2 Reasons Why IPOs Do Not Fail In Ghana

How many times have you heard that IPOs failed in Ghana? Most of the times, IPOs are successful although there were clear sign that they suffered a lot to get to the Ghana Stock Exchange.  Even from the onset of IPOs in Ghana, you can see that patronage wasn’t the best. From Accra Brewery Ltd(ABL) back in 1990 through to SPPC in 1992 which offered 8 million shares but only 4.2 million shares were subscribed.  Mechanical Lloyd also suffered the same pressure to get listed on the exchange. You can get more on the History of IPOs in Ghana here.

Now 2 Reasons and why IPOs in Ghana do not fail;

1. Begging Of Securities And Exchange Commission (Sec) To Extend The Deadline.

Well, as we all know, the first place for companies to look at when their IPOs are about to Fail (i.e. not meeting the minimum subscription level before deadline of IPO) is the SEC. The current ADB IPO is a perfect example. It was initially supposed to end on Friday, February 26, 2016 but as a result of the extension by SEC, the offer period would now end on 24^th March 2016. There were other extensions to allow for more patronage. Now let’s move to the next point which is;

2. Begging Of Institutional Investors Like SSNIT To Buy The Shares.

Most IPOs in Ghana have been saved by SSNIT – the number one institutional investor, that just buys and buys and buys. SSNIT owns significant stake in almost all IPOs that were launched on Ghana Stock Exchange.

Sometimes I wonder if there is any company listed on the exchange that SSNIT doesn’t have a stake in. Whether good or bad, SSNIT buys. With this, how could IPOs fail in Ghana. May be few failed, but one of the recent ones is Comet Properties and I guess they were not able to succeed with negotiations with SSNIT to buy.

Let's see how ADB's IPO goes. 'More vim' ADB

Ghana Stock Exchange Composite Index: So far in 2012

The Ghana Stock Exchange Composite Index (GSE-CI) includes all ordinary shares listed on the GSE with the exception of those companies whose shares are listed on other exchanges. (e.g.  ETI, TLW).  The base index is 1000 and the index is a market capitalization weighted index.

Last year, the index closed at 969.03 (30-12-11) below the base index. There were some highs and lows this New Year and investors are hoping to see the index above the base index.

Below is how the index fared so far in 2012. [22-12-11 to 19-01-12]

This Week in focus on the Ghana Stock Exchange (16-01-12 to 20-01-12)

What you should know about Accra Hearts of Oak and their IPO

Accra Hearts of Oak Sporting Club popularly known as PHOBIA was one of the earliest clubs to be formed in Ghana in November, 1911. This sporting club has currently issued an initial public offer and this is the first of its kind in Africa. If this IPO is successful, shares would be listed on the Ghana Stock Exchange and would make a historic mark in the IPO records in Ghana and Africa as a whole.

There are so many things that make an IPO successful and some important factors to consider are the financial status and future prospects of the company. Accra Hearts of Oak although currently in debt has assured the public that its operations would change drastically in a positive way after the IPO. The Board Chairman, Mr. E. M. Commodore-Mensah says the capital from the IPO would be used to enhance activities in the club. Experts are predicting that, this IPO would be successful because of the support or fan base of the club and the sentiments attached to the club by the fans. Apart from Kumasi Ashanti Kotoko (a football club), Hearts of Oak has the largest fan base in Ghana.  Nevertheless, people are with the view that the price per share (0.50p) is too expensive looking at the stature of the club.

Hearts of Oak has won twenty (20) titles in the Ghana Premier League and six of them were consecutive (1997 to 2002). The Sporting club has also won nine (9) championships in the FA cup and had one CAF championship league title in 2000. In addition, they are seven times winners of the Ghana Telecom Gala. One of the most prestigious cups in Ghana is the Top Four Cup and Accra Hearts of Oak has won it for three (3) times and was African Super Cup champion in 2001.

With all these wins, it is quite obvious that there is a lot more to do, now that the Ghana Premier league and other leagues are developing. Moreover, their closest rival, Ashanti Kotoko has remained a force to reckon with.  

The financial statement of the club showed impressive results for last year despite the bad performance in the league. Would this affect the IPO subscription in anyway? The shares of the club are to be traded in the OTC market and this could also affect the subscription of the IPO, meanwhile, lead brokers SAS Brokerage Services denies that.  The truth would be out after the offer ends on 29^th August, 2011. They ‘never say die until the bones are rotten’

History of Initial Public Offers (IPO) in the Ghanaian Capital Market.

Initial Public Offering which is popularly known as IPO comes about when companies issue new shares to the public to purchase as a source of raising capital. Ghana has a wonderful history of IPOs and since the inception of the Ghana Stock Exchange (GSE), there have been so many IPOs with an impressive performance in the market. Meanwhile others were just so bad and despite their impressive subscriptions, they traded badly on exchange.

On 12^th November, 1990, Accra Brewery Limited (ABL) made a provisional listing on the Ghana Stock Exchange, making it one of the earliest companies to be listed on the Ghana Stock Exchange. This company and others existed before the inceptions of the GSE Public Limited Liability Companies hence were initially given provisional listing status before the formal listing. ABL made its formal listing on 20^th December, 1991 (Source; GSE Research Dept.).

One IPO listing was by SPPC and this was from December to February 1992. Eight (8) million shares were offered but only 4.2 million shares were sold to raise an amount of 630 million old cedis (GHC 63,000). Mechanical LLoyd Company Ltd (MLC) also offered 11 million shares as IPO at 50 old cedis (0.05 pesewas) per share from December 1993 to February 1994 and only 9.36 million shares were sold which raised an amount of 468.16 million old cedis (GHC46,816). Looking at these historical trends, it is obvious that early IPOs were cheap but subscriptions were not impressive. In January 1995, HFC Bank stocks were oversubscribed when they made a placement.  Shares offered were 11.35 million at 100 old cedis (0.10 pesewas) and 13.10 million shares were sold to raise about 1,315.45 million old cedis (GHC 131,545). Most of the time, shares of this nature were patronized by foreigners because the investment community of Ghana was small by then. Aside the HFC placement, SSB (now known as SG-SSB) IPO in 1995 was also oversubscribed. Many companies like ALW, UTC, PZ, EIC, FML made primary issues which were not necessarily IPOs. In 2006, Ghana Commercial Bank (GCB) issued and IPO of 49.50 million shares but 68.44 million shares were subscribed. This oversubscription set the pace for most IPOs and the investment community of Ghana especially the youth, took advantage of them. Initial Public Offers of Camelot (CMLT), Produce Buying Company (PBC), Sam Wood Ltd (SWL), Cocoa Producing Company (CPC) followed and in 2004 alone, four (4) Companies (CLYD, BOPP, CAL & SPL) listed IPOs on the GSE. But how well do the trade on the Exchange?

About two year ago, Ecobank Transnational Incorporated (ETI) offered an IPO that was largely subscribed meanwhile these shares are facing liquidity problems as at now in the market. Share price of ETI has fallen below its IPO price and shareholders are not happy at all.  UT Bank entered the market with an IPO which was also oversubscribed but the question still remains, do IPOs perform well in the market. Shares of UT bank had so many problems when it started trading in the market but is currently bouncing back.

The most recent IPO issued in the market is the shares of Tullow Oil, just weeks ago and these were undersubscribed. Does it mean that the investment community is no longer having confidence in IPOs or it was due to the costly price of this particular offer? As an investor, you must find out because this can inform your investment decision.