Africa aviation: Aéroports du Cameroun to list shares on the stock exchange
There have been tentative investments into the airport sector in Africa in recent years, and the Nigerian airport concessions have attracted international interest.
Out of the blue (although the government was mandated to do this five years ago) the Cameroon government, which is a 63% investor in Aéroports du Cameroun, has decided to sell some or all of its stake in the airport company by way of a regional bourse IPO - a very rare event in Africa.
Institutional investors on the continent and beyond will not be sleeping overnight outside the Stock Exchange waiting for doors to open. There are too many issues in play, including the vague government intentions, a small airport stock, underdeveloped main airports, no markets that can be expanded rapidly, lack of outbound travel, tourism that exists without a plan to develop it, and corruption.
But there are investors who are looking at Africa more these days, on the back of sorties into the region by the likes of TAV and Qatar Airways. Could this be a breakthrough moment?
Summary
- Aéroports du Cameroun invites brokers to support share offering on regional bourse.
- National seat capacity still falling well short of 2019 levels.
- Small inventory of airports; Douala and Yaoundé are the two largest.
- Connected to four main intercontinental hubs, but totally devoid of services to some regions.
- No low cost services at all, but well connected by alliance routes.
- Investors need more clarity on ADC's intentions.
- No obvious fast-growth markets.
- Tourism is underdeveloped and needs a grand plan.
- Local investors more attracted in the first instance; international ones will be much harder to convince.
ADC invites brokers to support share offering on regional bourse
Aéroports du Cameroun (ADC) has invited expressions of interest to appoint a broker to support its efforts to list shares on the Bourse des Valeurs Mobilières de l'Afrique Centrale (BVMAC).
It is the first state-owned company there to do so.
The Bourse (English title: Central African Securities Exchange) is a regional stock exchange based in Douala serving the markets of Cameroon, the Central African Republic, the Republic of the Congo, Gabon, Equatorial Guinea and Chad.
The Exchange was instituted by the Economic and Monetary Community of Central Africa (CEMAC) in Jun-2003 and the first listing took place in 2008.
In 2019 it merged with the Douala Stock Exchange to form a single stock market in the CEMAC zone, Cameroon having, until then, its own market.
ADC stated that the proposed IPO was intended to strengthen the company's equity and support its investment needs over the next five years, and to improve its financial and operational performance.
The selected broker would "assist the listing management team in the development of a complete diagnosis of ADC SA, determine the company's compliance with IPO conditions, and supervise the IPO process itself under the legal and regulatory provisions in force".
In a report on ADC's FY2021 financial statements, the auditing firm KPMG Central Africa found some "anomalies", including in the inventory management, software and human resources management, as well as fraud and over-invoicing.
The broker will therefore help highlight addressing these anomalies.
The IPO decision follows the disclosure on 08-Sep-2022 by the Cameroon Minister of Finance of a list of four public and mixed capital companies (including ADC) chosen by the State of Cameroon to boost the sub-regional financial market.
ADC was profitable before COVID-19
In 2019 ADC posted a net profit of CFA6.7 billion (USD11 million), coming after CNPS (Caisse Nationale de Prévoyance Sociale), the public pension fund, in the top five public companies with the highest profits that year.
However, the following year, this profit turned into a loss of CFA7 billion, due to a COVID-19-induced 62% drop in international air traffic.
The Republic of Cameroon, formed in 1961 out of colonial French and British interests, is in west-central Africa.
The country is bordered by Nigeria to the west and north; Chad to the northeast; the Central African Republic to the east; and Equatorial Guinea, Gabon and the Republic of the Congo to the south.
Due to its strategic position at the crossroads between West Africa and Central Africa, it has been categorised as being in both camps. The population is 27 million.
Map of Cameroon and West-Central Africa region
The capital city of Cameroon is Yaoundé, with 2.8 million people and the second largest city after the port city of Douala (5.8 million).
Cameroon's per capita GDP is less than USD4,000, but its economy has performed quite well, and it has major export markets, such as the Netherlands, France, China, Belgium, Italy, Algeria, and Malaysia.
Unemployment was estimated at 3.38% in 2019, but 23.8% of the population was living below the international poverty threshold.
An estimated 70% of the population farms, and agriculture makes up an estimated 17% of GDP. Most agriculture is done at the subsistence scale by local farmers, using simple tools.
Following international programmes, but "rife with corruption"
Since the late 1980s Cameroon has been following programmes advocated by the World Bank and International Monetary Fund (IMF) to reduce poverty, privatise industries, and increase economic growth.
The government has taken measures to encourage tourism in the country.
Cameroon is viewed as "rife with corruption" at all levels of government. There are reported to be several high corruption risk areas: for instance, customs, public health sector and public procurement.
Corruption has got worse, regardless of the existence of anti-corruption bureaus, as Transparency International ranked Cameroon 152 on a list of 180 countries in 2018.
Seat capacity still short of 2019 levels (and 2022)
There has been an improvement in overall seat capacity in the country but it still remains below 2019 levels - and even 2022 levels.
Cameroon: weekly total seat capacity, 2019-2023YTD
Only seven commercial scheduled airports
There are only seven commercial scheduled airports in the country, with large parts of the central-north interior and the southeast (where there are national parks) not having one.
Airports in Cameroon
There are around 15 other smaller airports, some of them being just grass strips.
No traffic figures are accessible for the whole country, but it is known that in 2015 there were almost 2.8 million seats on offer, which was the highest level during the past decade.
Thereafter capacity declined a little, but in 2022 it grew to 2,440,000 seats, exactly where it had been in 2019.
Cameroon: annual system seat capacity/growth, 2012-2023*
International services operate 86% of the capacity, and the same ratio is on foreign airlines.
The three main airlines operating in Cameroon are: Ethiopian Airlines, Camair (Cameroon Airlines Corporation), and ASKY Airlines, which is a pan-national airline based in Togo.
Following them are Air France, representing the old colonial master, and Brussels Airlines.
Cameroon: system seats for all business models, week commencing 13-Feb-2023
Most of the capacity is to and from central and west Africa, but the biggest individual country market is France.
Cameroon: international departing seats by region, week commencing 06-Feb-2023
Full service airlines predominate - no low cost
Full service carriers operate 94% of the capacity, then charters.
There are no low cost services.
That full-service carrier capacity means that there is good representation by alliances: the three main ones are present, led by Star Alliance (34% capacity).
Douala and Yaoundé are the two main airports.
Again, only estimates can be made of passenger traffic figures; around 1.5 million for Douala and half of that for Yaoundé.
Douala the principal airport
So Douala is the principal airport for the country, despite Douala not being the capital city.
Douala Airport: network map for the week commencing 13-Feb-2023
That is supported by its slightly more comprehensive route map.
Yaounde Nsimalen International Airport: network map for the week commencing 13-Feb-2023
Four critical hub cities served, but nothing in the Middle East
Despite their fairly close proximity to each other (one could 'feed' the other), both airports are connected to Paris, Brussels, Istanbul and Addis Ababa, ensuring comprehensive global connections, but not to any Middle East airport.
While there are no flights to Asia Pacific or the Americas in their entirety, the amount of traffic probably would not justify flights in excess of one a week, and it is barely worth opening a new station for that volume.
However, a flight from a major hub in Asia Pacific and North America would be at the head of the wish list of institutional investors.
Patchy utilisation, including by the flag carrier
Utilisation of the main Douala airport is patchy.
Selecting Thursday 16-Feb-2023 as an example: there are flight arrivals and departures in only 14 of the 24 hours, including gaps from 1200 to 1300 and 1500 to 1600.
The chart for the activities of Camair, the principal airline at Doula, is most illuminating.
As the chart shows, on 16-Feb-2023 it had capacity available in only six of the 24 hours.
Douala Airport system seats per hour for Camair for 16-Feb-2023
If the state sold 80% of its stake institutional investors could have control
Share distribution by way of an IPO means that anyone can obtain them, but in a country that is classed as 'lower middle income' for Africa, a general take-up is less likely than that of institutional investors, who perceive some advantage in taking a minority and non-controlling interest (they may be quite restricted) in this float when it occurs.
It is understood that according to an Act of Feb-2018, which unified the financial market of the Central African Economic and Monetary Community (CEMAC), it obliges the States of the sub-region to sell, partially or totally on the stock exchange, their participations in the capital of public companies, semi-public, or resulting from public-private partnership.
The State is a 63% shareholder in Aéroports du Cameroun.
So if the State sold 80% of its shares, that could give one or more institutional investors control over ADC.
But any investor needs more clarity on ADC's intentions
But who would want to buy into it?
ADC identified the proposed IPO as intended to strengthen the company's equity and support its investment needs over the next five years (presumably in infrastructure), and to improve its financial and operational performance.
Investors would want to see it doing just that, by way of commitments made before the IPO.
So they would know they were not 'walking alone.'
ADC hasn't said anything about wanting to increase passenger numbers or freight carryings - just balancing its books.
But that is no attraction to investors if ADC remains in overall control. They want growth, dividends and equity value increases.
They need to know what the fundamental reason behind the IPO is.
No obvious fast-growth markets
And where would that growth come from anyway?
Outbound travel is dependent on the size of the wallets of the inhabitants. Cameroon has a predominantly agrarian/manufacturing economy, one that doesn't make many millionaires.
It possesses substantial mineral resources but these are not extensively mined. Petroleum exploitation has fallen, and Cameroon is only around 50th on the list of oil exporting countries.
Much of the country remains without reliable power supplies.
Many impediments to tourism growth
Impediments to growth of the inbound tourism sector include poor transport infrastructure and corrupt officials, who may harass visitors for bribes.
Separatist fighters continue to kill, torture, assault, and kidnap civilians. In some regions large numbers of people have been driven out of their homes and have sought refuge in neighbouring Nigeria.
Cameroon is full of culture, including a musical one, and has a famous national soccer team - one that played in the 2022 World Cup in Qatar.
It also has 20 National Parks, many of them pristine wildlife parks and some with very rare species, but those national parks are not as touristically developed as those in other, competing countries (which is why they are pristine).
Further, there is an industrial level of poaching in some of them, from Sudan, which is not what tourists want to experience.
Need for a national tourism strategy
It is reasonable to conclude that before the IPO is formally announced Cameroon really needs to come up with a national tourism strategy.
There were academic theses in 2010 and 2014 that examined all the aspects, actual and potential, including beach tourism and ecotourism, but they, and a few other commercial research papers, are all there is to go on.
The current investors in this part of Africa are restricted to the likes of Bi-Courtney (a local Nigerian aviation services company that operates a terminal at Lagos Airport in Nigeria); and Mota-Engil (Portugal) and Qatar Airways, which have been/are involved in the construction of Kigali Bugesera Airport in Rwanda.
Local investors need to take the plunge first
TAV Airports is the preferred bidder for the concession to run the whole airport in Lagos and has expressed a desire to seek out other opportunities in Africa.
VINCI, which last year took on airports under concession in Cape Verde, where there are lots of tourists, might not be attracted to central Africa just yet.
Both Nigeria and Rwanda have problems not that dissimilar from those of Nigeria and Rwanda - for example, in terms of corruption - but it would be a leap of faith for these entities to be going blind into Cameroon without witnessing the experience gained by local investors first.