The London Stock Exchange (LSE) is working to attract more listings from Africa, with a senior official telling African Business that regulatory reforms boost the case for high-growth African firms floating in London.

London has experienced challenges in attracting new listings in recent years. The drop has been steep: in the first half of this year, listings plummeted to a thirty-year low, and initial public offerings (IPOs) raised a total of just £160m ($216m). By contrast, in the same period in 2009, during the immediate aftermath of the global financial crash, £222m ($300m) was raised. Before the crash, more than £200bn ($270bn) was raised in the first half of 2007.

This can partly be attributed to global factors: uncertainty around global trade and US tariffs has contributed to greater market volatility around the world, while sentiment to the UK has been impacted by its exit from the European Union.. The consultancy firm EY notes that geopolitical tensions – and associated economic issues such as higher energy prices and higher inflation – have further damped investor appetite globally.

However, regulators in London have also sought to boost activity on its capital markets by introducing reforms aimed at making the exchanges more competitive and attractive for international firms. Known as the “Primary Markets Effectiveness Review,” these reforms have sought to remove regulatory barriers to listings and make it easier for global companies to list in London. Abi Ajayi, primary markets head for Africa at the LSE, tells African Business that “we’ve just gone through the biggest reforms for nearly forty years which are aimed at changing our rules to create greater flexibility for companies already listed on the exchange.”

“We also believe there is an opportunity for us to attract more companies on the exchange by adding what is called a secondary listing segment – this essentially allows companies to stay on their local exchange while adding a line into London,” he adds.

Listings as ‘soft power’

Ajayi says this is a particularly important reform for attracting African companies as many require a local presence in order to retain what he calls “soft power” in their domestic markets.

“If you are listed in your local markets, you have a certain soft power in accessing government-related opportunities,” Ajayi explains. “This is particularly important for systemically important banks, for example, or an energy company providing access to citizens in African countries.

“It is always important for these companies to have a presence in their home market so that their customers, employees and others can own a part of their growth story.”

Retaining this local presence while also being able to tap into the greater amount of capital and international visibility available in London offers “the best of both worlds,” Ajayi says.

These reforms come at a potentially important time for the continent. Interest in high-growth sectors such as tech is continuing to rise; but investors have been somewhat inhibited by the lack of exit options.

Sadaharu Saiki, general partner at Sunny Side Ventures in Cairo, previously told African Business that a lack of IPOs, mergers and acquisitions, and secondary transactions mean that it is difficult for investors to exit their investments and cash in their profits.

Liquidity options

He said that “these liquidity issues are a barrier for many” and that “it is clear we need more liquidity options to boost the attractiveness of African markets for investors.”

This is backed up by the data: a survey conducted by the African Private Capital Association, which promotes venture capital in the continent, found that 76% of limited partners consider “limited exit opportunities” as the biggest challenge they face when investing on the continent.

Ajayi believes the LSE can play a role in providing that liquidity, saying that “we are continuing to play an active role in talking to venture capital and private equity around using capital markets as a viable exit platform – and that is changing the manner in which they are engaging with the exchange.”

Some have raised questions, however, over whether the LSE will be successful in attracting greater number of African firms to list in London.

A report from the Tony Blair Institute (TBI) argues that “the LSE has been adversely impacted by negative market sentiment to the UK in recent years” and that this has led to “other stock markets becoming viable alternatives for companies seeking a listing”.

The report also notes that elements of the regulatory reforms have “actually made the listing regime more punitive for Africa-domiciled issuers”. This is because, while African firms are obliged to meet the same regulatory requirements as every other company, they are unable to access some of the benefits which would otherwise be associated with floating in London, such as inclusion in certain indexes..

Domicile difficulties

The TBI cites “FTSE-index inclusion where offshore domicile eligibility is restricted to just a handful of deemed ‘low-tax’ jurisdictions, none of which are on the African continent,” as an example of these restrictions.

While re-domiciling to the UK could solve these issues in theory, this is often “not a practical alternative” for African companies, particularly in highly regulated sectors such as finance.

Ajayi notes that London, partly because of its historical ties to the continent, has traditionally had success in attracting African companies to its capital markets – pointing out that in the last decade, African corporates have collectively raised over £30bn ($40bn) in London, with the LSE currently home to around 110 African companies with a total value of £165bn ($223bn).

“I do not think there is any other market where African companies have done as much,” Ajayi says.

He believes that this track record, along with London’s relative geographic proximity to Africa compared to other financial hubs such as New York and Singapore, provides a strong basis for further activity in the future.

“London and Africa share the same or similar time zones, which is very important,” Ajayi tells African Business. “Proximity to investors is another big plus.”

London’s push to attract more African firms comes at a time when both sides have much to gain from increased engagement. For the LSE, the drive for fresh listings from the continent is crucial to restoring momentum after a period of sluggish IPO activity.

More broadly, the LSE’s attempts to incentivise more African firms to list in London could form a strong part of the UK’s wider attempts to engage the African continent after years in which the country has arguably taken its political and commercial relationships in Africa for granted.

Deeper pools of international capital

For African companies, while some obstacles appear to remain, the LSE reforms potentially open the possibility of tapping into deeper pools of international capital while maintaining a strong presence in their local markets.

This could in turn provide a practical exit option for investors, further enhancing Africa’s attractiveness for venture capital and private equity investment. However, it remains to be seen how successful the LSE’s regulatory reforms will be in attracting greater numbers of African companies.