The JSE has proposed to amend its listing requirements for a market segmentation project on the Main Board of the bourse that will make it easier for smaller companies to raise capital and lower the compliance cost burden.
The exchange currently has a two-tiered equities market, the Main Board and AltX. The plan is to segment the Main Board into the Prime Segment and General Segment.
The JSE has seen a flood of delistings in recent years, and apart from mergers and acquisitions, many of the smaller companies have cited the rising costs of JSE listing compliance requirements and the difficulty in raising capital as reasons for exiting the market.
Smalltalkdaily Research investment analyst Anthony Clark said the JSE “must be applauded” for the “leap in the right direction” that these proposals represented.
He said he recently visited a small listed company that made about R16 million profit a year, but the cost of annual reports, of auditors and other requirements of being listed came to about R6m a year, and he understood why it wished to delist.
He said that “pitiful” valuations on the JSE, and the cost of reporting and legal requirements of being listed, had been the cause of many small companies delisting.
The JSE’s Issuer Regulation director Andre Visser said in a statement yesterday: “Whilst maintaining investor confidence and appropriate safeguards, the reforms propose meaningful relief – from a regulation, cost and resources perspective – for smaller companies on the Main Board that would fall into the General Segment, whilst also supporting capital raisings and general financial markets activity for such issuers.”
The JSE believed the proposals could provide an appropriate level of regulation depending on the size and liquidity of Main Board companies, while also maintaining investor confidence in the market, he said.
The JSE had obtained input from stakeholders into the proposed changes through a consultation paper in May 2022, and in June 2023 from an independent survey for input on specific segmentation proposals, and the feedback was “resoundingly positive” about repositioning the Main Board into two segments.
“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 to support the ease of raising capital and undertaking corporate actions by smaller companies, whilst maintaining investor confidence through disclosure and appropriate safeguards,” said Visser.
Reforms proposed for the General Segment include introducing more flexibility through a general authority to issue shares for cash without shareholders’ approval, to facilitate easier capital raising.
Another was removing fairness opinions for related party transactions/corporate actions with more emphasis on shareholders’ approval, disclosure and corporate governance processes applied.
There was a proposal to remove the preparation of pro forma financial information, with more emphasis on a narrative explaining impact of the transaction/corporate action on the financial statements.
Other proposals included larger percentage ratios for category one transactions; larger percentage ratios for small related party transactions, with more emphasis on disclosure and the corporate governance processes applied; and introducing more flexibility to undertake repurchases of securities.
Another proposal was to introduce more flexibility on financial reporting by removing the preparation of either condensed financial statements or annual financial statements/summary financial statements within three months. Listed companies would only be required to prepare an annual report within four months.
“As Africa’s largest stock exchange, it is crucial 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 health of our capital market,” said Visser.
The segmentation project was part of a broader set of reforms to cut red tape and complimented the JSE’s Simplification Project, which aimed 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.
BUSINESS REPORT