JSE Ltd, the stock and bond markets operator, will approach regulators about listing instruments across a range of currencies including the US dollar as part of sweeping proposals aimed at positioning itself as the centre of capital-raising on the continent.
"SA has embarked on a process of modernising its exchange control standards in line with international best practice. These reforms will go a long way in positioning SA as a competitive investment destination, opening the door for increased international investment and laying the foundation to securing OECD [Organisation for Economic Co-operation and Development] status for SA," says JSE CEO Leila Fourie.
Should the proposals be enacted, they would make it less attractive for SA multinationals expanding offshore to list on exchanges such as in London, as companies like Anglo American, Investec and Mondi have done in the past.
The Treasury said last week in an addendum to finance minister Tito Mboweni’s speech that it was in talks with stakeholders to explore measures to enhance SA as a gateway into Africa as part of a broad initiative to modernise the country’s capital flow management framework.
The JSE said on Monday that it, together with capital markets research firm Intellidex, would develop a position paper looking at three areas in which changes to exchange control could result in greater capital flows and investment into the country.
These include treating foreign instruments such as debt, derivatives and exchange-traded funds as domestic — as the bourse already does for equities under the so-called inward listing, which allows investors to gain foreign exposure without hitting exchange control limits.
The JSE is also proposing to allow investors to put up foreign-currency collateral for locally traded derivatives, a move that could boost foreign participation by reducing their exposure to the rand, one of the most volatile currencies among emerging markets.
The exchange is also considering giving permission to corporates and governments to raise money in currencies other than rand, providing an alternative outlet for borrowers seeking to list a debt instrument that is denominated in a currency other than the home currency.
Intellidex chair Stuart Theobald says the move will bring the JSE in line with exchanges such as Mauritius and Dubai, which list hard-currency instruments.
"For SA corporates expanding into Africa, it will lessen foreign-currency risk by giving them the ability to raise equity or debt in dollars or euros, instead of having to raise capital in rand to then convert into hard currency to invest," says Theobald.
The same is true for a number of African multinationals that have avoided listing on the JSE for the same reason: raising capital in rand would leave them managing cumbersome and often costly foreign-exchange exposure.
The appeal would extend to a number of African governments that raise a portion of their financing in hard currencies. In the case of SA, this means issuing dollar-denominated debt out of Europe in what is called a Eurobond issuance.
The move to give the JSE the ability to list instruments in currencies other than the rand would make the JSE, together with the country’s world-class banking system, a much more attractive continental financial hub, Theobald believes.
"The government has been talking for years about making the country a capital centre for Africa, and this is a major enabler. It means SA could become much more effective at intermediating capital flows on the continent," says Theobald.
The reforms would need explicit changes to be made to the legislation governing the JSE, giving the exchange the ability to list assets in foreign currencies.
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