MWANYASI: Global IPO markets signal hope for the Nairobi bourse

Though the Initial Public Offerings (IPO) casino at the Nairobi Securities Exchange (NSE) remained closed last year, elsewhere, things stayed busy.

The largest IPO of the year took place, as Japanese telco Softbank raised Sh2.1 trillion becoming the fourth largest offering in history (second if the green-shoe is exercised).

London saw a pause in IPO activity (largely due to Brexit and high market volatility) but still remained Europe, Middle East and Africa’s (EMEA’s) most active market by IPO volumes. Johannesburg Stock Exchange (JSE) led the field of African exchanges in terms of overall equity volume and value due to a few significant transactions, most notably the Sh8.1 billion dual listing of Vivo Energy on the JSE and LSE.

For China, owing to a stricter regulatory oversight, IPO proceeds and numbers fell by 44 percent and 77 percent respectively. All this, is according to the recent PwC reports, Global IPO Watch and Africa Capital Markets Watch.

Anyhow, lots of things were said in the reports but three observations caught my attention. One, as a result of a few jumbo IPOs, 2018 IPO proceeds outpaced those in recent years even as volatility returned on equity markets. IPO proceeds increased by six percent but the number of transactions fell by 23 percent.

Two, 2018 pricing was more volatile as the share of transactions pricing within their initial pricing range dropped to a multi-year low.

Three, post-IPO performance was lower than 2017 as equity markets fell and the share of historically outperforming Chinese IPOs dropped.

These are reasons to be concerned. Could global IPO markets be topping? If yes, what does that mean for deals in the pipeline in frontier markets? Should we expect the “10-year IPO drought” at the NSE to continue?

Obviously, the optics don’t look so good for markets such as ours. If global investors lose confidence, then perhaps our circumstances might not be any different.

With the US technology sector, which ended last year with the second highest IPO proceeds and expects this year to be the “year of the unicorn”, already showing signs of weakness, the end looks near. When favoured unicorns such as Lyft shave off gains soon after debuting, it’s indeed a cause for concern.

More importantly, for the EMEA region, post-IPO performance was noted to be the lowest compared to the two other regions; Americas and Asia-Pacific. The share of EMEA IPO pricing trading at the bottom or below the initial pricing range was also the highest in years.

That said, a couple of things are making the situation even murkier; bitcoin recently took-off like a rocket, global trade tensions have begun cooling down, US monetary policy is also pulling back from austerity and so on. Which way Mr market?

Guess this is the part where they say; let’s wait-and-see – you’re analyst’s escape line to mean “I am/we’re clueless”. Nevertheless, investors, waiting to see whether their hopes and dreams of an IPO at the NSE revived after a long disappointing stretch, should not give up yet.

As long as trading lights (read global IPO markets) are flashing amber, there’s still some room to be cautiously optimistic.

Mwanyasi is MD, Canaan Capital Limited