I remember my first real job in financial journalism — capturing daily Stock Exchange News Service (Sens) data, from general corporate finance actions to M&A, for David Gleason’s boutique publishing house, cutting out clippings of company news from the two major business newspapers (Business Report was actually worth reading in the early 2000s) and filing them in the Finance Week library he had acquired. It was mundane. He was a curmudgeon about detail. I loved it.
It was also a time right before everything changed in the drink-and-cigarette-stub, wandering albatross-fuelled world of sniffing out corporate malfeasance in the business media. The world was rapidly digitising and the old way of communicating with ordinary people holding stockbroking accounts with traditional brokers before the rise of online platforms — through newspapers announcing an abridged prospectus published in the paper with an application form — was on the way out.
If you wanted to participate in an initial public offering (IPO) of a new gold mine, for example, you’d fill out the form, append your cheque and post it off to the transfer secretary, who would then issue you a share certificate and send it back to you. This was also the early part of what has now been a 30-year cycle of a shrinking listed capital marketplace.
The reasons are many and varied but, unfortunately, the one party that has been left out in the analysis is the retail stockbroking account holder, who is so vital for the health of the smaller end of our stock exchange. That’s where entrepreneurs, especially in mining, should be connecting with investors to raise smaller sums to help stimulate our junior mining and exploration sector. A key part of the capital-raising dance involves storytelling and selling the project to potential investors.
One reason communication has withered overall is that JSE regulations changed. The requirement to publish long-form results announcements, a significant financial underpin for business newspapers, was removed and shifted online. Business newsrooms were forced to cut back budgets. Headcount and the quality of business news coverage has sadly never recovered, to the detriment of our capital markets broadly.
Numbers tell the story
The other structural shift is that stockbrokers would far rather put you in a fund and earn an annual fee than have you actually trade your own portfolio. The numbers tell the story.
Sourced from DealMakers Online, analysis over the past five years is telling. The JSE saw 21 new listings in 2017, while newcomer A2X had five. The first three quarters of this year has seen the tables reverse, with the JSE welcoming three new companies to the bourse while A2X has welcomed 18 new entrants. In total across all four exchanges in the country 2017 saw 30 new listings; this year the number stands at 24.
On the delistings front (excluding bonds, prefs and other instruments), so far this year we’ve had 19 delistings and two IPOs on the JSE. There have been six new listings (excluding A2X), three on the JSE and three on the Cape Town Stock Exchange. A further five delistings are planned in the next few months.
Now back to the IPO process I described earlier. If you imagine exactly that process in a modern, digital, low-friction environment, that’s in effect what an exciting new platform announced last week by market veteran Paul Miller, CEO of AmarnathCX, in collaboration with reputable investor services firm Ince does. It is called Utshalo, a Zulu and Xhosa verb meaning “to plant”.
Miller told me more than 100 individual retail investors were surveyed and asked when last their stockbroker contacted them with a new issue of shares or an opportunity to participate in an accelerated bookbuild. Ninety of them said they hadn’t been contacted in more than a decade.
“That’s what we’re trying to solve,” says Miller. “We’re saying well, if there’s a conflict of interest, if stockbrokers are more interested in putting you into a managed fund, then let us act for the issuer and reconnect the investors who already have stockbroking accounts. But let’s reconnect them directly to the issuers.
“Of course these days it’s no longer just companies. It’s also the issuers of actively managed certificates, the issuers of exchange traded notes ... we really want those people who manage their own affairs who have a stock portfolio to be equal participants in the public market.”
But there’s a broader opportunity beyond listings at play that seeks to increase market depth and liquidity as volumes on the JSE have been in steady decline too. Miller says Utshalo has lined up a pipeline of potential issuers for when (if?) the economy turns, but the platform doesn’t need to have new listings. There are also stale blocks of shares on illiquid company share registers.
Miller says Utshalo is going to go to those companies and offer, in an organised fashion, those blocks of shares to its members, perhaps at a small discount. Utshalo will settle the transaction off-market on Friday with reference to a market price, and do what he’s calling a liquidity placement, where you can deliberately take a block of shares that exists on a share register and place it in the hands of retail investors to attempt to improve liquidity in a company’s stock.
• Avery, a financial journalist and broadcaster, produces BDTV’s Business Watch. Contact him at badger@businesslive.co.za.
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