* S.African investors have favoured firms taking on debt
* Companies consider equity now as banks’ bad loans soar
* JSE among the best performing stock markets globally
JOHANNESBURG, Sept 23 (Reuters) – South Africa is set see a wave of equity fundraising as banks’ capacity to lend is under strain from rising bad debts just as corporations are in need of funds to cope with fallout from the coronavirus pandemic.
South African companies, unlike many of their global peers, have historically been averse to raising money via the stock market as investors prefer them to take on more debt.
Banks have obliged.
But with coronavirus-related bad debts setting South African banks’ profits back by around a decade, the period of easy money may be drawing to a close.
“The economic environment is not going to be conducive (for lending) anytime soon and debt levels will increase over the next six months,” said Simon Denny, head of Barclays South Africa.
“I am surprised that South Africa is not seeing any major equity capital raises.”
He said the economic conditions were expected to trigger a round of equity capital raising from around December.
Company managements, however, will need to convince investors who have generally punished stocks for attempting equity raising.Last month, cement maker PPC Ltd’s shares nosedived as investors hammered it following a rights issue announcement. In July, South Africa’s restaurants group Famous Brands Ltd backed away from plans to raise equity after its announcement provoked a similar backlash.PPC declined to comment for this story and Famous Brands did not reply to an email seeking comment.“Generally, there is a higher level of resistance by shareholders for dilution,” said Richard Stout, Standard Bank’s head of equity capital markets for South Africa and sub-Saharan Africa.Banks’ pre-pandemic willingness to lend allowed many companies to create a short-term liquidity buffer, he said. But as those funds run out and they increasingly feel the pandemic’s fallout, companies will need to raise equity from the fourth quarter and extending well into next year.The likes of Africa Rainbow Capital Investments Ltd and condiment maker AllJoy Food, have already signalled to investors that they will seek to raise equity in the coming months.“Banks are getting risk averse which will make several listed entities raise equity,” said Muhammed Naasif Darsot, chief executive of AllJoy, which is pursuing multiple strategies to raise the capital needed to grow its business.Africa Rainbow Capital, in a circular to shareholders on Monday, said it […]