Imara African Cement Report Africa, the last cement frontier Angola ...

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The Stock and Derivatives Exchange of Angola Back on the drawing board post the financial market crash Undoubtedly one of the most exciting developments in Angola is the intended launch of the new Stock Exchange. This has been on the cards for several years now, and the authorities have long invested into creating a strong foundation upon which the country‟s capital markets will be built. Although plans to launch a stock market date back to 2005, preparations were negatively affected by the financial crisis, which had a significant negative effect on the macroeconomic stability. Post the 25% devaluation in 2010 and the recovery of oil prices, the budget deficit has been plugged, arrears to the private sector have been cleared and the accumulation of foreign currency reserves has recommenced. Importantly, the financial crisis exposed severe weaknesses in the financial sector, exposing multi-million dollar cases of fraud perpetrated by officials at the central bank in collusion with Ministry of Finance officials. Consequently, high level changes were effected at the Finance ministry and central bank. In January 2011, a presidential decree was published, ruling out the opening of the securities exchange in 2011 and instigating a restructuring of the Capital Markets Commission, which is now complete. While still in a state of flux, the dust is beginning to settle. In June 2011, the CMC sponsored a seminar in conjunction with Sérvulo & Associates, a Portuguese law firm that specializes in legislation relating to financial markets. The main topics of discussion included: • Mergers and acquisitions • Guarantees in the acquisition process • Corporate governance and state owned enterprises • Public offerings While it still seems some way off, the debate regarding the creation of a domestic capital market is back on the table. The state remains the predominant investor and the powers that be are cognisant that a capital market needs to be introduced so that new international capital flows can be increased, leading to greater economic stability, enhanced diversification and ability to withstand exogenous shocks. In their 2009 annual report, the CMC published a list of license applications as follows: Table 10: CMC License applications at Dec 2009 Date Company Type Licensing stage 2008 Novação SCVM Stock Broker Licensed 2008 Old Mutual Angola Stock Broker Being Processed 11/02/09 Growth SCVM Stock Broker Licensed 25/11/09 RS Capital Real Estate Asset manager Special registration 25/02/09 Imara SCVM Stock Broker Being processed 18/05/09 BPAGest SGFI Real Estate Asset manager Being processed 29/06/09 BESA Valorização Closed end Real Estate Investment Being processed Fund 08/07/09 Saving SCVM Stock Broker Being processed 08/07/09 Saving SDVM Transfer Secretary Being processed 08/07/09 Saving SI Investment company Being processed 17/07/09 Angola Capital Partners Private Equity Fund Licensed 21/07/09 Fin Personalité FII Real Estate Investment Fund Being processed 03/09/09 BESA SCVM Stock Broker Being Processed 17/11/09 Golden Broker SCVM Stock Broker Being Processed 30/10/09 BAI-Private Placement Placement Being Processed The above list is clearly outdated, and despite the hangover effect that resulted from the commodities price crash in 2008, we expect there to have been other applications which will be highlighted in the 2010 CMC annual report when it is published. 27
Arguments for and against the development of a domestic capital market Arguments in favour of domestic capital markets • A stock market will pave the way for the Central Bank (BNA) to float money market instruments, tradable in international financial circles. This will create an alternative source of financing for the many long term infrastructural projects creating a yield curve for the country and enhancing the sovereign risk profile. • Stimulation of local savings with listed equities being an alternative investment for the pension and insurance industries. Currently players in the short term insurance industry maintain significant cash balances and are not able to diversify their risk. • The provision of an alternative financing source for Angolan companies looking for growth capital. The implications for job creation and poverty reduction are significant. Currently private companies only recourse is to expensive bank lending which is difficult to access. • Improved corporate governance and reporting structures, two areas that are particularly weak. • Increased transparency and corporate governance will reduce tax evasion which is wide spread. • Creation of an avenue for privatisation of state owned entities that would be better managed as private entities. Not only would this lessen the strain on the fiscus, and in fact provide additional funding for other public investments, but this will also facilitate training, skills and technological transfers into the country. Zambia has been particularly successful in this regard. • Liberalizing capital markets will attract foreign capital, which is relatively cheaper and longer term in nature. • Capital inflows will buttress foreign exchange reserves and facilitate the „Kwanzarisation’ of the economy which remains highly dollarized, which dilutes the impact of monetary policy. • Apart from creating employment in the main services/tertiary industry, the downstream or ripple effect in the financial sector is significant. This creates employment opportunities for not only resident citizens, but will act as a magnet to attract Angolans from the diaspora. • The added benefit for the government is the concomitant increase in income tax revenues. Cons: Arguments against the opening of a stock exchange • In times of extreme financial duress, and the recent global credit crunch is a case in point, capital outflows are exacerbated by weak export revenue flows and a flight to „safer‟ currencies. • Open financial markets reduce control over the exchange rate, making the country more vulnerable to commodity price shocks and the exportation of foreign exchange. Nigeria‟s banking nightmare is a case in point where an inadequate regulatory framework has prolonged the effects of the banking crisis. Investigating the potential valuation of a stock market in Angola As the launch of the stock market in Angola is certain to make a profound impact, adding potentially significantly to the liquidity in Africa, it is a natural consequence for us to beg the question regarding the potential for the market. Our analysis looks at the market from both a top down and bottom up approach, using GDP as a guideline in the first instance and some of the larger companies in the second. Our findings are outlined below: BVDA potential – Top down approach Based on the country‟s GDP, we estimate that Angola has the potential to support a stock market, ranking at least third in sub-Saharan Africa after South Africa and Nigeria, by way of market capitalisation. The size of the market will ultimately be a function of the number and size of the floated companies, however this proxy gives us a good feeling for the country‟s medium term potential. Like most African stock markets we expect that the banking sector would dominate the market. Based on our company visits and discussions, we believe that the large majority of the banks have the corporate governance and reporting frameworks that would qualify them for listing - bear in mind that a large portion of them are already affiliated to Euronext listed Portuguese banks. Apart from banking, there is a handful or more of companies in Telecoms, Beer brewing, cement, food and retail that are of listable quality. Our calculations supporting the top down approach are shown in Table 6 below. Bottom up Approach Our bottom up analysis (Table 7) provides an introduction to some of the largest corporate entities in the Angolan economy, which, in terms of sophistication, reporting and corporate governance, compare easily with any of their pan-African peers. We believe this to be the tip of the ice berg and we understand that up to 50 companies have been identified as IPO candidates. This will give local Angolan companies an alternative for their expansion capital needs, but will also have a domino effect in deepening the country‟s financial sector. 28
Page 1 and 2: Angola Imara African Country Cement
Page 3 and 4: Angola Country Map 11a 1 9a a 8 5 2
Page 5 and 6: Executive Summary Comeback post 201
Page 7 and 8: Table 1: Timeline for major policy
Page 9 and 10: Table 3: 2011 Budget and Q1 income/
Page 11 and 12: Constraints to the growth story Ang
Page 13 and 14: US$ Millions US$ per barrel over 10
Page 15 and 16: Chevron also holds a 38.1% interest
Page 17 and 18: Italy Although Italy‟s oil intere
Page 19 and 20: SONANGOL: Angola’s de facto Sover
Page 21 and 22: Oil Majors in Angola´s Petroleum S
Page 23 and 24: In January 2011, Eni was awarded ri
Page 25 and 26: BAI BFA BESA BPC Banco BIC BESA Ban
Page 27: Table 9: Regional Banking Comparati
Page 31 and 32: Orascom Mobinil TNM Safaricom Econe
Page 33 and 34: Telephonic listings of Angola (ELTA
Page 35 and 36: Millions of Hectolitres NB Delta Cu
Page 37 and 38: Hotels, Tourism and Construction Ov
Page 39 and 40: • Kinaxixi Shopping Center and Of
Page 41: Capital Securities Botswana Ground

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