Offsetting these debits, the credit column contains only two initial public offerings (IPOs) that have raised R1bn or more in that period – Premier Group and Boxer. And while markets such as the UK and US saw a wave of proactive, ‘safety first’ capital raisings in the midst of the COVID pandemic to insulate balance sheets against the unknown, many companies on the JSE sat tight, in no small part due to the fact that they would have needed to go through the lengthy process of seeking shareholder approval before being able to raise capital.

 

The net result is that since the beginning of 2018, we have had six of the seven quietest years of equity issuance in the last twenty years.

 

While the above does indeed paint a gloomy picture and lend support to the claims of a failing equity market, context is everything. The lack of capital raising activity, whether via IPO or follow-on activity, is far less of a surprise when assessed against the backdrop of the tepid economic growth that has characterised this period.

 

This can largely be attributed to various factors including, but not limited to, the slow pace of government reform, increased sovereign indebtedness, political instability, geopolitics, and signs that globalisation is being eschewed for more nationalistic foreign and economic policies.

 

It is this backdrop and the uncertain outlook it has created that has given listed corporates every encouragement to become more inwardly focused, driving efficiencies and cutting costs as a means of increasing net earnings, and deferring big capital expenditure projects (whether organic or inorganic) for as long as the returns profile of such initiatives remains difficult to forecast.

 

Similarly, it has given those unlisted companies who have the luxury of choice, good reason to shelve their IPO plans until they can show a stronger track record of growth and achieve a more attractive valuation upon listing.

 

To illustrate the impact this has had on South Africa’s equity capital markets, one only needs to look at how much growth capital has been raised on the JSE since 2018. According to Dealogic data, only six companies outside the real estate sector have raised R1bn or more to fund growth, and capital raised across all sectors for this purpose accounts for less than 20% of total issuance volumes for the period.

 

This suggests that the dearth of activity is as much a function of absent supply as it is a failing marketplace, and an analysis of the market’s response to the deal flow that has taken place of late appears to corroborate this conclusion.

 

In the last 12 months, we have seen four deals that have raised over R8bn – a notable pick-up in large cap issuance activity relative to the prior 60 months – and each of these transactions has generated healthy levels of oversubscription and delivered attractive pricing for the selling shareholders.

 

Perhaps most notable amongst those four transactions is the most recent – September’s R44bn placement of Anglo American’s residual 19.9% stake in Valterra Platinum – a deal on which Standard Bank acted as Joint Global Coordinator.

 

Despite being the largest ECM transaction ever executed on the JSE, it achieved substantial oversubscription, with orders exceeding R250bn generated during the two hours that the deal was live. The facts that the demand originated from over 150 individual investors from South Africa, the UK, the US and Continental Europe, and that the deal priced at a mere 0.5% discount to the 3-day pre-launch volume weighted average price (VWAP) both illustrate that institutional investors sit on bountiful liquidity, and that their appetite for (and willingness to pay for) high quality South African equity stories is nothing short of robust.

So wherein lies the truth? The fact is that equity markets are cyclical and, by extension, so are equity issuance volumes. While the most recent cyclical downturn has tested the patience of even the most hardened of ECM bankers, it remains just that: a downturn from which activity will recover.

 

With the market taking confidence from the incrementally improving political and economic backdrop at home, and adjusting to the seemingly new norm of a global backdrop characterised by ongoing geopolitical uncertainty and nationalistic policy, there are signs that confidence is slowly returning. With an IPO pipeline that appears busier than at any time since the advent of the COVID pandemic, and with selling shareholders having reminded C-suites across the country that the market is open and operating efficiently, there are signs that we may be coming to the end of this latest cyclical downturn, and able to look forward to a sustained recovery into 2026 and beyond.  

 

Stout is Head of Equity Capital Markets, South Africa & Sub-Saharan Africa | Standard Bank CIB