JSE hopes its new classification will bring fresh listings

The announcement by the Johannesburg Stock Exchange (JSE) and the Financial Sector Conduct Authority (FSCA) that the latter had approved changes to the stock exchange’s listing requirements has attracted little fanfare.

Although the changes reduce red tape and some of the cumbersome processes for certain listed companies, the move is but a small step to try and lure new companies to the JSE and stem the stream of delistings.

The number of listings on the JSE dropped from an already uninspiring 460 companies in 2004 to only 274 in 2024 as a lot of companies decided to end their listings, with most blaming the high costs to maintain a listing and adhere to the listing requirements relative to the benefits of being listed.

The prime reason for listing on the stock exchange is to access capital and to give shareholders the opportunity to value and sell their shares. However, it is not attractive for many smaller companies to raise capital for expansion and growth as these local companies usually trade at such low ratings that the majority shareholders are unwilling to sell a lot of shares to raise a little capital.

Also, when companies trade at attractive ratings, they quickly fall prey to offers from private equity funds or larger companies – and are then delisted.

The JSE initiated several projects to make it easier for companies to list and maintain listings.

ALSO READ: JSE soars to record levels driven by Financial and top 40 Indices

First step, simplification

In September 2023, it launched a ‘simplification project’ that aimed to simplify the listing requirements – using plain language to record concise regulatory objectives, allowing for a better understanding and application of the requirements by listed companies, sponsors, shareholders and investors.

The result of simplification would mean a complete rewrite of the requirements.

The JSE said at the time that a benefit of the simplification would be a significant reduction in the volume of the requirements.

The JSE also assessed the relevance of each provision and reduced red tape, but still ensured that the listing requirements are fit for purpose aimed at an effective and appropriate level of regulation.

Second step, segmentation

The second major project, the Segmentation Project, is coming into effect soon. This will split the JSE’s main board into two segments, the Prime and the General segment, with some relaxation of rules for companies in the general segment.

Companies can apply to change their listing to the general segment, which simplifies some requirements, such as:

• Removal of the requirement to release results announcements within three months after the year end. Companies will have four months to prepare an annual report.
• Removal of the preparation of pro forma financial information for new listings and certain transactions. A detailed narrative of the impact of a transaction or corporate action will be sufficient.
• Requiring only two years’ audited historical financial information instead of three years’ worth for Category 1 transactions.
• An automatic annual rolling general authority to issue shares for cash without shareholders’ approval, representing up to 10% of the issuer’s issued share capital.
• Authority for a general repurchase of shares will not be required (not exceeding 20% in any one financial year).
• Authority for a specific repurchase of shares will not require shareholders’ approval, subject to it not involving related parties and not exceeding 20% in any one financial year.
• Removal of fairness opinions for related party corporate actions and transactions, with more focus being placed on governance arrangements and transparency (agreements open for inspection), and exclusion from voting for related parties and associates.

Andre Visser, director of issuer regulation at the JSE, says the exchange is committed to creating an enabling environment for listed companies and continually assesses its listing requirements to ensure they are relevant and applicable to the ever-evolving needs of the market.

“This new structure aims to offer a suitable and efficient level of regulation tailored to the size and liquidity of issuers on the Main Board, while continuing to uphold investor confidence in the market,” he adds.

“We believe it will create a flexible and enabling environment for certain companies listed on the Main Board to raise capital and undertake corporate actions within an appropriate and relevant regulatory framework.”

Expanded secondary listings framework

Another big change is that the JSE has announced the expansion of its secondary listings framework.

It has added the Tadawul (Saudi exchange) and all the Euronext exchanges (Amsterdam, Brussels, Dublin, Paris, Milan, Lisbon and Oslo) to its list of approved and accredited exchanges.

These exchanges are now included in the group of global exchanges recognised for the fast-track process – including the London, New York, Toronto and Singapore stock exchanges, the Australian Securities Exchange, and Hong Kong Exchanges and Clearing Ltd – for companies seeking a secondary listing on the JSE.

ALSO READ: From resources to retail: Unpacking the JSE’s 2023 market movers

Investment potential

Unfortunately, the JSE can only do so much to make listing on the local exchange more attractive.

Over the longer term, only the investment potential of listed companies and their prospects will draw investors to the JSE – and, after that, new listings.

Neville Chester, senior portfolio manager at Coronation Fund Managers, says the changes the JSE has announced “won’t hurt”, but they are unlikely to help much.

“The cost of being listed remains high, especially for smaller companies and, given the unattractive ratings of local businesses on the JSE, small companies are unlikely to find much reason to list in this weak economic growth environment,” he says.

“Economic growth will be the trigger to see companies’ profitability increase. In addition, companies would then start investing for growth, which would require capital to be raised, which would drive a listing,” he adds.

“This growth opportunity would then attract local and foreign investment and lead to a rerating of shares, which would power a virtuous cycle.

“Until we see meaningful economic growth – which would, as a prerequisite, require meaningful policy changes in SA and relief from the current overly tight monetary policy – we are unlikely to see many new listings.”

This article was republished from Moneyweb. Read the original here.