Global investment banking has been thriving despite the Covid-19 pandemic. According to data by Refinitiv, global investment banking deals by volume peaked year-to-date (August 2020) in April, with loan syndications and debt capital markets (DCM) dominant. Mergers and acquisitions (M&A) picked up significantly in June and July, but halved subsequently in August.
Bankers almost certainly miss the thrills of the travels and socialising associated with making deals in the past. Even those who probably complained about the jet lag, the monotonous hotel rooms, and many missed anniversaries and birthdays in times past, are likely nostalgic about the good old days. A similar pause has not been the case with getting work done, though.
Pitch decks, which with the benefit of hindsight were needlessly printed in hard copy for distribution, are being availed electronically but with enhanced security features to mimic the restricted viewing advantages of the paper versions. This was increasingly so before the pandemic in any case. Face-to-face meetings and road shows are also being conducted via online video conferencing.
Securities trading also continues with little hitch, albeit with likely more anxious bated-breathed executives, as traders place bets from home, away from close scrutiny and using less sophisticated equipment. Still, not a few managing directors probably wonder at how much they have been able to get done with less fuss.
Undoubtedly, many of these new practices would endure after the pandemic. True, there would probably be a desire for in-person social interactions at the point of on boarding new clients and striking new deals. As is often the case that most deals are with existing clients, however, the hearty laughs and back tapping during meetings, over meals and playing golf would probably not be as much as before.
Buoyant global capital markets, dull M&A to recover
In spite of myriad Covid-19-related challenges, global debt and equity capital markets have actually recorded significant annual increases in deals year-to-date (August 20th). Global debt proceeds of US$6.8 trillion from 17,714 issues were recorded for the year by Refinitiv (as at 20 August), up 31 percent from US$5.2 trillion for the same period last year. Global initial public offerings (IPOs) have been quite decent as well.
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Mergers and acquisitions (M&A) and loan syndications have understandably not been similarly buoyant. But that may likely change from Q4-2020 onwards. Global announced M&A totalled US$1.7 trillion in value YTD (20 August), down 32 percent from US$2.5 trillion the same time last year. Global loan syndications are down significantly as well, by a quarter at US$1.9 trillion YTD (20 August) from US$2.5 trillion in the same period in 2019.
Fees have also been decent, as suffering firms restructure their operations to fit with new realities. Global investment banks earned about US$69 billion in the year to August, just 7 percent shy of the US$65 billion earned industry-wide by the same time last year. With many corporates unlikely to survive on their own even with the best advice, there are realistic expectations of an impending M&A boom.
African deals down, prospects robust
Except for equity capital markets (ECM), African investment banks have had a poor year thus far. That is, even by pandemic standards. Africa ECM transactions of US$1.9 billion in 2020 thus far to August are quite remarkable, though, when juxtaposed with the 2019 total of US$4.7 billion, when equity deals were at a 10-year low. M&A deals are down by half relative to last year. DCM deals are picking up but still down about 10 percent from 2019 levels. Loan syndications are also down a fifth in the year. There would probably be a pick-up in M&A activity later in the year.
But there is not likely to be significant movement until next year. DCM may end up being at par with last year’s performance or actually do better, however.
Activity in Africa’s secondary equity markets are varied. At a webinar titled “Review of Africa’s Capital Markets between 2010 and Q1 2020” hosted by the Making Finance Work for Africa (MFW4A) Secretariat and PricewaterhouseCoopers (PwC) Africa in May 2020, Geoffrey Odundo, chief executive of the Nairobi Securities Exchange, asserted “capital markets in East Africa have taken a hit, with a 20% decrease in trading volume since the beginning of Covid-19.” In contrast, trading volumes increased threefold on the Ghana Stock Exchange between January and April 2020, says Daniel Ogbarmey Tetteh, director-general of Ghana’s Securities and Exchange Commission (SEC), albeit buoyed by domestic investors.
According to analysis by PwC using data from Dealogic, US$41.6 million was raised via IPOs on the continent in the first quarter of 2020, with Airtel Malawi raising US$28.6 million and Emerald Co. securing US$12.9 million. US$1.4 billion was raised via follow-on (FO) offerings in Q1-2020 as well, with South African firms dominant at 84.3% (US$1.18 billion) of FO capital raised, Morocco a distant second at 9% (US$125 million), and Tunisia third at 5% (US$70 million). Ghana recorded US$22 million FO deals in the period too, coming fifth. The top five Q1-2020 Africa ECM deals were for the following South African companies: Brait SE (US$375 million), Gold Fields Ltd (US$251 million), Sibanye-Stillwater Ltd (US$155 million), Foschini Group Ltd (US$130 million) and Transaction Capital Pty Ltd (US$108 million).
In February, Nigeria’s Bank of Industry raised a €1 billion syndicated loan, arranged by Afreximbank and Credit Suisse, deservedly winning African Banker’s Debt Deal of the Year Award in late August. The Government of Ghana also raised a three-tranched US$3 billion eurobond in the first quarter of the year. Understandably, there was a lull in activity in Q2-2020. But even then, Nigeria’s Dangote Cement Plc issued a 12.5% fixed rate bond in April of about $400 million in local currency.
According to GCR Ratings senior analyst Funmilayo AbdulRahman in Lagos, “this debt issuance, which is the largest by a non-financial institution corporate in Nigeria, indicates the capital market’s depth amidst the macroeconomic challenges.” GCR Ratings’ AbdulRahman believes “the prevailing low yield environment and the excess financial system liquidity provides the necessary support for capital raising.”
Without a doubt, medium to long-term prospects for African investment banking remain robust. Moody’s senior vice president and banking analyst Constantinos Kypreos tells me that while “deals are expected to be scarce in the current operating conditions, longer term the potential for capital markets development, consolidation within the banking sector, initiatives to address Africa’s huge infrastructure gap, and potentially higher FDI and implementation of the Africa Continental Free Trade Area (AfCFTA) agreement, to mention a few, will support growth and related investment banking deals.”
