adminAfrica to replace earnings from the biggest drop in mergers and acquisitions in seven years.
“The opportunities are massive,” said Theuns Ehlers, head of project finance at Johannesburg-based Absa Group Ltd’s investment banking unit. “The pipeline is there.”
Companies in South Africa announced 235 takeovers valued at R107,7 billion (US$13,1 billion) so far this year, heading for the lowest level since 2004, when deals totalled R107,6 billion, according to data compiled by Bloomberg. There were 273 transactions in 2010 worth R221,8 billion.
To compensate for the loss in M&A revenue, lenders are trying to tap into the US$93 billion a year in investments the World Bank estimates are needed to build power plants and roads in countries including Nigeria, South Africa, Botswana, Zambia and Kenya over the next decade to sustain economic growth. Governments need private companies to help finance ailing infrastructure as demand for services, including power, roads and rail, fails to keep up with supply in a continent of close to a billion people.
Standard Bank, Africa’s largest lender by assets, tops South Africa’s so-called league tables with three deals valued at R18 billion, which include Jinchuan Group Ltd’s takeover of copper producer Metorex Ltd Credit Suisse AG is ranked second and Goldman Sachs Group Inc is third, with seven transactions such as the R9,72 billion purchase of Cape Town’s Victoria & Alfred Waterfront shopping mall by Growthpoint Properties Ltd and the Public Investment Corp.
Deals have been drying up at home amid slowing growth caused by a sovereign-debt crisis in Europe, which accounts for a third of South African trade. Investor confidence is also undermined by calls to nationalise mines and banks by Julius Malema, the president of the ruling African National Congress Youth League, and the government’s attempts to impose more conditions on Wal-Mart Stores Inc’s R16,5 billion purchase of a controlling stake in wholesaler Massmart Holdings Ltd.
“Policy uncertainty, institutional delivery challenges, logistical challenges and uncertainty on the overall political economy – these are certainly barriers,” Colin Coleman, managing director and head of sub-Saharan Africa, said in a phone interview.
“World markets are very volatile and whenever you have volatility it’s hard to agree price,” said Kevin Kerr, head of corporate finance at Investec, which today reported a 91 percent decline in pretax profit from investment banking for the six months through September. “That makes it very hard to agree and conclude deals, which is what M&A is all about.”
Funding infrastructure projects opens the way for investment banks to raise capital and because they typically involve large sums and commodities, allows lenders the opportunity to earn fees on price-risk management by using derivatives to hedge, Helmut Engelbrecht, the head of investment banking for Africa at Standard Bank, said. It also provides access to decision makers, which could open up other investment-banking opportunities, he said. Fees could also be higher than for M&A because transactions may sometimes take as long as two years to conclude and requires more effort,
Absa Capital’s Ehlers said. Demand for Africa’s mineral and energy resources is helping to drive infrastructure development, Kokkie Kooyman, who oversees Cape Town-based Sanlam Investment Management’s US$260 million Sanlam Global Financial Fund. The copper belt running through Zambia and the Democratic Republic of Congo holds 10 percent of world copper reserves, while Congo alone has two-thirds of cobalt deposits.
“Africa is still sought after because of its resources,”he said. “To get those resources out cheaper you need infrastructure.”
Botswana estimates it has 200 billion metric tons of coal reserves, enough to supply India’s current import needs for 2 000 years.
Soth Africa is the world’s biggest producer of platinum, while Zimbabwe has the world’s second-largest reserves of the metal. – Bloomberg.com.
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