2018 Key IPOs to Watch
2017 was a very successful year for both M&A and IPOs globally. There was a total of $187bn in global IPOs in 2017, and this is expected to rise a staggering +55% in 2018 to $290bn, which is just slightly below the all-time record of $303bn, set in 2006 and 2010. We expect roughly $20bn of this $290bn to occur in Frontier Markets. For more details on global M&A and IPO outlook for 2018 and beyond, check out the Backer Mackenzie report here.
There are a number of IPOs expected within African Frontier Markets this year. We highlight the main ones that we are interested in, below.
MTN (Nigeria and Ghana)
MTN Nigeria has over 51mm subscribers and is the largest mobile phone operator in Africa. They are expected to raise approximately $800mm in Nigeria and are using Stanbic, IBTC, Standard Bank and Citigroup to run the process. MTN Nigeria owes at least $100mm to the telecom regulator in Nigeria for spectrum purchased in 2016, and the funds will likely be used for this purpose in addition to infrastructure investments across the country. For further information see here. MTN must list due to an agreement in 2016 as part of a settlement for missing a deadline to disconnect unregistered subscribers.
MTN Ghana must also list itself in 2018, this was a condition of its purchase of $67mm worth of 4G spectrum last year. It is expected to raise at least $200mm, and will be used towards the buildout of infrastructure for the spectrum purchased. This listing will be on the Ghana Stock Exchange.
MTN as a whole is valued at approximately $18bn and Nigeria contributes about 40% of the group’s profits.
Saudi Aramco (Saudi Arabia)
Saudi Aramco is finally expected to IPO in 2018, the long-delayed IPO is now at a point of requiring only the okay of the Board and CEO before it can go. The company took a long time to bring its internal reporting, controls and audits up to a standard befitting a public company. The firm is likely to be valued between $1 and $2 trillion, and a 5% share sale would make it one of the largest IPO offerings ever.
The delays have resulted in numerous conspiracy theories, such as Aramco’s reserves being disappointing. However, we don’t think this is reasonable or accurate. It is simply an opaque autocrat company that has long used secrecy as a way to increase its mystique adjusting to the requirements of being a public company.
We are not certain if 2018 will be the year, but if we do expect the probability is higher than it not occurring.
IHS Towers (New York)
IHS towers is the largest cell phone tower company in Africa. Its headquarters is in Mauritius, but it effectively operates in London. With an enterprise value of $10bn, the firm is going to have to list in more liquid markets. It is disappointing that the company appears to be focused on a single-listing in New York rather than dual-listing with an African market being represented. The primary areas that IHS operates in are Nigeria, Cameroon, Cote D’Ivoire, Rwanda, and Zambia. We think this is one of the best Frontier Markets companies to own on a developed market exchange.
The company’s infrastructure is used by over 700mm mobile subscribers and the needs for data and mobile infrastructure are only growing. The leads on this listing are Goldman Sachs, Citi, and Morgan Stanley.
Corporacion America Airports (New York) – ALREADY LISTED
CAAP listed in the first week of February in New York and it did not go too well. The company rose $485mm but is currently trading at $15.55 despite an already-reduced IPO price of $17 per share. The company is currently valued at $2.5bn despite revenue of only $1bn last year. The company operates the majority of airports in Argentina and was attempting to cash in on investor confidence in Argentina. This did not go so well.
Central Puerto SA (New York) – ALREADY LISTED
CEPU listed in New York, creating a dual-listing with Buenos Aires. The listing was priced at $16.50, below an indicated range of $17.50 – $21.50 on Feb 2. The shares have recovered though, and are currently trading at $17.60 per share. This gives CEPU a market cap of $2.7bn.
The company is a major power generator in Argentina, generating 3,791 MW of power per year and continues to create a network of conventional and renewable energy across Argentina. Its installed capacity represents 16% of the installed capacity in Argentina.
Due to the poor offering response for CEPU and CAAP, other companies contemplating IPOs in New York from Argentina have delayed their plans until further notice. Such a company is Bioceres, an Argentinian biotech firm which is awaiting better market conditions before moving forward with its iPO.
Camanchaca (Chile) – ALREADY LISTED
Camanchaca is owed by Pesquera Camanchaca is a salmon farmer that managed to raise $108mm and had its IPO surge 15% in early trading in the first week of February. The company produces over 60,000 metric tons of salmon per year.
The company conducts extensive research & development and is a cost-leader in the industry for its ability to increase yield with more efficient R&D spend than other global competitors. Its sales are well-diversified across many geographies and salmon consumption shows no signs of abating. For all these reasons, the IPO was received very well.
Summit Power (Singapore)
Summit Power controls 13% of Bangladesh’s electricity market and is expecting to IPO in Singapore by April. The company is using Citi, DBS, and UBS as leads for the IPO. The company is spending significant capital towards building LNG capacity, as demand from gas producers continues to grow.
Bangladesh grew 7.3% in 2017, and its population is expected to reach over 200mm by 2035. In addition, the company is competing for projects in Sri Lanka, Vietnam, and Indonesia. This is an excellent option for those looking for a safer investment with high-quality management and the upside that is inherent in Frontier Markets.
Banque Du Caire (Egypt)
Egypt has had a very healthy IPO market for the past two months, and 2018 should result in at least 6 significant IPOs as foreign investment and growth continue to increase in Egypt. The government intends to raise at least $10bn over the next two years from share offerings, and the market has been dormant since the political instability from the Arab Spring.
Banque Du Caire’s IPO was delayed in 2017 but looks to be on track with EFG Hermes running lead. It is currently the third-largest state-owned bank and it also operates Cairo International Bank in Uganda. Randomly, it also owns 20% of Air Cairo (a low fare airline that operates to Europe and Asia) and Suez Steel which is a medium-sized steel company in Egypt. A successful IPO for the bank will get the government comfortable with more listings.
Hidroelectrica has been trying to IPO for over a year, but it has many of the issues that Eastern European companies have, which is to be plagued by inefficiency, an aging workforce, and financial opaqueness. In fact, Hidroelectrica continues to be plagued by insolvency. However, the government has approved a sale of 10% of its shares.
The company has an installed capacity of 6,400 MW but can rarely use more than 4,000 MW due to inefficiency and poor technological investment. In Bucharest, 40% of power consumption is from Hidroelectrica. It will be the Romanian government’s first listing since 2014, and we think at the right price, it could be interesting. We don’t expect the IPO until 4Q 2018 though.
KT will be one of the first major companies in Kazakhstan to go public in 2018 and will begin a long line of government-owned companies that will be going public. KT has revenues of approximately $500mm per year. The company serves approximately 3mm customers but is rapidly spending to expand its infrastructure for data and 21st century demands on telecom infrastructure.
Unsparingly, the company is terribly run. What will be interesting is how much disclosure they provide and how the management team sets a cadence for quarterly calls. We will be watching this one closely as a barometer for how serious Kazakhstan is about becoming a global financial center.
Vinalines is expected to IPO in mid-2018 and raise at least $100mm. The company went from the cusp of bankruptcy five years ago to $800mm in assets today. The company generated a profit of $22mm last year. The company is Vietnam’s largest shipping company and expects to generate $100mm in profit per year by 2020.
As shipping becomes increasingly vital to Vietnam to support its continued push to higher-end manufacturing, Vinalines will be a direct beneficiary of Vietnam’s economic development. We are quite bullish on this IPO if it is priced appropriately.
We expect over 100 IPOs within the Frontier Markets we cover. Of course, as usual, many of these never come to pass because of the ineptitude of Frontier governments and companies in producing public company-level disclosures and transparency.
2018 will likely be a very strong year, and we feel that way, even more, today, due to weakness in developed markets and the heightened volatility that has forced investors to finally look elsewhere for investment opportunities as equities may have run their course in developed markets.
As always, any questions, please let us know.