‘JSE red tape deters listings’

Analysts this week slammed JSE Ltd, the company that runs Africa’s largest bourse, over the stream of companies leaving the exchange, saying it seemed unable to attract new listings the way other exchanges around the world were doing.

But in an interview with Business Times, JSE CEO Leila Fourie said the basic problem was the broader economy.

“The point is the JSE is often the lightning rod of macroeconomic vagaries that affect the country’s economic status,” she said.

“While there are initiatives under way to improve and drive growth in the country, ultimately ... we can’t divorce ourselves from the macroeconomic context.”

At the JSE’s annual general meeting (AGM) this week, Chris Logan, MD of Opportune Investments, raised concerns about the “net delistings trend” on the JSE over the past five years, saying this was continuing “despite a red-hot global initial public offering [IPO] market”.

He said in the US, there had been 496 listings in the first half of 2021, while the IPO tallies in other countries were 47 in India, 15 in Brazil and 42 in Israel. Australia has had 2,500 IPOs since 1998.

“Are you not alarmed by the shrinking listing universe against this boom backdrop?” Logan asked at the AGM.

“And can you share the reasons behind this trend and if there is a turnaround plan?”

The JSE said on Friday there had been five listings on the exchange so far this year. But listings have fallen sharply over the years. The JSE said last month that in May 1999 it had a total of 811 companies listed but by May this year the total had dropped more than half to 329.

Responding to Logan at the AGM, Fourie said the JSE acknowledged the problem and was “very, very alive to the actual nominal number of listings”.

“That said, although the number appears high, it needs to be viewed in context and most of the delistings that we’ve seen have, unfortunately for those companies, been in the tail-end of the market, so we are talking about small, mid-cap and fledgling [companies].”

Fourie said that last year the JSE’s total market cap rose 20%, from R15-trillion to R18-trillion, while in the same period it had 20 delistings. These delistings, she said, amounted to a “mere R70bn, which is less than 1% of the [total] market cap”.

She said that so far this year, the JSE’s total market capitalisation had risen 7.6% even though there had been 14 delistings totalling R72bn in the same period. These delistings represented “0.38% of market capitalisation”.

“We are alive to the challenge in actual numbers but when we look at the volume, we see that this is very much a function of cyclicality. Typically during a downturn debt gets cheaper than equity and unfortunately the smaller-cap market, which is illiquid, tends to suffer the most.”

Are you not alarmed by the shrinking listing universe?

—  
Chris Logan, MD, Opportune Investments

Analyst Anthony Clark, who heads Small Talk Daily, also took issue with the JSE’s track record on listings. In questions he submitted to the AGM and shared with Business Times, he said “practices and red tape that the JSE has” were a hindrance for any company that might want to list and contributed to the “utter lack of interest” in doing so.

“In fact, many are delisting blaming high fees and the cost of being listed.”

Clark said he knew of two multibillion-rand companies that wanted to enter the listed equity space but were unwilling to list on the JSE “due to the onerous, time-consuming and red tape nature of requirements”.

Clark was unhappy that his questions were not dealt with at the AGM, but Fourie said there had been a misunderstanding and the JSE had responded in writing to Clark.

Fourie said the JSE had a number of initiatives, including one to cut red tape, and it was actively engaging the market on issues it faces.

“We are delighted with the feedback and we will be reviewing those. Our regulatory department will come back to the market.”

She said the JSE would launch a private placements market focused on key growth nodes such as infrastructure and SMEs. And it was working with other exchanges to try to create a fast-track dual listings framework, promising “some imminent progress in that space”. A dual listings framework would encourage companies to have a secondary listing in SA.

Fourie said the general listings environment was under pressure across the world. She said total global listings grew less than 1% in the past year and that although the Americas were up 4.5%, the Asia-Pacific region declined 0.03% and Europe, the Middle East and Africa dropped 0.13%.

JSE chair Nonkululeko Nyembezi said it was not possible to divorce IPO activity in the capital markets from the general economic circumstances of the country.

“South Africa has been going through this low-growth economic cycle since 2019 so it would be unusual to see in a cycle like that, huge activity happening in the market,” Nyembezi said.

Shareholder Hendrick Thabo Bokaba said at the AGM that it was not fair to blame the JSE for the shrinking listing environment and that other factors such as the general economic climate, government policies and the regulatory environment contributed to how well businesses performed in SA.