Be vigilant at foreign stocks

This week, Pan African bank, Ecobank, launched the crossborder offering in Rwanda. It includes a rights issue and a public offer. For the rights issue, 3.76 billion shares are being issued to the existing shareholders at $0.27 (Frw148) per share in the ratio of five new shares for every nine held. The public offer is made up of 5.12 billion ordinary shares at $0.29 (Frw159) each. With these shares set to be floated on the exchanges in Ghana and Nigeria and on the West African regional BRVM bourse in Ivory Coast, a range that covers10 African countries in all, critical analysis for investors is needed. The Rwanda Capital Markets Advisory Council (CMAC) has neither approved nor disapproved the participation of Rwanda investors in Africa’s largest offering. Without considering this offering as the largest in Africa, Ecobank’s financial statements place it in a better position to attract many investors. Ecobank last year registered pre tax profits worth $190.57 m while its total assets amounted to $6.55 billion. The company’s loans and advances to customers were $3.1 billion and deposits from customers $4.7 billion. And the Rwanda capital market advisory council has cautioned any Rwandan investor willing to participate in this offering that they must observe the foreign exchange regulations of the country. This is because CMAC has not yet come up with the capital market regulatory framework, something which could also stress the laws regarding one’s investment in a foreign country. This is a legal perspective which may impact one’s investments and any accounts set up in another country. There is also an issue of divergence of macroeconomic indicators in these countries where the shares will be floated. Taking into consideration the interest rates and exchange rates in these countries, there could be diverse gains and losses in this offering, depending on the exchange one chooses. For the interest rates in particular, any decrease means that those people who want to borrow money enjoy an interest rate cut. But that could mean a gain to the investments in bonds but also to stocks especially when the interest rates are going up. For rational investors, any decline in interest rates will trigger a shift from the bond to the equity market. In trying to invest in Ecobank shares one needs to look at the regulation of the capital market where the shares will be floated. It also requires you to understand the performance of that particular exchange market and the general macroeconomic variables in the economy. You therefore need to know all facts concerning these issues before you commit your money. Whether you do it through your investment advisors or stockbrokers, it will depend on your choice. Contact: gahamanyi1@gmail.com