JSE CEO Leila Fourie has defended the exchange against fierce criticism at its annual general meeting last week over its inability to arrest a continued slide in listings, saying it is a symptom of a weak economy and new trends in how companies raise capital.
Data compiled by Chris Logan, chief investment officer at Opportune Investments and among the strongest critics at the June 3 meeting, shows 137 companies delisted from the JSE between 2015 and 2020. Though the exchange attracted 83 new listings over that time, it was still left with a net 54 delistings. There have been 14 more delistings so far in 2021.
Critics argue this is not just an issue for the JSE’s own revenue, as it earns its income from companies listed on the exchange, but also has implications for SA’s sustainable economic growth and job creation. That is because the exchange serves as a platform for companies to raise capital for expansion and investment in exchange for selling shares.
“There are a number of factors materially outside the JSE’s control but we are doing as much as we can to address the problem,” Fourie told Business Day.
“There’s a cyclicality element in that it’s cheaper to raise debt in a downturn so the number of companies coming to an exchange for funding is limited. As a country we’re also facing significant growth headwinds and that plays out in terms of the willingness of companies to raise capital and investor appetite to invest in those counters.”
Citing a report by the World Federation of Exchanges Fourie says the number of companies listed globally grew only 0.73% between March 2020 and March 2021, with most of that coming from the Americas region.
Most of the JSE’s delistings have been among small, mid-cap and fledgling companies, which are smaller contributors to its overall market capitalisation than large companies.
Suspended companies
Fourie cites the rising role of private equity as a source of funding that is causing companies to raise capital where regulatory oversight is less onerous and less costly.
The number of JSE listings is distorted by the 18 companies that remain suspended such as Delta Property, Basil Read and Pembury Lifestyle Group, she says.
But Logan says the JSE is not acknowledging the gravity of the problem.
“As the dominant exchange in SA it is not just a nominal company,” he tells Business Day. “It performs a critical structural service to society by matching funders with companies that need that capital to grow their businesses and employ people.”
Small caps analyst Anthony Clark is also unhappy with the JSE for failing to address his questions during the annual meeting. The questions were submitted to the JSE before the start of the meeting in accordance with their request but were not addressed during the meeting. The JSE said this was unintentional but Clark was clearly unhappy when he spoke to Business Day.
Clark also says the exchange is “hell-bent on creating bureaucracy and red tape” which is deterring new listings. Still, he acknowledges that this is a consequence of the recent spate of corporate scandals in SA such as those regarding Steinhoff and Tongaat Hulett.
Fourie says the JSE has produced a paper on cutting red tape and is engaging with stakeholders on the issue but adds the exchange has a duty to ensure investors are protected.
“SA is seen by outside investors as having a very sophisticated and well-established financial market and one of the reasons for that is our high disclosure and regulatory standards,” she says. “It’s a fine tightrope to walk between fit-for-purpose regulation and overregulation.”
Fourie says the exchange is working with its international peers to introduce a fast-tracking process for dual listings and is launching JSE Private Placements (JPP) as an alternative to traditional debt or equity listing. The private placements market will initially focus on attracting investment to infrastructure projects and small- to medium-sized businesses.
“The delistings issue is an incredibly complex problem,” she says. “It’s not easily solved.”
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