Growth Under Pressure

New JSE listings reflect diversity and opportunity

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While South African economic growth remains under pressure, the JSE saw an increase in the number of listings on the exchange in 2017 compared to the previous year. On 15 December Alphamin Resources Corp. became the 19 company to list on the JSE in 2017, following listings in sectors including investment instruments, retail, financial services and basic resources earlier in the year. We asked JSE Head of Primary Markets, Prejelin Naggan, for insight into this development.

What trends have you noticed in new listings in recent years?

The JSE has seen a relatively healthy appetite for listings from a diverse range of sectors in recent years, with an average of 20 listings per year over the last 5 years—despite the economy not performing at optimal levels. The rationale for a company pursuing a listing is, mainly, to raise capital for growth.

In 2014 the JSE introduced Real Estate Investment Trusts (REITs) which stimulated a number of new listings in the property sector, and this sector has continued to attract entrants to the exchange in recent years. Consumer goods was also a strong theme for new listings in recent years.

The past year saw several companies spin off units to be listed separately. Of the JSE debuts in 2017, six were carved out of other companies, most of which are publicly traded. For example, Stadio Holdings unbundled from Curro; Sea Harvest was spun out of Brimstone; and both Premier Foods and Fishing and AYO Technology Solutions were spun out of African Equity Empowerment Investments.

We are also encouraged by the growing number of black-owned companies that listed in 2017, including Premier Food and Fishing, RH Bopelo, AEP Energy Africa and AYO Technology Solutions.

While we cannot divulge too much about the number of listings we are anticipating, we are encouraged about the listings pipeline for 2018.

Which sectors generated new listings in 2017?

Last year saw listings from a very diverse range of sectors, including the food and fisheries industry, investment services, education, energy, property, and mining. These include companies such as Stadio Holdings Limited, Pembury Lifestyle Grp Lt, Kaap Agri Limited, Long4Life and Steinhoff African Retail Ltd.

The investment instrument sector had four new arrivals in 2017, namely RH Bophelo Limited, Long4Life, Brainworks Limited and AEP Energy Africa Ltd.

Which factors influence whether companies choose to list?

There are a number of benefits that may flow from listing on the JSE, the most obvious of which is access to funding. Companies can raise equity capital to fund the expansion of its business and a listing will also better enable the company to obtain other forms of finance, such as bank loans. It enhances the status of the company and providers of the finance will be comforted by the fact that its financial information and actions will be subject to the JSE and public scrutiny. Through listings, companies can also use its shares to fund acquisitions, as sellers are more likely to accept listed shares as consideration.

Secondly, listings benefits companies’ shareholders, as it enables existing shareholders of the company to realise all or part of their shareholdings on a more liquid basis, thus making it a more attractive investment. A listing also give the company a wider shareholder base and broaden its exposure.

Another major incentive for listing is the impact on employees—a listed company can often attract and maintain good employees. Importantly, it also makes share incentive schemes more attractive to employees.

Lastly, the enhanced status of being listed should improve the company's dealings with banks, suppliers, distributors and customers, which could have a positive effect on the company's overall performance.

What is the relationship between economic growth and new listings?

The JSE provides a platform for companies to raise the capital they need to expand and grow their business and a growth period may lead to an increase in listings.

Our statistics show that recessionary conditions do not necessarily correlate with a decrease in new listings. We have seen companies list in extremely uncertain and challenging economic conditions, which proves that good companies will always require capital to grow and expand, and investors will always have interest in those companies that can tell a good story.

How do listing requirements influence the decision to list?

As the JSE we are continuously adapting our listing requirements to make it easier for companies to list, while also balancing the need to ensure that our market is well-regulated.

For example, we offer an accelerated secondary listing process for companies which have been listed on the London Stock Exchange, The Australian Stock Exchange, the New York Stock Exchange and the Toronto Stock Exchange for a period of at least 18 months and therefore meets all of the listing requirements of these exchanges already. This fast-track listing process saves a lot of time and money.

As the Johannesburg Stock Exchange, we believe it is important to promote transformation of the economy, and we have incorporated rules to further this. One of the recently introduced requirements is that listed businesses must have a policy for the promotion of gender diversity at board level and disclose their performance against it.

What is the importance of access to capital markets for smaller companies to facilitate economic growth?

For capital markets to truly make a meaningful difference to economic growth and development, we must be inclusive in our approach.

The SME financing challenge has been exacerbated in the aftermath of the global financial crisis of 2008/2009, following the introduction of significant financial regulatory reforms and noting a generally heightened aversion on the part of banks when extending loans. Capital markets therefore have a major role to play in bridging this financing gap through the provision of alternative funding sources for SMEs. To this end, the JSE AltX board provides a platform for smaller business to raise capital to fund their growth

We are encouraged by the growing awareness from African stock exchanges that there is a real need to assist smaller businesses. These are the businesses which are creating jobs, fostering innovation and pushing the economy forward. While many macroeconomic influences fall outside our control, it remains within Africa and South Africa’s control to create an environment in which small and medium-sized businesses can thrive.

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