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Afreximbank’s dollar-based operations cloud case for London listing

By David Whitehouse
Posted on Wednesday, 16 October 2019 12:24

REUTERS/Peter Nicholls

The African Export-Import Bank’s plan to list global depositary receipts looks cleverly timed in the context of global financial risks. But choosing London as the place to do so is unlikely to work in the bank’s favour.

Afreximbank said today it will seek to raise at least $250mn, which can be increased by up to 15% depending on demand.

The proceeds will be used to accelerate trade finance growth throughout Africa. The bank expects the shares to start trading in London in November.

As Afreximbank’s investments are made in dollars, a listing on a dollar-denominated exchange would have been more logical, argues Harry Broadman, chair of the emerging markets practice at Berkeley Research in Washington.

Broadman fails to see the logic of touting the listing as “Brexit proof.”

  • The London market risks coming under pressure amid post-Brexit fallout, he argued. Afreximbank’s Global Depositary Receipts (GDRs) could have been listed on multiple exchanges in the US, China and Europe to minimise risk, he said.
  • The bank’s vision of becoming a source of capital for Africa under the new continental free-trade agreement is “very smart,” Broadman says, while the risk of stock market declines in coming months makes it “hard to argue against the timing. I understand the urgency.”

The core of the problem, Broadman said, is that Africa lacks “serious stock exchanges.”

  • Johannesburg, he suggests, would have provided a safe listing venue, and in line with the spirit of Africa’s free trade agreement. “If you want to be an investor in Africa, how do you take part?”

HSBC and JPMorgan, the banks hired for the IPO, might have second thoughts about the listing if there is a no-deal Brexit on November 1, Broadman said.  “The London Stock Exchange poses the greatest risk.”

Back of the queue

Afreximbankbank is based in Cairo and has operations in Abuja, Abidjan, Harare and Kampala. Its shares are already listed in Mauritius, where they trade at a discount to book value.

Private shareholders will be at the back of a long queue of institutional interests.

  • The bank has four classes of shares: “Class A” for African states; “Class B” for African national financial institutions and African private investors; “Class C” shares are held by non-African international financial institutions. The GDRs listed in London will be Class D shares.
  • Egypt, Nigeria and Zimbabwe are among the main shareholders.

The bank’s ownership structure leads to the risk of conflicts of interest and governance concerns, says Paul Hollingworth, managing director of Creative Portfolios in London.

Don’t expect regulators to be able to manage those conflicts.

  • The bank’s listing particulars for its 2017 private placement in Mauritius point out that under its establishing agreement as a supranational institution, the bank is “not subject to regulatory supervision, including with regard to capital adequacy, corporate governance or disclosure laws . . .
  • “the Issuer enjoys freedom from restrictions, regulations, supervision or controls, moratoria and other legislative, executive, administrative, fiscal and monetary restrictions of any nature.”

Bottom Line: An IPO for Afreximbank was always going to be a risky proposition. Choosing London only adds to the risks for the bank and for investors.

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