The women who never settle for ordinary

Read the video transcript

• PL: Penny Latter
• DL: Della Levinsohn 
• ATS: Angela Teeling-Smith
• YL: Yvette Labuschagne
• RM: Rufaro Munzara

• 00:10: The impact of the GNU on the corporate advisory and M&A space

  DL: Let me look at the impact that the formation of the Government of National Unity has had on the private equity space in South Africa. It's widely recognised that the political uncertainty pre-election was actually already priced in before the election results were announced. And while certainty is preferable for any investors, it's particularly significant in the private equity space where your shareholders are in generally for the medium to long term.

  PL: Following the formation of the Government of National Unity, South Africa should now be poised for better economic growth and be firmly back on the investment radar of local and international investors. This, coupled with an imminent decrease in interest rates and infrastructure improvements such as improved transit throughput, port efficiencies and improved electricity generation, should result in a sustained shift in sentiment in South Africa.

  ATS: The underweight position in South Africa is currently being questioned. There is a universe, however, where should GDP rise to around the two percent level and should the GNU initiatives materialise. We are of the view that we will start to see the valuation gaps between South African listed companies and our global emerging market competitors starting to narrow.

  RM: I think if the GNU is seen to be delivering on key milestones and tackling low-hanging fruit, and if the electricity grid does remain stable, I think you will see, um, corporates. Start gaining confidence in the system. They'll start investing a lot more in South Africa and expanding their operations. And then this obviously creates opportunities within the financing space, but a lot of companies are taking a wait-and-see approach. And I think it will be very clear in just a few months what the GNU has been able to deliver.

  YL: So the government of national unity has really created a positive impact on SA Inc. We've seen some foreign flows back into bonds on the JSE. Obviously, there's still global uncertainty because the US elections are still coming. But if we can build on this momentum, we can have some of those structural reforms in place, increase our economic growth, lower some interest rates, we can create this positive momentum that could help companies grow and ultimately, you know, enable them to a list on the JSE or if they're already listed to access the capital markets.

• 02:48: The biggest lending challenges facing SA corporates

  RM: The primary challenges faced by listed corporates when it comes to lending in South Africa, I think have been quite common across the board. The first one that comes to mind is probably the high interest rate environment. But we've still seen a fair amount of activity in the funding space despite increased financing costs.
  

  So the electricity grid has not been that stable, until recent months. So that's forced corporates to have to tap into their funding, um, to finance backup power such as diesel for generators, batteries, or solar solutions. So certain sectors have had a better time of it than others, and in those sectors that are under pressure, we have seen increased utilisation of facilities, just to tide them over.

  But I think specifically for listed corporates, they tend to have an advantage in that they have greater access to the capital markets, and they're also generally seen as good quality assets. So you have both local and foreign banks competing for the same asset, which makes for a highly competitive environment, and as a result, your listed clients tend to demand much better pricing. 

• 04:10: Private equity trends

  DL: If we look at the key trends and developments when it comes to the private equity space in South Africa, we see that many of the large buy-out private equity funds either no longer exist or are taking longer to raise the capital that they need for new funds. Due to market conditions, there have been less realizations in the more established funds, and this has resulted in investors in those funds not being able to deploy their capital into new funds.
  

  South Africa is reflecting the global trend of finding it increasingly challenging to have institutional investors committed to your traditional private equity framework.  In its place, we are finding a new suite of potential shareholders, being, for example, high net worth individuals, family offices.  If we are looking at trends, one which I believe is here to stay would be the emphasis on impact investing, with ESG in particular becoming top of mind. 

• 05:11: What are private equity investors looking for?

  DL: If we look at the most important factors that would make a deal attractive to a potential investor, the first one would need to be the industry in which the investing company operates, and for that to be tested against the investor's appetite for exposure to that market.  Very important from an investor's perspective will always be the strength of the management team.
  

  We often speak about backing the jockey, and the credibility of the management team can't be overstated. We would also want to very carefully understand how our capital would be deployed, and we'll try and quantify this to see the impact, the financial impact, on the business concerned. Private equity considerations are also focusing more on impact investing and ESG, and this would definitely be an important criterion to take into consideration.

  Given that public equity investments are generally made for the medium to long term, even at the outset we would want to be clear on our exit strategy. 

• 06:07: M&A activity expected to pick up

  PL: M&A activity in South Africa over the past while has largely been driven by an increase in the number of takeouts and delistings, as investors and shareholders believe the values at which these companies are trading are not reflective of their underlying value and are simply just too cheap to ignore.
  

  The sectors where I think we'll see an uptick in M&A are those closely aligned with the SAE economy first of all, and then those aligned with infrastructure improvements. So the likes of the property sector, um, industrials, transportation, construction, and then of course, um, an increase in activity in the small cap sector as the theme around delisting. 

• 06:56: Sustainability no longer just a buzzword for SA corporates

  RM: Sustainability has become very important to corporate lending in South Africa because I think companies recognize the commercial importance of sustainability and as a result you're seeing capital flows, um, Increasing into activities that have a positive sustainability benefit, and this is creating opportunities for sustainable finance, such as sustainability, linked loans or green bonds to meet the demand. 
  

• 07:33: What’s driving the JSE delistings?

  YL: The main factors that have led to the recent delisting rush we've seen is there's been poor liquidity for smaller to mid-caps, which are companies that have a market cap below R3 billion roughly.  It's also been constrained environments to raise capital. We've seen a lot of rescue rights offers, but we've not really seen a lot of placings or interesting accelerated book builds in recent days. 
  

• 08:00: How to stem the JSE’s delisting tide

  ATS: The JSE launched a simplification project in September 2023 with the aim being to simplify its listings requirements into a more user-friendly format. This really entailed a reordering of the listings requirements. It also involved the removal of repetitive and redundant wording. As a consequence, we will see a shorter and more concise set of listings requirements, which will ease the regulatory burden on our clients.
  

  YL: So apart from working on the listings requirements and making the rules more pragmatic, the JSE also faces a structural disconnection on the exchange in the sense that the bulk of the trade of the exchange is done by institutional investors, and they have a scale liquidity bias. If you have a fund, you have to make a sizable investment in order to have a sizable weighting on your fund, and so you bound to invest in larger companies.

  They also have to be able to exit a position relatively quickly and that's liquidity and in terms of a stock makes is an important consideration for fund managers and that once again creates a bias towards larger companies. This is a structural issue on the JSE. It's been one for years. 

  Only 10 percent of trade on the JSE is done by retail investors according to them. And so one of the key focus areas is trying to grow that retail investor base and try and create an environment. Where retail investors have easier access, more information, and companies can ultimately grow quicker as well.