Arqaam Tackles JPMorgan to Deutsche With Cape-to-Cairo Plan

Arqaam Capital Ltd., a Dubai-based investment bank focusing on emerging markets, said it plans to trade African bonds and derivatives after opening a brokerage in Johannesburg in January.

Arqaam became the first broker to join Johannesburg’s stock exchange in three years, pitting it against research teams from Deutsche Bank AG, Renaissance Capital Holdings Ltd., Standard Bank Group Ltd. and JPMorgan Chase & Co.

“We’re under no illusions that this is a tough market,” Ross Abbott, head of Arqaam in South Africa, said in an interview in Johannesburg yesterday. “We believe we’ll be the first Cape-to-Cairo broker. We started with cash equities and we’re looking at the bond market, derivatives and maybe asset management with an Africa fund.”

Arqaam plans to extend its coverage to the mining industry from the 49 African financial-services stocks it covers, before building research on consumer, real estate, aviation and other sectors, Abbott said. The firm plans to trade over-the-counter bonds and is focusing on countries including Kenya, Ghana, Nigeria, Morocco and Egypt, he said.

RenCap, the Russian investment bank controlled by billionaire Mikhail Prokhorov, said Feb. 24 it had hired Rupert Preece to head sub-Saharan fixed-income trading as demand for African bonds increases. Last year Credit Suisse Group AG switched its coverage of fixed income in sub-Saharan Africa from London to Johannesburg to boost emerging market revenue.

Big Angle

“Our Middle Eastern products are the big angle here; we’re the only ones in South Africa offering that reach,” Abbott said. “And we have North Africa. RenCap also wants to be there -- we believe we’ll be first.”

Zambia joins other African nations including Ghana and Kenya in selling dollar-denominated debt this year. Countries in the continent may sell as much as $5 billion in bonds by June, according to Johannesburg-based ETM Analytics Ltd.

“There’s probably a space for someone with feet on the ground in North Africa,” said Arno Lawrenz, chief investment officer at Cape Town’s Atlantic Asset Management. “But taking on North Africa credit risk right now -- that’s like going into distressed debt. Do you need to go into that sort of environment to get a decent return? My sense is no.”

Arqaam, which offers trading and research services to institutions, has been visiting exchanges across the continent and there may be a “strong push for sukuk,” Abbott said, commenting on Shariah-compliant bonds.

South Africa plans to sell a debut $500 million international sukuk this year and introduce two long-term domestic bonds as the nation diversifies its debt portfolio to reduce refinancing risks, the National Treasury said on Feb. 26.

“We would like to chat with the central bank about this,” Abbott said.

Before it's here, it's on the Bloomberg Terminal.