Global IPO’s fell by 45% following a record year in 2022, according to EY’s Global IPO Trends 2022 Report. Under the high interest rate environment, investors reallocated their portfolios to less risky assets leading to depressed company valuations and this affected many companies prospective IPO plans, the Report states. Stock markets around the world were affected in a similar manner, registering extensive declines in market returns for the year.
As pipelines continue to build globally, many companies are waiting for a window to open with favourable conditions that support their IPO plans. This too can be observed in the local equity market. Though the year ended with no new equity listings, additional share issuances raised P47.1 Million and P135.3 Million on the domestic and foreign board respectively. Collectively, P182.4 Million was raised on the primary equity market. At least 14 companies have come forward to expression their intention to undertake an IPO, gather guidance and have made tangible attempts in appointing advisors to assist with, and prepare, for listing.
On the local bond market, corporates raised P405.7 Million and P120.7 Million through bonds and commercial paper respectively. Similarly, Government raised P8.9 Billion and P3.1 Billion through treasury bills and bonds. The listing of two new commercial papers marked the significant revival of the commercial paper market following the revision to the BSE Debt Listings Requirements to make provision for listing commercial paper. While here, it is worth noting that the number of commercial paper listings could have been as high as 17 papers, but remains 2 as one issuer misinterpreted the listings requirements and issued 15 papers off-market. The issuer is regularising the listings with the guidance of the BSE and the necessary sanctions have been considered as part of regularisation.
The global trend in terms of IPOs in 2022 is widely felt across the African continent. The South African public market has experienced a streak of delistings, losing 27 companies in 2022 and JSE alone experiencing 25 delistings in 2022. In 2021, 24 companies delisted from the JSE. Over the last 5 years, only 71 IPOs have been carried out in Africa. In 2021, only 8 IPOs were completed in Africa, and only 4 IPOs in 2022. Returns in African markets were similarly dampened. The FTSE ASEA Pan Africa Index ex. South African returned a negative 18.3% in 2022, very much in line with the tumultuous performance of global capital markets. The US equity benchmarks had their worst annual performance since 2008. The S&P 500, Nasdaq 100 and Dow Jones Industrials depreciated by 18.1%, 32.4% and 6.9% respectively in 2022. The projections about the global economy are casting shadows on the recovery of the world economy, dampening the hopes for IPOs in the short term. The IMF forecasts global growth to slow down from 6.0% in 2021 to 3.2% in 2022 and 2.7% in 2023 (World Bank projects 1.7% for 2023). Advanced Economies are projected to grow by 2.4% and 1.1% in 2022 and 2023 respectively while Emerging Market and Developing Economies have growth estimations of 3.7% in both years.
This is notably the weakest growth profile since 2001 except for the global financial crisis and the acute phase of the COVID-19 pandemic and reflects significant slowdowns for the largest economies and stock markets in the world. Risk factors that could stunt growth include expectations of higher inflation before its descent, restrictive monetary policy, potential for the emergence of new COVID-19 variants and the ongoing Russia invasion of Ukraine. Historically, such events have proven to inspire increased volatility in the global financial markets.
Botswana’s economy is anticipated to grow by 4.1% in 2022 and 4.0% in 2023, both above the Sub-Saharan economic growth projections of 3.6% and 3.7% in the respective years. This is primarily due to the growth-enhancing economic transformation reforms and supportive macroeconomic policies being implemented which include reforms to further improve the business environment, the vaccine rollout programme and other Government interventions against COVID-19. Third quarter real gross domestic product (GDP) increased by 6.3% compared to 8.9% growth registered in the corresponding period in 2021. This increase was mostly attributable to the expansion in output of the mining sector.
Inflation averaged 12.2% consistently remaining above the Central Bank’s medium- term objective range of 3% – 6% with peak inflation registered at 14.6% during August 2022. As at December 2022, inflation stood at 12.4%. The Monetary Policy Committee projects that inflation will continue to trend downwards and eventually fall within the Bank’s objective range in the third quarter of 2024 due to the expected decline in global inflation and international commodity prices, the current monetary policy posture and the dissipating impact of the earlier increases in administered prices.
Against this broad-based slowdown and challenging domestic environment, the BSE performed exceptionally well in many fronts, details of which are elaborated in the next sections. From a technological perspective, the BSE launched the new Central Securities Depository (CSD) system, a new Automated Trading System (ATS) and the connectivity to the Society for Worldwide Interbank Financial Telecommunication (SWIFT) during September 2022. These advancements in technological infrastructure aim to improve the resilience of the market, network security, operational efficiencies and align with international best practice in order to make the BSE competitive in the global securities market.
The new CSD system has commissioned the settlement of market transactions on the BSE at Bank of Botswana (BoB) through the Botswana Interbank Settlement System (BISS) which, just like the CSD system, is linked to the SWIFT network – and this is known as Settlement in Central Bank, an inviable milestone in financial stability and elevating our capital market to international standards. In addition, the CSD system comprises of new functionalities and capabilities that expand its services and products such as the centralised custody for all securities in the market including government securities, Electronic Annual General Meetings (E-AGMs), among others. In due course, the system will provide customers remote access to their CSD accounts and statements. In due course, these functionalities will contribute meaningfully to the CSDB’s commercial viability and profitability.
The new ATS is an upgrade of the ATS that was implemented in 2012. The salient features of the new ATS include an improved Request for Quotation (RFQ) mechanism which is popular for bond trading, a bond calculator, availability of micro auctions which can be used for market-making, as well as improved information dissemination capabilities. The new ATS and the CSD system are integrated.
Reflecting on these successes and the economic backdrop, it is worth relaying sincere gratitude to the Board of Directors of BSEL and the shareholders for supporting the entrepreneurial mind-set of the Exchange, as demonstrated by unwavering for many projects, such as the development of the Headoffice, that seeks to live the company’s value of “commercial-focus”. Given the extensive investment in growing the balance sheet, the next phase of growth will come from fully exploiting the capacity of the infrastructure and the company’s asset base.
