Q: What has been the impact of new capital regulations on Ghana’s investment banks?
A: During the past two years, the investment banking sector has experienced positive growth owing to the new minimum capital requirement for banks of 400m cedis ($69m). This has led to some consolidation and better capitalised banks. According to the central bank, new deals contributed to a 16% growth in overall banking assets during 2019, most of which are investment banking transactions, primarily in the infrastructure space.
There has also been strong activity in capital markets and advisory as more companies are looking to tap into bonds and equities. A few successful deals include the yearly syndicated cocoa loan, Eurobonds, regular domestic bond transactions and Tema oil refinery bonds.
Recent merger and acquisition (M&A) activity includes deals in the banking and insurance sectors driven by the recapitalisation exercise in these sectors. Deal flow has largely involved domestic investment banking players such as Fidelity Bank, IC Securities, SAS Finance House and Databank Group, with a strong showing from international players with a banking presence in Ghana. These include the likes of Barclays (now Absa), Standard Chartered, Stanbic Bank, Ecobank, GCB Bank, Société Générale Ghana, RMB and lately First National Bank Ghana.
Q: How healthy is competition in the investment banking sector in the country?
A: The market is growing, with a diverse group of players. While there is competition, this is largely among existing players looking to grow their market share. Most of the foreign exchange loan transactions are dominated by the international banks with presence in Ghana, with little or no competition from the local banks. Currently, in M&A and capital markets advisory the international banks are leading these transactions. But the local banks are beginning to develop capabilities to lead these deals by partnering with these international houses.
Another recent positive development is that local banks and non-bank financial institutions now have the capacity to actively play bookrunning roles in the Eurobond and domestic bond issuance space on behalf of corporates and the government.
Q: Are you advising on many M&A deals?
A: We are currently working on a few deals within the M&A space, assisting companies looking to grow their business portfolio across their product value chain or into new categories and geographies. We believe that for companies – which are cash-rich during these tumultuous times of the Covid-19 health crisis, as well as the follow-on economic impact – there will be opportunities to acquire companies that will struggle during the tough times, though their fundamentals remain strong.
Q: Do you expect there to be many initial public offerings (IPOs) in the future?
A: Yes, as market sophistication increases, opportunities will open with more participants and activity in the secondary markets. MTN’s recent IPO was the single largest listing on the domestic stock market with a total market capitalisation of 8bn cedis. We expect to see more IPOs from the financial and telecommunication sectors, and to an extent the oil and gas sectors, once the global and domestic macro picture becomes clearer and equity markets settle. An increasing trend is dual, or cross listing, of domestic companies on foreign stock exchanges.
Q: What is the potential for investment banking in Ghana?
A: There is a positive view for investment banking in Ghana, with interest from a number of financial sponsors with good deal potential. The recent Ghanaian government initiatives in the infrastructure, mining and agricultural sectors, restructuring of the banking sector, reduction of non-performing loans, healthy competition and positive economic growth are expected to drive growth. Gross domestic product growth has been above 7% over the past three years and the prospect for further growth is one of the highest globally. However, we will need to assess the impact of the Covid-19 pandemic, which has affected all markets globally and may suppress appetite.
Q: What is your bank’s strategy for Ghana’s investment banking market?
A: From an investment banking perspective, we are well positioned to play a critical role in the Ghanaian market by leveraging our platform as one of the largest African-based financial institutions. Ghana remains a strategic market for the group, and we recently won mandates that will see us move up the league tables in transactions in the coming years. To demonstrate our commitment to the market, we are also strengthening our capital in-country through a key acquisition with GHL Bank. We believe this acquisition will further cement our presence in the market to ultimately become the leading investment bank and trusted banking partner in Ghana.