Transcript Challenges and Outlook for African Exchanges: Where

Challenges and Outlook for
African Exchanges:
Where are we heading?
Presented by:
Sunil Benimadhu
Chief Executive, The Stock Exchange of Mauritius Ltd
President , African Securities Exchanges Association
8 October 2013
NeMa Africa 2013
Tower Suite, Hilton London Tower Bridge, London
Presentation Outline

The shift in the balance of economic power and Africa’s rise

The changing world economic momentum: A gradual and yet irreversible
shift of international asset-allocation in favour of African capital markets

African stock market’s: facts & figures

Challenges of African Stock Exchanges

Overcoming these challenges and setting the scene for a vibrant capital
markets space in Africa

African Securities Exchanges Association’s (ASEA) contribution to the
African capital markets’ space

Introducing the Stock Exchange of Mauritius: How is the SEM leveraging
off Africa’s potential to internationalise its platform
The shift in the balance of economic power and Africa’s rise
Top 10 Economies
2011
Country
2050
GDP (PPP) ($
tn)
Rank
Country
GDP (PPP) ($
tn)
United States
15.06
1
India
85.97
China
11.32
2
China
80.02
Japan
4.47
3
United States
39.07
India
4.40
4
Indonesia
13.93
Germany
3.09
5
Brazil
11.58
Russia
2.38
6
Nigeria
9.51
Brazil
2.31
7
Russia
7.77
United Kingdom
2.25
8
Mexico
6.57
France
2.22
9
Japan
6.48
Italy
1.83
10
Egypt
6.02
Source: International Monetary Fund; The Wealth Report 2012
The shift in the balance of economic power and Africa’s rise
The changing world economic momentum: A gradual and yet
irreversible shift of international asset-allocation in favour of
African capital markets

Growth in the developed world looks anemic at best and international investors are on the look for
superior returns outside of the traditional markets

Emerging Asia and Latin America have benefitted from the first wave of asset-allocation shift during
the 1990’s and 2000’s

Africa is the last-growth frontier that will benefit from the second wave of asset-allocation shift

The setting up of dedicated Africa funds, Africa-focused structured products and PE funds is on the
rise and will intensify

Fundamental shift to the current static perceptions of African Exchanges being fragmented and
illiquid

Global brokers/liquidity providers who, have so far overlooked African stock markets, will
growingly turn to these markets as the last financial Eldorado
African stock market’s: facts & figures
STOCK MARKET PERFORMANCE (year-to-date)
African Markets
Country
Developed & Emerging Markets
Year to Date (%)
1
2
Ghana
Malawi
65.68
53.08
3
4
5
6
Rwanda
Nigeria
Zambia
kenya
37.50
29.64
28.01
24.63
7
8
9
10
Uganda
BRVM
Zimbabwe
Botswana
23.76
21.16
19.53
12.95
11
12
13
14
15
16
17
18
Namibia
Mauritius
Tanzania
South Africa
Swaziland
Tunisia
Egypt
Morocco
12.77
11.41
8.52
8.10
0.41
0.37
-3.56
-10.71
Source: African Alliance
Country
Americas US - Dow Jones
Chile
Brazil
Europe London
France
Germany
Asia China
Malaysia
Sri Lanka
Indonesia
Thailand
India - BSE 500
Source: World Federation of Exchanges
Source: Yahoo Finance
Year to Date (%)
13.02
-14.60
-17.95
8.73
8.04
6.45
13.11
4.64
3.39
-2.82
-7.01
-11.97
African stock market’s: facts & figures
JUNE 2013
No. of Listings
Market Capitalisation
(USD Bn)
GDP @ Current Price
(USD Bn)
Market Capitalisation /
GDP(%)
Turnover (USD Bn)
Turnover Ratio
(%)
Egypt
253
49
257
19
21.90
45
Nigeria
195
70
263
26
4.10
6
Morocco
75
50
97
51
6.30
13
Kenya
61
19
37
51
0.80
4
Tunisia
69
8
46
18
1.10
13
Mauritius
93
8
10
82
0.60
7
Ghana
30
5
41
11
0.14
3
BRVM
38
8
78
10
0.12
1
Zimbabwe
74
6
11
50
0.50
9
409
434
384
113
372.00
86
Countries
South Africa
TOTAL
1,297
Source: 1. Standard & Poor's Factbook 2012
2. Internatioanal Monetary Fund (www.imf.org)
3. ASEA Yearbook 2012
655
1,224
How do African stock markets stats compare with those of a
few emerging markets?
YEAR 2011
No. of Listings
Market Capitalisation
(USD Million)
GDP @ Current Price
(USD Million)
Market Capitalisation /
GDP(%)
Turnover (USD
Million)
Turnover Ratio
(%)
Malaysia
941
395,083
287,943
137
128,908
33
Thailand
545
268,489
345,672
78
232,442
87
Indonesia
440
390,107
846,450
46
139,618
36
Chile
229
270,289
248,431
109
56,899
21
India
5,112
1,015,370
1,838,166
55
740,177
73
Brazil
366
1,228,969
2,492,907
49
961,306
78
Countries
Source: 1. Standard & Poors Factbook 2012
2. International Monetary Fund (www.imf.org)
Challenges of African Stock Exchanges

Fragmented nature of financial services sector

Restricted market depth and breadth

Equity-Centric Exchanges

Liquidity issues

Unusually high transaction costs

Absence of an active and well developed domestic investor base (low institutional participation & less than 1% retail
participation)

Manual Trading and Settlement infrastructure

Issues of efficiency and real-time availability of market information

Corporate Governance practices of Listed Companies

Protection of Minority Shareholders’ rights

Accounting and Disclosure standards

Transmission mechanism
Overcoming these challenges and setting the scene for a vibrant
capital markets space in Africa

At the micro market-level:
 Active stimulation of the four P’s that characterise the Exchange space:
- products, players, participants and partnership
 Increase the number of local investors from the current 1% to at least 10% of the population
 Diversify product base (corporate & government bonds, short-selling on liquid counters, single-stock futures on liquid stocks,
introduce index-futures)
 Slash transaction fees
 Innovate by introducing turnaround trades
 Reach out to the rest of the world and improve the availability of updated market statistics.
Aggressively put African stock markets on the radar screen of international investors
Overcoming these challenges and setting the scene for a
vibrant capital markets space in Africa

At the micro market-level:
 Bring the good companies to list on African Exchanges
 Successful African companies should contribute to the growth of local capital markets and local
economies, instead of systematically supporting the growth of the larger well-established markets
 Sensitise listed companies about their role as public companies and improve the quality and frequency
of their reporting
 Link up our stock markets through technology so as to increase the intra-regional investment flows and
broaden the availability of tradable scrips on our Exchanges
 Ensure that quarterly reporting becomes the standard
 Transform the Exchange’s website as a powerful source of historical and updated statistics
Overcoming these challenges and setting the scene for a
vibrant capital markets space in Africa

At the macro market-level:
 African economies have so far built up their growth as suppliers of new materials and low value-added
goods to western countries
 There is, now, a substantial need for African economies to power themselves up to move-up the valuechain of products to become over time the supplier of high-value added products to the rest of the world
 Continued improvement in business climate and further opening up of African economies to the rest of
the world
 Implementation of inclusive growths that propels the middle-class to the forefront of economic activity
Overcoming these challenges and setting the scene for a
vibrant capital markets space in Africa

At the macro market-level:
 Embracement of democratic principles and good governance at the highest decision-making levels
 Substantial improvements in infrastructure ( roads, railway, ports, airports ) linking African markets
 African Governments need to understand and actively support Securities exchanges/capital markets in
the transformational phase of African economies and in the empowerment of the lower social classes
ASEA’s contribution to the African capital markets’ space

ASEA’s current website (which is outdated) is being revamped to become a key source of daily updated
information for the international investment community

ASEA is endorsing the important role of increasing the visibility of African markets at the international
level

ASEA has launched an African index with FTSE

This African index should serve two key functions:
1.
Emerge as an attractive benchmark for investors investing on African stock markets
2.
Be used as a reference for the creation of an African ETF
ASEA’s contribution to the African capital markets’ space

ASEA should ensure that this African ETF is listed on the different African Exchanges tracked by this ETF

ASEA is gradually emerging as the mouthpiece of African stock exchanges vis-à-vis African governments
and international organisations like the African Union, the African Development Bank and the World Bank

It is endorsing the role of enticing governments to support the development of vibrant capital markets in
Africa
Introducing the Stock Exchange of Mauritius: How is the
SEM leveraging off Africa’s potential to internationalise
its platform
A statistical overview of the evolution of SEM since inception
1989
2013
6
126
Market Capitalisation (Rs Bn)
1.44
248.6
Market Capitalisation/GDP (%)
4.32
72.15
SEMDEX (End of period)
117.34
1963.67
SEMTRI (in Rs terms)
118.95
6193.02
No. of listings
Introducing the Stock Exchange of Mauritius: How is the SEM
leveraging off Africa’s potential to internationalise its platform



Introduction of a multi-currency listing, trading and settlement platform (USD, GBP, EURO, ZAR)
Introduced a highly competitive and compelling
listing framework for
- Junior mining/exploration companies
- Global funds
-Global Business companies
-sponsored/unsponsored Depositary Receipts
- Exchange traded funds
- specialist debt instruments
- Structured products
- Derivatives on foreign underlyings
Setting up of a new trading technology that:
1)
2)
Opens the space for foreign brokers/liquidity providers to connect directly to our trading systems
Cross-link our market with other markets in the region

Introduce the concept of remote membership to attract foreign brokers, foreign participants to our market
and global order flows to SEM’s trading platform

Positioning SEM as an attractive capital-raising, listing and trading platform for African ventures

SEM offers a very attractive stock market
environment:
- No capital gains
- No taxes on dividends
- No exchange control
- Ability to open and hold multi-currency accounts with banks (USD,
EURO, GBP, ZAR, AUD, etc.)
Why SEM and what is the SEM’s Competitive edge as a capitalraising and trading platform for African ventures?

SEM is a multi-asset class internationalised Exchange platform that allows African issuers to list a wide spectrum
of financial instruments and raise capital through a wide variety of modes ( shares, bonds, funds, Depositary
receipts, convertible instruments, Exchange Traded funds ( ETF’s) )

SEM facilitates international capital-raising by African issuers through its multi-currency listing, trading and
settlement platform (USD, EURO, GBP & ZAR)
-
Potentially provides a 4% to 8% currency conversion savings to international investors trading in African securities
Hedges the international investors against African currency risks and eliminates need to resort to currency hedging instruments

SEM has been a powerful value-creation platform for many companies that have chosen to list on its platform [USD
total return range from 3,000 % to 7,540 % for Top 10 companies]

SEM has an Exchange architecture that opens us the global institutional investors’ space to African issuers. 40 %
of annual market turnover is from global institutional investors

SEM is sub-saharan Africa’s ( ex JSE ) only WFE member Exchange and was awarded “ Africa’s 2011 & 2012
Most Innovative Exchange ’’ by Africa Investor at the NYSE

Clearing and settlement on SEM done in line with international standards
Why SEM and what is the SEM’s Competitive edge as a capitalraising and trading platform for African ventures?

The SEM is positioned at the very heart of the convergence point of demand-side flows and supplyside opportunities for investments into Africa

The demand-side flows are those of the Africa-dedicated funds, Africa-focused structured products
that are and will growingly be established in the Global Business sector (GBS) in Mauritius to invest
in African ventures

Demand-side flows can also be boosted by attracting order flows from remote global brokers

The supply-side opportunities will emanate from Global Business companies + other companies
incorporated in Mauritius for outbound investments into Africa

SEM’s highly flexible/cost competitive listing framework and its state-of-the art multi-currency
trading provide the winning capital-raising platform that enables an efficient interaction of the above
demand and supply forces

In a nutshell, SEM completes the value chain process that will position Mauritius as a one-stop
platform for incorporation, structuring, listing, capital-raising and trading of African ventures
Recent capital-raising on the SEM
Nearly USD 1 billion raised
Company name
YEAR
Amount raised
in USD (equivalent 1 USD = Rs 30)
BONDS Lux Island Resorts Ltd
2010
2012
2012
2013
2013
16,666,667
13,333,333
36,000,000
30,666,667
150,000,000
246,666,667
IPO Go Life International PCC
2011
9,665,000
NEW ISSUES The Medical And Surgical Centre ltd
2009
2009
2009
2009
2010
2010
2010
2010
2011
2011
2011
2012
2012
2012
2013
2012
2012
2013
5,500,000
10,279,050
274,365
6,789,929
6,086,585
31,119,009
25,367,112
4,695,298
17,739,078
2,590,565
510,827
79,507
5,088
333,333
45,500,005
145,869,970
3,000,021
265,000,000
United Investment Ltd
Omnicane Ltd
Omnicane Ltd
Mauritius Commercial Bank Ltd
TOTAL
Ascencia Ltd
Southern Cross Hotel
Southern Cross Hotel
Dale Capital Group Ltd
ENL Land Ltd
United Investment Ltd
Ascencia Limited
Ascencia Limited
United Investment Ltd
United Investment Ltd
Promotion and Development
Promotion and Development
Bharat Telecom
Sanlam Africa Core Real Estate Fund Ltd
Rockcastle Global Real Estate Company Ltd
Ascencia Limited
Rockcastle Global Real Estate Company Ltd
TOTAL
RIGHTS ISSUES Mauritius Stationery Manufacturers Ltd
Lux Island Resorts Ltd
Mauritius Freeport Development Co. Ltd
Tropical Paradise Co. Ltd
Mauritius Freeport Development Co. Ltd
Tropical Paradise Ltd
United Investment Ltd
Mauritius Stationery Manufacturers Ltd
TOTAL
570,739,742
2010
4,964,933
2010
2010
2010
2011
2011
2011
2012
16,666,667
5,000,000
4,166,667
5,000,000
10,937,500
4,617,634
8,782,289
60,135,689
The SEM: A powerful value-creation platform for
listed companies
Official Market: Value Creation in some Top Listed Companies
( as at 30 September 2013 )
Company
The Mauritius Commercial Bank Ltd
ENL Land Ltd
Vivo Energy Mauritius Ltd
Mauritius Oil Refineries Ltd
The Mauritius Development Investment Trust Co. Ltd
Mauritius Union Assurance Co. Ltd
State Bank of Mauritius Ltd
Rogers & Co. Ltd
Omnicane Ltd
United Basalt Products Ltd
Date of
Listing
05-Jul-89
24-Jan-90
13-Nov-91
21-Feb-90
05-Jul-89
14-Dec-93
30-Jun-95
27-Jun-90
05-Jul-89
05-Jul-89
Total Return (%)
9,300
5,119
3,720
4,258
4,519
2,172
1,467
3,112
3,339
3,300
Annualized Total Return(%)
(Usd terms)
20.59
18.15
18.09
17.32
17.11
17.07
16.25
16.06
15.70
15.64
Comparative Performance Analysis:
SEM v/s a few other markets (2002 – 2012 )
Exchange
SEMDEX (Stock Exchange of Mauritius)
2002
2012
CAGR (%)
340.92
1,732.06
15.92
13,577.00
60,952.00
14.63
1,059.05
4,743.45
14.60
10,441.70
40,482.92
13.11
S&P / TSX Composite (TMX Group)
7,688.41
12,443.50
4.47
SSE Composite Index (Shangai Stock Exchange)
1,645.97
2,269.13
2.96
All Ordinary Price (Australian SE)
3,359.90
4,664.60
3.03
10,021.57
13,104.14
2.47
4,624.58
3,641.07
(2.15)
Bovespa (Brazil)
S&P / CNX 500 (National Stock Exchange of India)
FTSE/JSE All Share (South Africa)
Dow Jones (NYSE)
CAC-40 (France)
Thank You