AEP Energy Africa shares were untraded on its first day of listing as a special-purpose acquisition vehicle on the JSE, reflecting its small spread of shareholders and limited enthusiasm for AltX shares in risk-averse markets.
The company raised R52m ahead of listing at R10 a share, but had hoped to raise up to R500m.
CEO Edwin Kikonyogo says investor appetite was subdued because of political noise and sentiment towards a special-purpose acquisition vehicle listing on the AltX board.
The Public Investment Corporation now holds 49% of AEP shares. It has undertaken to bring its cumulative investment in AEP to R200m in a subsequent capital raising, as long as AEP remains a special-purpose acquisition vehicle.
JSE requirements to list on the main board are higher but AEP has taken the first steps and will now focus on qualifying for it, Kikonyogo says. Other asset managers have indicated they would prefer a main board listing.
AEP’s management holds 47% of its shares, leaving a relatively small free float.
AEP was founded by Kikonyogo and Nkosi Gugushe of Destiny Corporation, a diversified holding company whose assets include energy.
AEP intends to build up a business specialising in clean energy, ranging from production to transport, storage and sales of natural gas, refined fuels and biomass.
As a special-purpose acquisition vehicle, it has 24 months in which to acquire assets. Kikonyogo says AEP intends to make its first acquisition within six to 12 months. Its initial targets are all cash-generating and negotiations have begun.
Some of the projects that Destiny Corporation is involved in would provide a possible source of deal flow, but AEP’s management also has relationships with energy project developers looking for partners with capital who understand the industry. "We believe the opportunity ahead of us is immense," he says.
AEP plans to buy controlling stakes in businesses on a long-term view and become operationally involved. The management already has in-house skills in the energy sector and will add to them as it acquires businesses.
Kikonyogo says SA and the rest of Africa offer big opportunities for energy development. Just as the telecommunications industry has penetrated the continent rapidly and has created a vast market of people who need to recharge their cellphones, there is vast unfulfilled demand for energy.
AEP forecasts Africa’s energy future will be met by liquefied natural gas (LNG).
LNG is cheaper to transport than petrochemicals, cleaner for the environment than crude oil and abundant in Africa.
Kikonyogo’s comments are echoed by South African Oil and Gas Alliance CEO Niall Kramer, writing in the association’s latest newsletter.
Kramer says if the government’s request for quotations for LNG projects occurs in the third quarter of 2017, as expected, "we have the opportunity for some of the biggest projects and investment that SA has seen.
"Without this certainty, investors in the LNG consortiums and offshore/ onshore exploration will not have the necessary legal framework and confidence," Kramer says.
Asked about regulatory uncertainty around SA’s LNG roll-out, Kikonyogo says it is partly a reflection of the fact the private sector has not developed LNG extensively, so it is left to the government to design a programme, which inevitably took time.
AEP is not looking only at SA’s LNG potential. It needs economies of scale and there are opportunities in other African countries, which are at varying stages of LNG development. SA will remain an attractive market in the long term, while regulatory uncertainty is a short-term event, he says.