* 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
"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
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
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
"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 planned to raise equity to support investee
companies and meet medium-term fund requirements.
Stock markets around the world have bounced back after
tumbling in March on fears of a COVID-induced economic slowdown.
The Johannesburg Stock Exchange (JSE) - Africa's biggest - is
among the strongest performers with its benchmark index
up 40% since a March 19 crash.
South African companies could capitalise on current high
stock prices to raise money. But so far they have lagged behind
international peers, with South African equity raising totalling
just $1.3 billion through August.
Indian companies, meanwhile, raised $28 billion through
August, while in Australia companies raised $22 billion,
Refinitiv data showed, outpacing South Africa even after
factoring in discrepancies in market capitalisation and number
South African companies have essentially kicked the can down
the road by not raising equity, said one international banker,
who did not want to be identified.
"I think what we need is for the companies to see their
third quarter (September end) performance. That is when they
will realise they need to raise equity," he said.
(Reporting by Promit Mukherjee
Editing by Joe Bavier and Jane Merriman)