Ivoire in the early 2000s, the stock exchange recorded eight successful offerings since late 2014 and an additional firm, Togo-based bank Oragroup, is expected to list in early 2019.
On the bond segment the BRVM has 43 debt securities listed, including four sukuk and two corporate debts. As of November 2018 the combined debt and equity market capitalisation stood at CFA8trn (€12.2bn), making the BRVM the sixth-largest stock exchange in Africa by market capitalisation.
Equity Market
Of the 45 firms listed on the exchange, 14 are in the financial sector, 12 in industry, seven in distribution, five in agriculture, four in public utilities, two in transportation and one in construction.
Financial institutions have made up the majority of new listings over the past few years with Bank of Africa’s units in Senegal and Mali, Burkina Faso lender Coris Bank International, Côte d’Ivoire-based NSIA Banque, Société Ivoirienne de Banque (SIB) – majority-owned by Morocco’s Attijariwafa Bank – and Ecobank CI entering the market after 2014. Additional listings were Ivorian sugar producer Sucrivoire in 2016 and Total Sénégal in 2015. Some of the offerings – SIB, Sucrivoire, NSIA Banque – took place as part of the government’s 2013 privatisation programme of public companies while banks also used the BRVM to raise funds to comply with new banking regulations making their business more capital intensive (see Banking chapter).
Trading Activity
Seven of the eight UEMOA countries are represented on the BRVM, with Guinea-Bissau being the only exception. With 35 listings or 78% of the total, Ivorian companies largely dominate the exchange. At end-2018 Senegal’s Sonatel remained the largest company listed on the bourse with a capitalisation of CFA1.6trn (€2.4bn), or almost 33% of the market. It was more than five times the size of the next-largest firm, Togo-based Ecobank with CFA324.6bn (€486.9m), followed by Burkina Faso-based telecoms company Onatel with CFA282.2bn (€423.3m), Coris Bank International with CFA278.2n (€417.3m), the largest Ivorian bank, Société Générale des Banques en Côte d’Ivoire with a capitalisation of CFA230.2bn (€345.3m) and Ecobank CI with CFA233.4bn (€350.1m).
Bourse Performance
The downward trend, one observed since mid-2016, was exacerbated in 2018 with the bourse’s two indexes heading in late 2018 for a third consecutive year of decline. At the end of December 2018 the BRVM-Composite Index had fallen 29.1% from the beginning of the year, while the BRVM-10 Index – which tracks the 10-most actively traded stocks – was down 29.7%. Witnessing a slight uptick, during December 2018 the BRVM-Composite was up 6.4%, a 60-day high. After growing steadily from 2011 to 2015,the BRVM-Composite and the BRVM-10 slipped 3.9% and 9.8% respectively in 2016. In 2017 the BRVM-Composite fell 16.8% while the BRVM-10 declined 16.1%. As a result, the equity market capitalisation dropped 36.6% from CFA7.9trn (€11.8bn) in April 2016 to CFA4.98trn (€7.5bn) at the end of 2018.
Readjustment
The BRVM has not been alone in suffering the downward trend. Indexes declined in other emerging markets in 2018, including in South Africa, China and Nigeria. However, a number of reasons tied to the BRVM also explain why the West African exchange is particularly hit. According to the BRVM, the primary reason is that after four years of strong gains, many investors decided to profit by selling some of their securities. Market analysts argue that the exchange is now in a period following a boom that had driven some stock prices to high levels that were atypical.
“There was a market bubble that had to be deflated. After the crisis in Côte d’Ivoire, many companies expected to benefit from the strong economic expansion. However, growth has been driven by public investment and the domestic demand has not kept up,” Kadi Fadika-Coulibaly, managing partner at independent stockbroker, Hudson & Cie, told OBG. “Stock prices went too high and were disconnected with the fundamentals of the companies, and when investors decided to take their profits, with economic prospects being slightly less bright than in the past, there were fewer buyers.” As a result, some institutional investors, such as fund managers, abandoned the equity market and turned towards the more attractive bond segment, accelerating the drop in share prices.
Stock Splits
To exacerbate the issue, many firms increased the number of shares in their floating capital by issuing free shares or splitting their stocks in 2017 to comply with new regulations aimed at boosting market liquidity. There have been 25 stock splits in 2017 and a further eight in 2018. These operations have confused small investors, resulting in a large wave of share sales.
The recent initial public offerings (IPOs) and efforts by the BRVM to promote mass shareholding have driven a significant number of retail investors to the market, many of whom are investing on a bourse for the first time. “Many new investors came to the market through the IPOs and sought to sell very quickly after they made some profits,” Tardy Kouassiblé, head of capital markets at Atlantique Finance, told OBG. “As we were already in a bear market, the stock splits caused a panic among investors who do not have a strong market literacy.”
Equity Liquidity
After progressing significantly in recent years, stock value suffered a sharp decline, with the daily average trading falling from CFA1.6bn (€2.4m) in 2016 to CFA1bn (€1.5m) in 2017. During that period, the value of stocks fell 35% from CFA409.3bn (€624m) in 2016 to CFA267.6bn (€408m) in 2017 but still remained higher than the CFA82bn (€123m) recorded in 2011. Aided by the stock splits, the volume traded also increased in recent years, their total number almost doubling from 114m in 2015 to 218m in 2017.
Prospects
In late 2018 observers expected the market to remain bearish in the short term. While increased competition in the telecoms sector in Senegal and Burkina Faso could undermine the growth of Sonatel and Onatel, there were concerns in the Ivorian banking sector with a number of listed lenders hurt by the liquidation in July 2018 of Saf Cacao, the largest domestic cocoa exporter (see Banking chapter). Fears of a deterioration of the political situation in Côte d’Ivoire two years before the next presidential election were seen leading to a slowdown in the market’s activity. “Overall, we do not see a strong recovery of market growth in the short term,” Fadika-Coulibaly told OBG. “I think it is very good news, especially for new investors seeking to enter the market at attractive levels.”
A sign of brighter times ahead, the average price-to-earnings (P/E) ratio is becoming more attractive, falling from 27.1 at end-2014, to 17.29 at end-2017 and 10.94 in late November 2018. Economic prospects for the UEMOA region are also strong, with the IMF forecasting growth in the bloc around 6% up until 2023, making it one of the fastest-growing regions in Africa.
Planned Listings
In October 2018 pan-African lender Oragroup launched the largest-ever IPO on the BRVM. Majority-owned by equity fund Emerging Capital Partners (ECP), the lender was planning to raise CFA56.9bn (€86.8m) to finance the bank’s digitisation, boost growth in Central Africa and reinforce the capital of some of its subsidiaries. A final listing on the BRVM was expected for February 2019.
Oragroup is part of a list of a dozen IPOs targeted by the BRVM by 2020. Among them is Mali’s main mobile operator, Société des Télécommunications du Mali (Sotelma). The Malian government said in late 2017 it wanted to sell about half of its 39% stake in the company through an IPO. The bourse is also hoping to get more telecoms companies listed, including the subsidiaries of South Africa’s MTN in Côte d’Ivoire and Benin as well as Orange Côte d’Ivoire. For the latter, the Ivorian government said repeatedly it is keen on selling its minority stake following the merger of the country’s landline operator with the Ivorian unit of Orange in 2016. In the meantime the trend of banks raising capital through an IPO at the BRVM was set to continue as new banking regulations require the lenders to increase their capital.
In a new approach to increase the number of listings, the bourse also said it is in discussions with private equity funds such as ECP, Tunisia’s AfricInvest and Mauritius’ AFIG Funds to encourage them to list companies as part of their exit strategies.
SME Board
Additional listings may also take place in the new third compartment dedicated to SMEs, launched in late 2017. In March 2018 the BRVM started to roll out the Elite BRVM Lounge Programme, in partnership with the London Stock Exchange and Casablanca Stock Exchange, to prepare SMEs and companies with a high growth potential to be listed. At the launch of the scheme – which comprises 10 companies from Côte d’Ivoire, Benin, Burkina Faso, Togo and Mali – officials of the BRVM said they are targeting a listing in the short term of two companies in the distribution and IT sector. No company had yet listed as of December 2018.
Market observers have mixed opinions with regard to the SME board. While some believe it is a way for SMEs to mobilise funds and support their growth, others say that only a handful of companies will be able to list on the exchange. “The SME financing issue has been identified by the government and the private sector,” Ismael Cissé, director-general of Sirius Capital, told OBG. “Although the banks do work under strict procedures, there is a missing link between the banks and the SMEs, which require preparation and support when kicking off the funding stage of development.”
Delisting
In July 2018 the Ivorian unit of Unilever signalled a recapitalisation programme of CFA32bn (€48m) to improve the company’s finances. Prior to recapitalisation, the firm offered its shareholders to repurchase their shares at CFA19,000 (€28.50) – against a traded price of CFA8000 (€12) at the time of the offer – with the aim of eventually delisting the company from the BRVM. The decision, which Unilever said was meant to protect minority shareholders, was subject to approval of the market regulator, the UEMOA Authority for Regulation of Financial Markets.
Previously known as the Regional Council for Public Savings and Financial Markets, the regulator changed its name in July 2018 in a move that also included the creation of an audit committee and the establishment of new financial regulations.
Other players involved in the regional market include brokerage firms and custodian banks, a number increasing recently. As of November 2018 the market counted 29 brokerage firms in activity, compared with 21 in 2015, and eight custodian banks, up from six in 2015. The BRVM is also covered by two ratings agencies, the Dakar-based West Africa Rating Agency and Bloomfield Investment Corporation, which is based in Abidjan.
Bond Market
Capitalisation on the bond market has taken off in the past few years, having tripled from CFA1.1trn (€1.6bn) at the end of 2013 to CFA3.4trn (€5.1bn) as of January 2, 2019. The listing of five sukuk – from Côte d’Ivoire, Senegal and Togo for $1.3bn – in 2016 helped increase the capitalisation of the segment. However, as in most of the developing and emerging economies, sovereign issues dominate the BRVM’s bond market, with corporate bonds until now playing a relatively minor role. In late 2018 there were 43 listed bonds, with 25 sovereign – of which almost half are from Côte d’Ivoire – 12 from regional institutions, two corporate and four sukuk.
The number and amount of sovereign bonds issued have gone down recently as the region’s two biggest issuers – Côte d’Ivoire and Senegal – took advantage of low borrowing costs on the international markets to raise large amount of dollar- and euro-denominated eurobonds. After issuing $1.1bn in eurobonds in 2017 Senegal returned to the international market in March 2018 by raising $1bn at 4.25% and $1bn at 6.75%. For its part, Côte d’Ivoire sold €1.7bn in 2018 in two tranches at 5.25% and 6.625% and was only planning to raise CFA195bn (€292.5m) in local currency that year.
Secondary Market
The tightening of monetary policy by the Central Bank of West African States also crimped appetite for bonds in the region, creating an increase in interest rates, which contributed to the eurobond issuances, the IMF said in its 2018 Article IV Consultation with Côte d’Ivoire published in June 2018.
However, the West African bond market has its own weaknesses, which range from the continued lack of liquidity on the secondary market to the small number of players. The major buyers of bond issued still tend to be local institutional investors pursuing buy-and-hold strategies while the new capital requirements prevent banks and insurance companies from increasing their presence in the segment. “As new regulations are being implemented in both sectors, banks and insurance companies will probably not be able to collect enough savings to boost their investment in the bond market,” Fadika-Coulibaly told OBG. “Also, except for the National Social Insurance Fund in Côte d’Ivoire, pension funds mostly invest in the Treasury bills issued through the central bank. They are not really focused on sovereign bonds and they do not have enough means to do so.”
Promotion
For its secondary bond market to really take off, market observers say the BRVM needs to run a promotional campaign, as it’s been doing in the equity market over the past few years. The regional exchange has made significant efforts to increase its visibility. To attract interest from the local population it has launched a new website, a mobile application, a TV show called Flash Bourse and an SMS Bourse service.
BRVM officials also crisscrossed the world to meet international investors. “There has been a lot of promotion to make the BRVM known, from London to New York to Shanghai,” Omo-Délé Egué, former director-general of NSIA Finance, told OBG. “It is very important. To be attractive, a market needs to be known by international investors.“ In 2016 the BRVM became the sixth African market to be included in the MSCI Frontier Markets Index, further enhancing its visibility.
New Instruments
After the launch of the SME board, the BRVM aims to introduce other instruments as it seeks to boost interest and trading. In this regard, the bourse considers launching two new bond instruments: project bonds – a specific type of bond issued for a project and paid back by the flows generated – and diaspora bonds to involve the citizens living outside the region in financing the economy. The BRVM also said it is considering partnerships with international clearing houses, like Euroclear and Clearstream to attract more offshore investors, which are discouraged by the lack of a central depositary, to buy listed bonds. Regarding the equity market, the BRVM considers opening a fourth compartment dedicated to mining companies to support the sector’s increasing growth in West Africa.
Outlook
Investors at the BRVM are experiencing challenges marked by a significant drop in indexes, reaching a six-year low in 2018. Increased competition for telecoms companies in Senegal and Burkina Faso, a crisis ins the Ivorian banking sector and fears of political unrest do not seem to indicate a short-term recovery in prices. However, bright economic prospects for the UEMOA region and increasingly attractive P/E ratios present medium-term opportunities for investors. As the bourse’s visibility is increasing and more companies list, interest for the equity market will continue to grow.
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