African exchanges' growing pains: regional integration and investor appetite are driving IPOs, but corporate governance issues remain.

Author:Thomas, David
Position:Capital - Zimbabwe Stock Exchange

Perched above a spectacular Zambezi gorge and fitted out with tennis courts, swimming pools and a library, the Victoria Falls hotel has long been a destination of choice for Zimbabwe's business class. But executives from the Zimbabwe Stock Exchange might have to get used to a decidedly cooler welcome following news that the hotel's owners, Meikles, are suing the bourse for $5001 in lost earnings following their week-long suspension from the exchange in February.

The unseemly spat over Meikles' status--the exchange had accused the company of overstating a debt owed by the central bank--illuminates the uncertainties that can afflict investors in African capital markets at a time when the continent's stock exchanges are undergoing rapid expansion and welcoming new sources of capital from around the world.

In a recent report on African equity capital markets, PwC said that Africa attracted $11 bn in initial public offerings and follow-on capital in 2014--equal to the combined money raised in the previous two years. The breakneck pace of developments, illustrated by a doubling in the value of the Rwandan stock exchange after February's cross-listing of Kenya's Equity Bank, has led to a new era of confidence among exchange executives and regulators alike.

However, questions remain over whether some of the continent's smaller exchanges have the capacity to deal with major IPOs, the relationship with powerful listed companies, and the expected influx of capital.

Ibukun Adebayo, co-head of emerging markets in equity primary markets at the London Stock Exchange, says that some of the continent's emerging countries still have to improve their regulation around exchanges if they are to become attractive investment destinations.

"Those exchanges have a lot of work to do to attract the level of capital required to fund the various equity stories that are emerging in those regions ... they have a lack of financial depth in those markets and this is due mainly to policy gaps and regulatory issues that exist or are still not plugged," he says.

Adebayo cited as concerns a lack of disclosure, incomplete information for investors, broker risk and insider trading.

"All of these are restrictions on the flow of capital into those markets, but these are ultimately issues they are aware of, and ultimately they are fixable with the right commitment and the right enabling environment to do that," he adds.

Robert Mathu, executive director at Rwanda's Capital Market...

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