The Johannesburg Stock Exchange is proposing to ease some of its Listings Requirements to reduce the costs for small and medium-sized companies.
Compliance requirements that are particularly expensive and onerous for small companies are among the reasons South Africa’s main stock exchange has been losing listings.
In 2001, about 600 companies were listed on the JSE; there are now 284, and listings have been net negative for the past seven years.
The FTSE/JSE Africa All Share Index has 122 companies, down from 143 at the start of 2022 and 165 in 2012, according to Bloomberg.
The dwindling number of listings has curtailed trading volumes and reduced the options for institutional investors, making it difficult for them to diversify and mitigate risk.
If implemented, the reform will see the JSE’s Main Board split into two: a Prime Segment, catering to large corporations, and a General Segment, housing smaller companies.
The FTSE/JSE All Share Index (ALSI) will serve as the segmentation threshold. By default, all companies listed on the Main Board will be in the Prime Segment. Issuers that are not included in the ALSI must apply to the JSE to seek classification in the General Segment.
In a statement last week, the JSE said 220 issues are listed on the Main Board. Of these, 116 (52.7%) are eligible to be classified in the General Segment.
An issuer in the General Segment will be reclassified in the Prime Segment after being a constituent of the ALSI for 12 consecutive months.
Benefits for smaller companies
Classification in the General Segment will have various benefits, some of which are:
- Companies will not have to prepare condensed financial statements or annual financial statements/summary financial statements within three months from the end of their financial year. Instead, they will be required to prepare an annual report within four months of the financial year-end.
- Companies will not have to obtain fairness opinions for a specific issue of shares for cash, related-party transactions, or corporate actions. This is conditional on the related-party corporate action agreement being open for inspection and the corporate action being accompanied by a statement by the independent members of the board dealing with:
- the corporate governance processes that were followed to approve the corporate action;
- if applicable, that the related party and its associates will be excluded from voting; and
- whether the related-party corporate action was concluded on an arm’s length basis and is fair to shareholders.
- A general authority to issue shares for cash will not require shareholders’ approval, provided it does not exceed 10% of the company’s issued share capital at the date of each annual general meeting.
- Companies will not have to prepare pro forma financial information. Instead, they must provide a detailed narrative on the impact of the transaction or corporate action on the financial statements.
“The market segmentation project is set to redefine the regulatory landscape for smaller listed companies on the Main Board. By introducing segmentation, we are proposing measures that will support the ease of raising capital and undertaking corporate actions by smaller companies whilst maintaining investor confidence through disclosure and appropriate safeguards,” said Andre Visser, the director of issuer regulation at the JSE.
“As Africa’s largest stock exchange, it is crucial for us to take all necessary measures to encourage inbound investment and boost confidence among local and international investors. Through this project, we are optimising the regulatory conditions which facilitate easier business operations, foster growth, and, ultimately, invigorate investor engagement. This restructured environment will likely attract more investment and retain current listings, enhancing the overall health of our capital market,” Visser said.
The proposals require approval from the FSCA.
The public has until Monday, 20 May 2024, to submit comments. Feedback must be sent to consultation@jse.co.za.
The market segmentation project initiative is part of a broader set of reforms to cut red tape and compliments the JSE’s simplification project, which aims to simplify the Listings Requirements using plain language to record concise regulatory objectives, allowing better understanding and application of the requirements by listed companies, sponsors, and investors.
Click here to download the proposed amendments to the Listings Requirements.
