The JSE, which has almost halved in size over the past two decades, is looking at rewriting its listing requirements and cutting the red tape that has made it unattractive for local and offshore companies.
Africa’s biggest exchange by value said on Tuesday it will embark on a “simplification project” over the next 18 months with the aim of using understandable language in its listing requirements in the hope of attracting more companies. The bourse also hopes the project will lead to a reduction in the volume of listing requirements.
“During the process, the JSE will also assess the regulatory relevance of each provision and ‘cut red tape’ where possible to ensure that the listings requirements are fit for purpose, aimed at an effective and appropriate level of regulation,” it said. “Any amendments beyond simplification will be clearly identified and the rationale explained.”
Market players welcomed the move as a positive and necessary step because the shrinking number of listed companies on the JSE poses a threat to savers, the economy and the exchange itself.
More than 20 companies were delisted in 2022 for reasons that included mergers & acquisitions, especially among small caps and medium caps.
African Bank is expected to list in 2025 after its revival, while Coca-Cola Beverages Africa has delayed its keenly awaited listing until market conditions “become more favourable”. Coca-Cola’s initial public offering (IPO) was first mooted in April 2021, with the shares to be listed in Amsterdam and Johannesburg. It was targeting a value of $8.1bn, according to Bloomberg.
Former JSE darlings Pioneer Foods, Mediclinic, Distell, Massmart, PSG Group and Clover have all left the exchange.
Recent examples of delistings after corporate action include Royal Bafokeng Platinum, while Standard Bank took full control of Liberty.
Foreign investors have been substantial net sellers on the JSE for several years.
Activist shareholder Chris Logan, chief investment officer and owner of Opportune, said the JSE is experiencing its eighth successive year of net delistings, which is an alarming indicator.
Logan said that the changes announced and contemplated by the JSE demonstrate its endeavour to create a fair, efficient, transparent and competitive exchange.
“The JSE needs to prioritise to a greater degree the importance of attracting IPOs and retaining listings. Part of this would be reviewing its listings requirements and cutting red tape, which it is currently doing.
“I think it’s incumbent on the JSE to drum up greater support from government and other important role players like the big institutions for a vibrant listings environment,” said Logan.
The local exchange is dominated by the top 10 listed stocks: BHP, Prosus, AB InBev, Richemont, Naspers, British American Tobacco, Glencore, Anglo American, FirstRand and Standard Bank. They are roughly worth a combined R13-trillion compared with the JSE’s market cap of about R20-trillion.
Asief Mohamed, chief investment officer at Aeon Investment Management, said principles-based regulation has proved to be far superior to rules-based regulation as it is not possible to regulate for every eventuality.
“If the simplification is going to be principles-based rather than rules-based it may help in attracting new listings or stem the number of delistings. Exchanges all over the world are experiencing delistings as alternative sources of capital from private equity have a lot less onerous requirements,” he said.
Among the criticisms levelled at the JSE is that it has been largely an institutional market that lacks deep penetration by retail customers.
Andrew Bahlmann, CEO of corporate & advisory at Deal Leaders International, said the requirements in reporting and governance have become punitive relative to the benefits that companies have enjoyed.
“The economic and political landscape has had a negative impact on the liquidity of the bourse and the inflow of investor funds,” he said. “Investors appear to be pushing capital flows more into private equity funds with better returns and less red tape. The growth in ‘dry powder’ available to companies has provided attractive alternatives to raise capital versus the JSE.”
The JSE also gave an update on other measures it has embarked on over the years to make the exchange more attractive. They include introducing weighted voting shares for applicants seeking a listing on the main board and reducing the 20% free float threshold to 10%. “Currently, one type of holdings of securities which does not qualify as free float on listing is any holdings of 10% or more in the securities of an issuer, irrespective of such shareholder’s relationship with the company,” said the bourse.
“The JSE removed the 10% holdings free float exclusion, however, introducing a minimum number of shareholders and introducing a more appropriate exclusion for controlling shareholders to align with certain peer exchanges.”
In addition, the exchange has done away with the obligation to produce an abridged report when the issuer has published its audited annual financial statements.
“The JSE further simplified the financial reporting requirements and removed provisions that do not provide regulatory value. These changes will save time and costs for companies and provide investors with relevant and appropriate information to make informed investment decisions,” said the JSE.
Update: September 20 2023
This story now has additional comment and background.
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