Fighting the curse of companies leaving the JSE

It is fair to comment that the Johannesburg Stock Exchange (JSE) is fighting for survival, even if it is still the continent’s biggest and best stock exchange.

Trading volumes have shown little growth over the last few years and have declined lately. A lot of companies have opted to delist, and local investors have steadily been moving their money offshore.

Read: Foreigners flee SA stocks, sending volumes on JSE tumbling

In addition, apart from solid trading volumes in the shares of local banks, most of the buying and selling on the JSE involves the shares of a handful of large international companies.

During the second week of November 2023, trading activity was dominated by Richemont, with investors trading R1.5 billion worth of shares, followed by Naspers (R1 billion) as the bulk of its value is represented by Tencent. Just more than R516 million worth of Anglo American shares and R506 million of AngloGold Ashanti shares were traded– both having cut their interests in SA over the years.

Highest traded shares

The first SA company to feature on the list of the highest weekly trading by value is TFG, with investors trading R418 million worth of shares, followed by Capitec and FirstRand, hovering at around R380 million worth of trade each.

Read: Why foreign investors dumped MultiChoice, Mr Price, and TFG

In all, the investable universe on the JSE has shrunk to the 100 largest companies – some would say the largest 40 companies.

Responding to queries, the JSE says that only 40 new companies listed on the JSE during the last five years. In contrast, 130 companies were delisted.

There are currently only 287 companies listed on the JSE compared to 389 a decade ago.

“Over the past year, delistings on the JSE has become a topical issue for investors and commentators,” according to the JSE.

“This is not isolated to South Africa; it is a global phenomenon. It is important to keep in mind that listing activity is driven by market sentiment and the macro-economic situation of a country.

“Globally, we have observed that where there is high initial public offering (IPO) activity, it is supported by GDP growth and sectoral policy measures,” it says.

Fighting back

The JSE has initiated several projects to woo back investors and companies, largely aimed at making it easier for companies to list.

“In May 2022, and as part of its ongoing efforts to ensure that the bourse is fair, efficient, transparent and competitive, the JSE released a consultation paper, requesting stakeholders, investors, issuers and the general public to comment on a raft of proposals to reform the JSE’s listings framework,” it says.

“One such proposal was the Simplification Project, which along with the other proposals, received overwhelming majority support during the consultation.”

It says it issued a response paper to this effect in August 2022

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The simplification project aims to simplify initial listing and ongoing requirements using plain language to record concise regulatory objectives, allowing a better understanding and application of the requirements by listed companies, sponsors and investors.

“The project is not limited to pre-listing statements and prospectuses, but will be applied to the whole body of JSE requirements,” according to the JSE.

“An additional benefit of the simplification will be the significant reduction in the volume of the 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 requirements are fit for purpose, aimed at an effective and appropriate level of regulation.”

The JSE released the first four sections of requirements for public consultation (commencing on 30 September 2023). The next two sections were released this week.

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The JSE expects the project to take approximately 12 to 18 months to complete.

Changes that have been implemented

It says several other proposals the JSE initiated with its 2022 consultation paper to reform its listings framework have already been implemented after the Financial Sector Conduct Authority (FSCA) approved the amendments.

The following changes came into effect on 17 July 2023:

• Weighted voting shares: Low or high voting shares are prohibited on the JSE. Considering developments in other leading international markets, the JSE introduced weighted voting shares with appropriate safeguards to afford the necessary investor protection.
• Free float: The JSE reduced its 20% free float threshold for a main board listing to 10%, considering developments in the UK and the EU.
• Public spread criteria: It adjusted the public spread criteria to include institutional investors, considering that institutional investors are key stakeholders in the SA market and often manage funds for retail investors.
• Review of special purpose acquisition companies (SPACs): The JSE aligned its SPAC offering with those of leading international markets to ensure the attractiveness and competitiveness of these structures.
• Financial reporting disclosures: It simplified the financial reporting disclosure provisions contained in its requirements.
• Real estate investment trust (Reit) expansion: The JSE undertook to expand its Reit offering beyond traditional property to unlock more opportunities in the Reit environment and attract listings. The JSE can now list infrastructure Reits provided they meet the definition of property as contained in the adapted listings requirements.
• Auditor accreditation: The JSE removed the auditor accreditation model in consultation with the Independent Regulatory Board for Auditors (Irba). The amendments will enable listed companies and issuers of listed securities to appoint auditors from a wider spectrum, provided they are regulated by Irba. The direct benefits will be significant cost and time savings when seeking to list on the JSE or appoint a new auditor, which contributes to the ease of seeking and maintaining a listing on the JSE while ensuring that appropriate standards are maintained. These amendments have been approved by the FSCA and will come into effect on 4 December 2023.
• Market segmentation: The proposal is to reposition the main board by introducing two segments. These new main board segments aim to provide an effective and appropriate level of regulation depending on the market cap and level of liquidity. The JSE appointed a third-party service provider to do a survey, engaging directly with all issuers, sponsors and selected investors as to the extent of the proposed market segmentation and to obtain input on other ancillary regulatory matters. The JSE is in the process of determining the way forward regarding the amendment process to the requirements to effect the proposed market segmentation.
• Section 19 specialist securities rejuvenation project: The JSE reviewed the appropriateness and composition of its specialist securities offering to make them easier to apply and align with international best practices. The amendments are in the final stages of public consultation.
• Repositioning of the black economic empowerment (BEE) segment: The JSE proposed amendments to the BEE listings requirements to ensure a bespoke new section for a more fit-for-purpose framework and to further expand its offering by allowing BEE operational companies to list on a standalone basis. The amendments are in the final stages of public consultation.

“In order to attract companies and securities to list on its exchange, the JSE must ensure that it remains relevant and competitive and has decided to review its listings framework to retain and attract more listings and capital markets activity,” it says.

“Through these proposals, we are collaborating with stakeholders to create a conducive capital markets environment while simultaneously protecting shareholders and investors.”

The consultation process was not positioned to identify problems. The JSE does, however, recognise that there are several legislative or regulatory issues outside of its control as a Listings Authority that may reduce the incentives for companies to list or remain listed on an exchange.

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“The JSE is actively involved in several initiatives for change around these issues,” it says.

“The bourse has adopted a multi-pronged approach to further enhance small cap liquidity, including aims to increase research coverage, regulation, advocating for flow through shares to support exploration companies and supporting retail investors, as well as market making.

“All these initiatives are set out to address the various aspects and concerns from small and midcap issuers in diving additional liquidity. In the meantime, it will continue to play its part in stimulating the attractiveness, trustworthiness and competitiveness of South African financial markets.”

Secondary listings

The review of the JSE’s secondary listings framework has also had some success, and proposals are ongoing.

“In 2018, the JSE introduced an approved list of foreign exchanges to afford foreign companies more clarity on JSE eligibility when seeking a secondary listing.

“During November 2021, the JSE announced the expansion of its secondary listings’ framework to include companies with a primary listing on the Singapore Stock Exchange to seek a secondary listing on the JSE and, additionally, qualifying for the fast-track listing route,” it says.

Read: JSE ready for secondary and fast-track listings from Singapore

“The JSE is now building on this effort and is undertaking a further project to expand on its list of approved and accredited exchanges. An announcement in respect thereof will be made in the next week.”

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