South Africa: AB InBev starts trading on Johannesburg Stock Exchange
The world’s biggest brewer, Anheuser-Busch InBev NV, began trading on the Johannesburg Stock Exchange on January 15, the latest in a string of multinational heavyweights to complete a secondary listing in South Africa, strengthening the local bourse even as the broader economy continues to decelerate, the Wall Street Journal reported.
AB InBev began trading at 1,938 South African rand ($118) a share—giving it a market value of 3.1 trillion rand ($188 billion)—or nearly double the value of British American Tobacco PLC, until January 15 the biggest company on the JSE. Mega-brewer AB InBev’s listing is the most recent step in its more than $100 billion quest to acquire SABMiller PLC, which has its ancestral home in South Africa.
SABMiller is now the exchange’s third-largest company by market capitalization, and local investors had expressed concerns that an acquisition by AB InBev could mean losing access to a major beer company and leaving them with fewer options for tapping global growth through the JSE. The secondary listing is AB InBev’s solution to that problem.
South African regulators allow pension funds to invest just a quarter of their assets offshore. The remaining three-quarters have to be invested in South African-listed companies, a designation for which AB InBev now qualifies. The secondary listings of major multinationals on the JSE, including mining behemoth BHP Billiton Ltd, luxury goods giant Cie. Financière Richemont SA and British American Tobacco PLC, which sells one in eight cigarettes smoked world-wide, have boosted the exchange, and the fortunes of local investors, despite a declining domestic economy.
Just three of the 10 largest companies by market capitalization on the JSE now have their primary listings in Johannesburg.
“Pensioners are a lot wealthier than what they would have been as a result of the structure of our stock market,” said Rhynhardt Roodt, portfolio manager of the 9.3 billion rand Investec Equity Fund. “We were very fortunate. These global multinationals just seem to continue to do well despite a fragile local economy and the weakening rand.”
Economists believe growth in South Africa could decelerate for the third consecutive year in 2016 to less than 1% annually, as the demand for the country’s minerals continues to fall and more of its factories succumb to rising labor costs and erratic electricity supplies. Meanwhile, the rand has been plumbing all-time lows against the U.S. dollar and other currencies.
SABMiller’s precursor, South African Breweries, relocated from Johannesburg to the U.K. in 1999 amid a bout of corporate flight from South Africa, which at the time—as now—was suffering from a falling currency and limited access to international investors.
Still, AB InBev Chief Executive Carlos Brito said the listing of the company in Johannesburg is “a significant vote of confidence in South Africa as an investment destination.”
AB InBev’s acquiescence to South African investors to clinch a deal that will create a brewing giant accounting for about 30% of the world’s beer market is the latest in a string of secondary listings by major multinationals on the JSE.
In 2001, South African minerals group Billiton PLC merged with Australian mining giant BHP Ltd. to form BHP Billiton Ltd. in a deal worth $28 billion. The combined group was headquartered in Melbourne and London, but retained a secondary listing in Johannesburg, where it is now the sixth-largest component on the exchange.
When London-based British American Tobacco made its debut on the JSE in 2008, it became the largest blue chip by market value, like AB InBev on January 15.
Some local companies are still seeking their fortunes abroad. The latest heavyweight to do so was South African furniture giant Steinhoff International Holdings Ltd., which moved its primary listing to Frankfurt in December, in an effort to access more European capital and investors. The company retained a secondary listing on the JSE, and is now the exchange’s seventh-biggest company. It said it plans to keep its headquarters in Johannesburg.
Still, having a handful of companies that make up the bulk of an exchange can create headaches for fund managers
“If those really big companies do well, it makes the [all-share] benchmark hard to beat,” said Ian Liddle, chairman of Allan Gray Proprietary Ltd., an investment management firm in Cape Town. Diluting those giants with another giant like AB InBev might not be a bad way to thin out the pool, though.
“It provides more choice, so I think the more good-quality businesses we have to invest in on the JSE, the better it will be ultimately,” Mr. Liddle said.
15 January, 2016
