Africa rising

BY Richard Summerfield               

Although a lingering sense of scepticism surrounds the continent’s development, Africa’s economic outlook is on the up according to a new EY report. New-found confidence in Africa has been built on the impressive economic growth rates recorded by many country's across the continent.

EY’s report, ‘Africa 2030: Realising the possibilities’, builds on the firm’s previously Africa-centric series, ‘Africa Attractiveness’, which has been highlighting progress over the last 15 years. The report notes that, as a result of the last 14 years of sustained growth across Africa, the continent’s relative attractiveness as an investment destination has increased dramatically. The sub-Saharan region in particular has seen a jump in foreign direct investment (FDI), with projects growing at a compound rate of 19.5 percent between 2007 and 2013.

Looking to the future, entrepreneurship is likely to be a key driver of economic growth and job creation in Africa as we move toward 2030. EY expects that new products, services and problem solving will also help to drive the job creation needed to generate inclusive and sustainable growth.

Yet, despite the optimism, future success across the continent is in no way guaranteed. “There are still many challenges ahead, not least of which is a robust structural transformation — required across many economies — that will not only lessen dependency on commodities, but also expand the private sector, increase productivity levels and, most of all, create jobs,” says the report.

Report: Africa 2030: Realizing the possibilities

HP splits in two

BY Richard Summerfield

Computing giant Hewlett Packard has unveiled plans to separate its business into two distinct publicly traded entities, one consisting of the company’s personal-computer and printer operations, the other its corporate hardware and services business. The division of the company will see HP shed around 5000 jobs and is expected to be complete by the end of 2015.

According to HP, the company’s software and services businesses will be known as Hewlett-Packard Enterprise. The other side of the business – the PC and printing units – will be known as HP Inc, and will keep the existing HP logo. The firm’s incumbent chief executive, Meg Whitman, will continue to run Hewlett-Packard Enterprise and act as chairman of the PC and printing business. HP’s chief financial officer, Cathie Lesjak, will also remain with the enterprise company. Dion Weisler, current head of the printing and personal systems group, will lead HP Inc. Pat Russo will assume the role of chairman of HP Enterprise. “In short, by transitioning now from one HP to two new companies, created out of our successful turnaround efforts, we will be in an even better position to compete in the market, support our customers and partners, and deliver maximum value to our shareholders,” said Ms Whitman in a statement announcing the division.

HP is believed to have considered a separation of its PC business for some time. Indeed, in 2011 the firm announced that it was contemplating spinning off or selling its PC unit, allowing it to focus on selling servers and other equipment to business customers, much like competitor IBM had done six years earlier. However, the proposed spinoff was halted by spooked investors who felt that the separation would jeopardise both branches of the company. The plan was cancelled and the chief executive responsible for the proposal – Léo Apotheker – was dismissed.

Based on revenues generated during the last financial year, the separation of the HP units will create two roughly equally-sized firms. The company’s PC and printer businesses produced revenues of $55.9bn in its last financial year, almost identical to the combined $55.7bn of its enterprise computing, services and software divisions. In trading following the announcement, HP’s stock jumped nearly 5 percent.

HP’s announcement came just days after US e-commerce giant eBay Inc declared its intention to spin off its PayPal business into a separate publicly traded company in 2015.

Source: HP to Separate Into Two New Industry-Leading Public Companies

CFO risk appetite at seven year high

BY Richard Summerfield

Despite ever increasing uncertainty surrounding the economy of the eurozone and emerging markets, risk appetite among the chief financial officers (CFOs) of the UK’s largest firms is at a seven year high, according to a new report from Deloitte.

Deloitte surveyed 118 CFOs of FTSE 350 and other large private UK companies for its ‘The Deloitte CFO Survey – Q3 2014’ and found that British companies are feeling more confident about taking on business risk than at any other point since 2007. The growth in CFO risk appetite has been predicated on a rebound in the US economy, improving UK growth and the current ease of access to finance. Seventy-two percent of CFOs surveyed said now was an opportune time to take risk onto their balance sheets, up from 65 percent of respondents in Q2 2014.

"With a resurgent US economy, good growth in the UK and plentiful liquidity, CFOs have shrugged off the effects of rising uncertainty and weakness in Europe, sending corporate risk appetite to a seven year high,” said Deloitte chief economist Ian Stewart. “Expectations for corporate revenues and margins remain close to the four year high seen in Q2.”

Yet despite the uptick in risk appetite, perceptions of financial and economic uncertainty also rose in the third quarter for the first time in two years. Fifty-six percent of CFO’s surveyed noted that the level of financial and economic uncertainty that their firms were facing was above normal, high or very high. In Q2 that figure was just 49 percent.

Sentiment about the eurozone has deteriorated significantly in 2014, with a net percentage of -39 percent of CFOs seeing improving prospects for the region going forward, down from +54 percent in Q1 2014. Confidence in emerging markets also continued to decline, with a net balance of -13 percent seeing an improvement. Despite those concerns, CFOs are considerably more optimistic about UK prospects, with a net balance of +85 percent reporting improved growth prospects over the last six months.

In many respects, political upheaval was more of a concern for CFOs than any economic issues during Q3. The potential secession of Scotland from the United Kingdom was a contributing factor to rising uncertainty, along with the impending general election and possible referendum on EU membership. CFOs perceived these scenarios as a greater risks to their firm’s prosperity than an increase in interest rates or weaknesses in the eurozone.

Source: The Deloitte CFO Survey

Alibaba IPO hits record level

BY Richard Summerfield

Alibaba Group Holding Limited has completed not only the largest ever US-listed IPO but also the world’s largest-ever stock market flotation.

Shares in the e-commerce giant were initially priced at $68 each. Due to overwhelming demand, the firm’s underwriters were required to take up the option to purchase an additional 48 million shares. Accordingly, the total raised from Alibaba’s offering rose from an initial $21.8bn to $25bn. Once trading began, the company’s share price soon reached $99 before finally closing at $93.89, a jump of 38 percent from the offering price.

Based on the company’s closing price on the first day of trading, Alibaba has a market capitalisation of around $230bn. This makes it more valuable than a host of other notable internet firms, including Facebook Inc and Amazon Inc. Indeed, Alibaba has become the world’s second largest internet company behind Google Inc.

A group of Alibaba's existing shareholders, including chairman Jack Ma, vice chairman Joseph Tsai and internet giant Yahoo Inc, provided the extra shares for the overallotment. Mr Ma sold an additional 2.7 million shares, taking his tolal shares sold in the IPO to around 15.5 million. Including the 900,000 shares he sold during the overallotment, Mr Tsai sold a total of 5.2 million shares. However, Yahoo gave up the most shares during the IPO, divesting around 140 million shares in total, including 18.26 million in the greenshoe. Yahoo is believed to have generated around $9.5bn in pre-tax cash from the sale, and earmarked around $6bn of the after-tax proceeds to be returned to shareholders. It is likely to undertake a number of stock buy-backs in order to facilitate the return. Some observers expect Yahoo to use the remaining cash to carry out a number of acquisitions.

The success of Alibaba’s IPO came despite lingering concerns about the company’s corporate structure. Under the firm’s variable interest entity (VIE) structure, buyers of Alibaba’s stock do not actually own the underlying business, because Chinese government regulations restrict foreign ownership in the sector. The VIE structure was established as a means of circumnavigating those regulations, and although Chinese authorities may take a dim view of the company’s use of the tactic, Alibaba’s strong level of influence may protect it from scrutiny.

News: Alibaba IPO ranks as world's biggest after additional shares sold

Indian infrastructure boom predicted

BY Richard Summerfield

Indian infrastructure development is set to enter a golden era over the next decade, according to PwC.

In its report 'Developing Infrastructure in Asia Pacific: Outlook, Challenges and Solutions', PwC expects the wider Asia pacific infrastructure market to grow by 8 percent per year over the coming decade, reaching $5.36 trillion by 2025, a figure which would represent 60 percent of the world’s investment total. Growth in the region is due to be driven by favourable conditions in the most dominant economies, India and China, as well as a number of South East Asian nations. The size of the consumer base, abundance of natural resources and low cost workforce will all help to drive investment in the region in the coming decade.

The marked increase in infrastructure spending in India over the next decade is expected to be influenced by improvements and investment in a number of industries, including housing, telecoms, healthcare, education and transportation, among others. Some of the most significant growth is expected in the transportation and utilities sectors, where investment is due to treble as income and travel demand rises and the rapid urbanisation of the Indian population continues apace. The population of India's towns and cities is likely to expand to around 600 million by 2031, according to the UN.

A second PwC report, 'Capital project and infrastructure spending: Outlook to 2025', has also highlighted the investment needs that will be propagated by India’s burgeoning urban population. “The ongoing development of technology services sector, as well as demand from households, is likely to drive investment in telecommunications infrastructure. The population is expected to grow much faster than other countries in the region, which will further boost demand for infrastructure sectors serving households," the report said. The telecoms sector alone will see infrastructure rise increase to $130bn by 2025, up from $27bn in 2013.

On 16 September private equity giant KKR announced that it had agreed to invest $164.2m of structured long-term financing, with a number of co-investors, in leading Indian infrastructure development company GMR Holdings, the holding company for GMR Infrastructure.

Report: Developing Infrastructure in Asia Pacific: Outlook, Challenges and Solutions