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As economic growth in Sub-Saharan Africa (SSA) slows to its lowest level in decades due to the steep decline in commodity prices, the total value of investments in the region has also declined. A new report by Thomson Reuters Deals Intelligence and Freeman Consulting shows that the value of announced mergers and acquisitions (M&As) in the first half of 2016 dropped. Also, the pace at which investors snapped up African dollar bonds in the past few years also slowed.

The reduction in investment activities led to a plunge in investment banking fees for financial institutions that were involved in arranging transactions on the sub-continent. According to the estimates provided by the report, investment banking fees decreased by 22 percent in H1 2016, compared to H1 2015. Financial institutions earned $173.9 million on deals in SSA in the first six months of this year, as against about $223 million that accrued in transaction fees in a comparative period in 2015.

Mergers and acquisitions transactions decline 27 percent

A breakdown of investment deals in the region as of June 30, 2016 shows that announced M&A transactions in SSA countries reached a total of $12.8 billion. Compared to the same period in 2015, this was a 27 percent decrease.

South Africa had the highest overseas acquisition, accounting for 82 percent of the total M&A activity in the region. The acquisition of the Democratic Republic of Congo copper mine of Freeport-McMoRan Inc. by China Molybdenum Co. for $2.77 billion – which was announced in May – was the largest M&A deal in the SSA region in H1 2016.

Meanwhile, Citigroup, the U.S. banking giant, was involved in the highest number of M&A deals in the SSA region, capturing 32.7 percent of the market share or $4.2 billion in related deals, according to Sneha Shah, Thomson Reuters' Managing Director for Africa.

Transaction fees that accrued from completed M&A deals in the first half of this year declined by a whopping 43 percent year-on-year, reaching a total of $54.8 million. Indeed, Shah said the figure is the lowest first half result since 2014.  

Sub-Saharan Africa debt issuance declines 10 percent

The boom in African Debt Capital Markets (DCMs) in the past three years seemed to have turned bearish with a 10 percent decline in debt issuance in the first half of the year, compared to the same period of last year. Sub-Saharan African bond offerings totalled $6.9 billion. The South African government offered the largest bond issuance for the region in the period with its $1.2 billion 10-year bond maturing in April 2026 with a 4.875% coupon rate.

In terms of the financial institution with the largest share of DCM transactions, Bank of America Merrill Lynch topped the ranking, accounting for 15 percent of the total debt issuances in the region. JP Morgan held the top spot for Debt Capital Market underwriting fees, accounting for 14.8 percent of the total fee pool. Fees accruing from debt capital markets underwriting fell 66 percent year-on-year, reaching $12.3 million.

Equity capital markets rising

The bright spot in the SSA investment landscape in the first six months of this year was in portfolio investment. Initial Public Offerings (IPOs) and equity-related issuance in Sub-Saharan Africa in H1 2016 increased by 18 percent year-on-year, reaching $4 billion.

According to Thomas Reuters Deals Intelligence, this figure represents the highest first half-year figure in the region’s Equity Capital Markets (ECMs) activity since 2007. Although fees for ECM underwriting were down 5 percent to $53.3 million, transaction fees in the ECMs accounted for 31 percent of overall investment banking fees in Sub-Saharan Africa.

Morgan Stanley, an American multinational financial services firm, topped the completed ECM fee ranking during the first half of this year, accounting for 16.3 percent of the ECM fee share. Meanwhile, the largest equity issuance in the region in H1 2016 was the $1.2 billion raised by Steinhoff Finance Holding GmbH – a subsidiary of Austria-based Steinhoff Investment Holdings Limited – from a convertible bond offering.

Syndicated loans

There was also a rally in syndicated lending in H1 2016 as syndicated loans fees increased 49 percent year-on-year to $53.6 million.  

Sumitomo Mitsui Financial Group captured 41.1 percent of the total syndicated loans fees ($53.6 million) in the SSA region in the first six months of this year, thereby taking the top spot on the fees ranking. The Japanese banking corporation also earned the most investment banking fees in Sub-Saharan Africa for the first half of 2016, with a total of $22.1 million or 12.7 percent of the total fee pool.