Photographer: Issouf Sanogo/AFP via Getty Images

For a Lesson in Precisely How Not to Do an IPO, Look at Ghana

  • Ghana sale reopened to seek new buyers after deal had closed
  • Delays may curb growth hopes for Africa’s stock markets

It was supposed to be sub-Saharan Africa’s biggest share sale by a state company in almost 10 years. Instead, it’s a lesson in how not to conduct a privatization.

More than two months after Ghana’s Agricultural Development Bank Ltd. received bids totaling $113 million in an initial public offering, and a decade after ending state ownership was first discussed, the company is reopening the sale, essentially invalidating the first auction. The government, which had already missed two deadlines to approve the transaction, controls at least one potential new buyer: the state pension fund.

The IPO, which the central bank initiated in 2011, was delayed by lawsuits, employee protests and government infighting -- at one point, for instance, the securities regulator opened an investigation into the transaction adviser. Tuesday, the regulator ordered the bank to refund investors who already had paid for stock. 

It’s all another sign that Africa has a long way to go as an investment destination.

“Clearly we’re looking at a case of a failed IPO,” said Doris Ahiati, head of research at Accra-based Databank Group Ltd., which bought some of the shares for its clients. “I’m going to demand interest on behalf of my clients.”

ADB’s IPO would have been sub-Saharan Africa’s biggest by a state-owned company since 2007, when Safaricom Ltd. of Kenya sold $779 million of shares, according to data compiled by Bloomberg.


Moribund Markets

The deal’s setbacks may blunt attempts by African nations to liberalize their moribund markets and attract foreign investment. Sub-Saharan Africa’s 10 biggest stock exchanges account for just 0.71 percent of global equities, according to data compiled by Bloomberg. Take out South Africa and that falls to 0.12 percent. 

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Officials at the Ghana Stock Exchange had hoped the sale would boost trading volumes, helping to spark a recovery after the benchmark index fell into a bear market earlier this year. 

Now, they need to wait for the process to start over.

“We’re all hoping for things that will move the market forward,” said Elizabeth Matekole, head of secondary-market activity at the exchange. “I pray that the Securities and Exchange Commission is able to resolve whatever issues there are.”

Just a decade ago, Ghana was viewed as a nation with promise. It was one of the most politically stable countries in Africa and its debt had been largely forgiven by international lenders. When its first barrels of crude oil were shipped in 2010, then-president John Atta Mills pledged to build new roads and a deep-sea port, expand the power grid and create an aluminum industry. A year later, Ghana’s economy was the fastest-growing in Africa.

Emergency Loan

Six years later, things are different. The government was forced to seek an emergency loan from the International Monetary Fund of almost $1 billion last year, inflation is running at close to 20 percent and power cuts that can last 24 hours are crippling businesses. Ghana’s economy -- at $36 billion the largest in West Africa after Nigeria -- will probably expand 4.5 percent this year, according to the IMF, after growing 3.9 percent in 2015, the slowest pace in two decades.

Ghana’s currency, the cedi, slumped 27 percent to a record in June last year before paring the decline as the central bank raised its policy rate as high as 26 percent. The cedi weakened 1.3 percent to 3.89 per dollar by 11:13 a.m. in Accra on Thursday.

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The government, which is selling an undisclosed portion of its 52 percent holding of ADB, missed a second deadline of May 5 to approve the transaction. Then the lender last week said it would seek to reopen the sale to allow the state pension fund and the Cocoa Board -- neither of which participated in the IPO -- to buy shares in a second round of bidding. The company said Monday it had rejected 435.1 million cedis ($111.6 million) of the 437.9 million cedis in bids it received.

The SEC instructed the transaction adviser, Accra-based IC Securities Holdings Ltd., to “ensure that all monies received in respect of the offer are returned to applicants” after being informed of ADB’s intention to reopen the sale, it said in a statement on Tuesday. Previously, it had begun an investigation into the adviser, then dropped it last week. ADB spokesman Solomon Atefoe said Wednesday that the reason for the share sale was to let the central bank get rid of its shares and to raise capital.

Government’s Bidding

The pension fund, Social Security and National Insurance Trust, with the equivalent of about $1.7 billion under management, will decide in about two weeks whether to buy shares, Noel Addo, general manager for investment and development, said last week. The fund is interested in ADB because banks offer good returns, he said, denying that it was doing the government’s bidding.

Finance Minister Seth Terkper said new ownership by government entities would change the character of the share sale. 

“Whether the bank becomes privatized or not would depend on who takes the shares,” he said by phone. “If SSNIT or Cocoa Board or some other government institution take the shares, that cannot wholly be privatization.” The decision to list on the market was made by the board, he said.

“The message coming across is that when it comes to the issuance of securities of public companies, there’s no fairness,” said Kisseih Antonio, managing director of asset management at Ecobank Capital Ltd., which subscribed for some of the shares. “It shows that they are being partial to a certain class of investors. The question I have to ask myself is: is it worth my time to subscribe to any future public offerings of state-owned entities?”

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