The practice of trading a company shares and bonds on an organized platform has been in existence for a while now. As early as in 1611, the Amsterdam Stock Exchange, considered to be the oldest modern securities exchange, was established by the Dutch East India Company.
In Florence, Genoa and even in German mines, records mention transactions involving shares or bonds between the fourteenth and sixteenth centuries. There are, however, accounts of the existence of a share market in ancient Rome, centuries before the founding of the Roman Empire in 27 BC.
Be that as it may, the Amsterdam Stock Exchange (now Euronext Amsterdam) is still popularly known to be the oldest important stock exchange. Since its formation, many other exchanges around the world have been opened, as business expanded across the world alongside migration and colonization. The New York Stock Exchange is currently the largest (market capitalization), with the Nasdaq Stock Exchange, Japan Exchange Group and the London Stock Exchange following. In Africa, the Johannesburg Stock Exchange comes tops, as in the largest, while the Egyptian Exchange is the oldest. Then to the West-African sub-region. The Nigerian Stock Exchange is both the oldest and largest in West Africa.
The Ghana Stock Exchange
The idea of a stock exchange in Ghana was first mooted by the Commonwealth Development Finance Company Limited in its Pearl Report. Subsequently, the Accra Stock Exchange Act was passed in 1971 and the Accra Stock Exchange Company was incorporated the same year, though trading never began.
However, it was not until 1989 that the Ghana Stock Exchange (GSE) was formed and it began trading in 1990. From its initial eight listings, the bourse has increased to thirty-nine listings as of December 2020. Although a number of companies have delisted their stocks on the market, there have been a number of very exciting listings.
UT Bank, evolving from one of the most successful indigenous savings and loans companies, successfully listed on the exchange in 2010. This was done through a reverse listing of the bank’s shares and a de-listing of the shares of its holding company, UT Holdings, which had earlier listed on the bourse. In 1994, the Ghana government, then the majority shareholder, announced plans to sell 20-25 percent of its interest in Ashanti Goldfields Corporation in a share flotation. The company was subsequently listed on both the London and Ghana stock exchanges. It was, at the time, the largest flotation ever organised by any gold mining company in the country. The coordinating and advisory team alone numbered over 200 people. Each of the company’s 10,000 employees received five shares for free.
British oil firm, Tullow, one of the operators of Ghana’s oilfields, listed on the Ghana Stock Exchange (secondary listing, with primary listings on the London and Irish stock exchanges) in July 2011. This was about seven months after the nation began pumping crude oil in commercial quantities from the Jubilee fields.
Perhaps the largest was MTN Ghana launching an initial public offering on 29 May 2018 in Accra, with subsequent launches across all the regional capitals of Ghana. 4.6 billion ordinary shares valued at about GHS 3.4 billion and representing up to 35% of the issued shares of MTN Ghana. The subsequent listing became the first (and only to date) listing of a telecom operator on the local bourse.
Over the years, a number of firms have found reason to delist. While some have found periods of illiquidity on the market bothersome, some have found reporting requirements and public scrutiny for listed companies stringent and counterproductive to their businesses. A number of firms have, after several periods of inactivity on the market and internal privations, have had trading of their shares suspended by the bourse, and in some cases, have been delisted. Firms that have left the Exchange include Accra Breweries Limited (ABL), Super Paper Products (SPPL, later African Champion Industries, ACI), British American Tobacco (BAT), Pioneer Kitchenware (PKL, formerly Pioneer Aluminium), PZ Cussons (PZC) and UT Bank (UTB).
Why is the stock exchange so important? An exchange principally provides an incorporated entity an open and reliable platform to raise capital for its business operations from the public. A prospective investor would have pertinent information about the company- its business, its management and its financials. This would help the investor analyse and determine whether investing in a listed company would be worth it or not. The company is therefore readily visible to the public. It is for this same visibility that the company is put on its toes to continually strive to do well.
Other benefits inure to a company because it is listed. Listed companies are more likely to be esteemed higher by the investing public than privately held companies. Reasons are the timely disclosure of corporate information, better corporate governance, price quotations which are generally reflective of the real value of the security, orderly and uniform manner in which trading is conducted and liquidity. It builds investor confidence.
The capital could be equity (shares) or bonds. It is a useful and important alternative to borrowing a loan from a bank to finance a company’s business because the funds raised are usually for a long time, and in the case of equities, could be for as long as the company exists. Bonds, on the other hand, provide an avenue for multiple investors to lend to a corporate body (or the state) for a specified period at a rate. Investing in bonds usually comes with interest payments (called coupon payments) usually paid semi-annually. When these shares and bonds are listed on an exchange, they can be traded continuously (equities) or until they mature (bonds). The opportunity to trade them, or the liquidity, adds to the attractiveness of the exchange for both investors and the companies that list.
The GSE initially traded in shares of companies that had listed on it and government securities. In a bid to enhance trading of the domestic bond market, the Ghana Fixed Income Market (GFIM) was formed in August 2015. The GFIM operates under the securities market license of the GSE and acts as the sponsor of the Bloomberg E-Bond system. When a bond is first issued, it can be resold by bondholders many times till maturity. The price at which the bond is sold or bought is determined by market forces (demand and supply), the interest (coupon) rate, how much time is left for it to mature and, importantly, by the creditworthiness of the issuing company (or state). It is this secondary market that the GFIM has provided a platform for and facilitated since its formation.
Managers of the Exchange yearned to encourage many firms, especially local ones, to consider raising capital through the GSE. This call gave birth to the Ghana Alternative Market (GAX). The GAX was formed in 2013 as a parallel market operated by the GSE to offer businesses, especially small and medium-sized companies (SMEs), with a potential for growth access to the capital market to raise funds for their operations. Through the GAX, companies may have easier access to long-term capital at a relatively reduced transactions and advisory cost. This would afford a listed company an enhanced status in the eyes of the public, a stronger financial position to explore business opportunities and reduce its risk of doing business.
The GSE, to encourage SMEs and any other companies to list, offers relatively less stringent requirements for listing on the GAX than what the main bourse stipulates: a lower stated capital of GHS 250,000, minimum of twenty (20) public shareholders, no prior history needed and no history of profits needed. The sponsor is required to underwrite the minimum offer directly or indirectly to ensure that no Initial Public Offer (IPO) fails.
Kwadwo Acheampong is Senior Investment Analyst at OctaneDC Limited, a Fund Management firm based. Prior to joining OctaneDC team, Kwadwo was a Fund Manager at Dalex Capital and has over ten years of experience in fund management and administration, portfolio management, management consulting, operations management and process improvement. You may contact him at [email protected]