Citigroup Sees Sliding African Valuations Driving Deals in 2017

  • Lender says it won clients and market share as rivals withdrew
  • Economic events in Kenya, Nigeria fueled Citigroup’s business

Citigroup Inc., which has a presence in 12 sub-Saharan African countries, said low valuations may lure buyers back to the continent next year after deals dried up in 2016.

“The last 12 to 24 months have been difficult for the continent, but things are starting to bottom out, such as the oil price,” Atiq Rehman, chief executive officer of Citigroup in the Middle East and Africa, said in an interview in Johannesburg. With African assets getting cheaper, “transaction activity is going to increase and we’re expecting more growth in our business. The next 12 to 18 months could be very interesting.”

Transactions declined across the board, with mergers and acquisitions, bond issuance and equity offerings in sub-Saharan African all lower than a year ago, according to data compiled by Bloomberg. This comes as the International Monetary Fund predicts the region’s economic expansion will slacken to 1.4 percent in 2016 from 3.4 percent last year, already the slowest in 15 years. 

Stock markets in the region have also suffered, with Nigeria’s main index down 8 percent in 2016 to head for its third year of losses, while Kenyan equities have decreased 6 percent after losing 11 percent in 2015. As growth waned, Standard Chartered Plc reduced headcount and closed branches, while Barclays Plc decided to exit the continent, citing regulatory pressure. Citigroup said it has benefited from staying put.

Beneficial Events

“We have won transactions and clients,” he said, without being more specific. “We’ve taken market share.”

Citigroup has climbed six positions to number two in this year’s rankings for sub-Saharan Africa bond issuance, while rising to fourth in the value of loans granted in the region from five in 2015, according to data compiled by Bloomberg. For equity issues, it slipped to third after topping the table at the end of 2015, the data show.

Nigeria’s economy has been battered by plunging oil prices and a dearth of foreign investment that was blamed on a 16-month currency peg that the government only abandoned in June. In Kenya, banks are struggling with recently introduced interest rate caps. As a foreign bank not caught up in the strife, Citigroup was able to make money off both of these events, according to Rehman.

In Nigeria, Citigroup was named as one of few authorized dealers in foreign exchange and helped start trade in naira futures, Rehman said. In Kenya, the change in the interest rate caps meant that liquidity poured into Citigroup and away from smaller lenders, which were deemed unstable.

With regulators getting tougher and commodity prices stabilizing, foreign money is likely to flow into Africa because of its relative value, Rehman said. “I’m optimistic about next year,” he said.

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