There are many reasons behind the recent trend of South Africa's top companies relocating their primary stockmarket listings to the UK. Every company has its own motives. But all are agreed that the trend is based on purely commercial and strategic grounds. It has nothing to do with politics, or concern over the country's prospects.
For South African companies in the international equity markets, the theme which has dominated 1999 has been the relocation of primary listings away from South Africa to the London Stock Exchange (LSE).
Bankers in Johannesburg insist that the motive behind these switched listings has been purely commercial and strategic, rather than political. "It's not capital flight or South African companies taking a negative view of the country's prospects, although it is very easy for outsiders to characterise it as such," insists Nial Carroll, head of corporate finance at Deutsche Bank in Johannesburg. "The motivation and the rationale presented to the government have been different in each case."
For the most part, the reasons underpinning the relocations have been three-fold. First, it has allowed companies to tap a more diverse base of equity investors in particular and, in the case of the listings so far, to extend the reach of this base to index-tracking funds.
"South African companies which want to raise anything above $1bn, which is not that much, are highly unlikely to find the traditional providers of equity in South Africa, which are largely local institutions and emerging market funds, able to provide that much," says Carroll.
Related to this is the fact that, with powerful demand for South African listings coming from index-tracking funds, the larger JSE-listed companies have perceived that they can secure far more attractive multiples for their stock in London than a listing in South Africa could ever provide.
And rightly so. Nowhere was there clearer evidence of this than in the performance on the JSE of Anglo American Corporation of South Africa (AAC) in the run-up to its London listing as the restructured Anglo American in May.
Commenting on this in a research bulletin published in April, Warburg Dillon Read noted: "AAC's share price performance since the beginning of 1999 has been superb, rising some 81% in rand terms. Significant global demand for commodity equities, coupled with a technical squeeze ahead of AAC's expected inclusion in the FTSE-100 index, has been largely responsible for this rise."
Investment bankers respond testily to the suggestion that London listings which they have co-ordinated have owed much of their success to the promise of an entry into the FTSE-100. But this factor surely drove much of the demand for shares in Old Mutual, which listed simultaneously in London, Windhoek, Harare, Blantyre and Johannesburg as part of its demutualisation in July.
The life assurer's shares were priced by its global co-ordinators Merrill Lynch and Warburg Dillon Read at £1.20, giving the company a value of £4.5bn, and instantly shot to a 14% premium - closing the first day of trading at £1.37, although by the end of August they had settled back to around £1.30.
"Index buyers don't generally come into an issue much before the stock is officially included in the index," says Nick Pagden, director of investment banking at Merrill Lynch in Johannesburg.
"The Old Mutual deal was done in July and it won't officially enter the FTSE-100 until September, so it is not correct to say that the deal was dominated by index tracker funds."
Perhaps so. But Warburg Dillon Read pointed out in its research on Anglo American that another company which has listed this year in London, South African Breweries (SAB), saw its shares rise "by 20% on the day that its entry to the FTSE-100 was confirmed by the committee".
Pagden prefers to emphasise the sheer weight of demand which was behind the initial popularity of the Old Mutual offering. "We generated almost $10bn of demand for Old Mutual," he says, "and we saw a lot of demand from a whole array of new accounts in the US and the UK, as well as investors in countries such as Germany and Ireland who were first time buyers of South African equities."
A second reason for the acceleration of South African relocation to London, say bankers, is that the companies concerned see themselves as genuine multinationals which have outgrown the South African economy and which therefore would want to list overseas even if investors on the JSE had given them P/E ratios of 100 or more.
Take the example of Billiton, which relocated its listing to London in July 1997. The company is the world's fourth largest listed mining company measured by turnover with extensive production volumes of copper, aluminium, coal, nickel, titanium minerals, steel and iron alloys.
Although Billiton presently generates about 56% of its revenues from South Africa, it has substantial international expansion projects up and running which will see the importance of South Africa dwindle in relative terms over the coming five years. These include refineries and smelters in countries such as Colombia, Australia and Mozambique.
The Billiton listing via global co-ordinators Robert Fleming and UBS was originally priced at £2.20 a share, and immediately shot to a premium of £2.35. But at one stage the company saw its price fall below £1, hitting a low of 98.7p in November 1998.
Improving sentiment towards cyclical shares in the first half of 1999 helped Billiton stage a powerful recovery, and by August 1999 the shares had returned to comfortably above their original IPO price.
Growing international ambitions were also a driving force behind the listings of South African Breweries and Old Mutual, say local bankers. SAB is described by one banker as "the classic example of a company which has outgrown South Africa, where it has a market share of over 90%".
As a result, the company has been expanding aggressively in recent years into, for example, central and eastern Europe.
The SAB relocation was led in at the start of March by Robert Fleming, Cazenove and Goldman Sachs in an issue which raised £300m through the sale of just over 70m shares at £4.28.
In part because of a guaranteed entry into the FTSE-100, which would have attracted the attention of index buyers, the issue was well supported - with some 60% going to UK-based accounts, 20% to the US and the balance to institutions in Europe and Asia.
Having instantly shot to £4.30 in the aftermarket, SAB's shares reached a high of £6.19, but by mid-August had dropped back to just over £5.
Old Mutual has also been expanding its international business in recent years, buying the UK stockbrokers Capel-Cure Myers and Albert E Sharp. At the time of its relocation to London, it generated some 55% of its turnover and 46% of its profits from its international operations.
Although these are figures which Old Mutual clearly wants to increase over the medium term, the motives behind its relocation arouses scepticism from some bankers. "There is a huge question mark over whether Old Mutual had a genuine case for relocating to London," says one Johannesburg-based observer.
"Do they have the capacity to be a genuine global player in the financial services industry, in the same way that Billiton is clearly a global player in natural resources?
"Only time will tell. But of course what was absolutely clear was that the South African market was much too small to absorb a demutualisation of the size of Old Mutual."
A third motive for relocating to London is that it offers South African companies access to much broader and deeper sources of funding beyond equity which, once again, they would be unable to access as companies domiciled in South Africa.
Billiton, for example, followed its London listing up in September of the same year with a $1.25bn seven year loan facility arranged by Bank of America, Chase, Barclays, JP Morgan and UBS.
One local banker points out: "Billiton's listing in London enabled it to raise a total of almost £1bn, which would have been out of the question without a foreign listing."
Old Mutual, too, was able to follow its London listing with a debut Euroloan facility, raising a £300m multicurrency facility at 40bp over Libor.
Over and above the reasons which South African companies have had to date for relocating their primary listings, two more may becoming increasingly visible over the medium term.
The first of these, given their ongoing hunger for international expansion, may involve London-listed South African companies using their shares as an acquisition currency - which is something they were never able to do as long as they were confined to the JSE.
The second is that South African companies may increasingly look to a listing in London as a suitable way of offering their employees hard currency denominated options.
"Companies which have international ambitions and want to retain their best employees, which is especially relevant in the IT sector, find it difficult to get their staff enthusiastic about share options denominated in rand, which is a weak currency," explains one banker.
Certainly, the next wave of listings outside South Africa is expected to be fuelled principally by hi-tech companies, which have grown at a furious pace in recent years.
Anecdotally, South African IT companies which plan to list overseas over the coming six to 12 months include Dimension Data (Didata), Datatec, Comparex, and Ixchange which has indicated that it will list on the New York Stock Exchange (NYSE) as soon as its international revenue tops $100m.
Aside from being able to use a London listing to offer their staff options, many of South Africa's premier IT companies now view themselves, like some of the mining giants which have gone to London in the past, as truly international players.
Didata, for example, which was set up in 1983 and now has a turnover approaching R5bn, reckons it has a networking market share of 20% in Asia, 25% in Australia and 23% in the UK, and Datatec derives only 15% of its sales from Africa, with the US and Europe each accounting for 35%.
A report on South African IT published recently by Nomura states: "Comparex is now a European technology company, with legacy assets in South Africa contributing less than 30% of profits in 2000. For local investors this is an excellent rand hedge while international investors look forward to the prospect of a European listing."