Two recently listed, black-controlled firms=20 may not meet the stock exchange’s new requirements,=20 reports Jacques Magiolo=20
The listing of Real Africa Investments (RAI) and Real=20 Africa Holdings (RAH) is a significant boost for black=20 empowerment in South Africa, but the group’s complicated=20 organisational structure and its diverse range of target=20 markets are not expected to raise real and continued=20 long-term interest in the shares.=20
The problem, experts indicate, is that there are a=20 number of corporate financial structural problems which=20 will force the companies to undergo significant=20 rationalisation and streamlining operations in the short=20
The Johannesburg Stock Exchange is to introduce new=20 listing requirements in April this year and there is=20 speculation that RAI and RAH directors did not take=20 these into account prior to listing.=20
The first problem is one of shareholder structure and=20 the proposed requirement that 25 percent of a company’s=20 share capital is held by the general public. Neither RAI=20 nor RAH fulfils this requirement.=20
RAI’s main shareholders are RAF Holdings (28,5 percent),=20 listed NSA Investments (20 percent) and the Textile=20 Provident Fund (10 percent). The remainder of the shares=20 are held by unions and directors, with 23 percent in the=20 hands of “placees”. =20
The pre-listing statement does not provide details as to=20 who these are, but experts suggest that these are not=20 publicly held shares.=20
This is indicated in RAI’s organagram, shown in its pre- listing statement, which shows a difference between=20 “placees” and “public”.=20
In the case of RAH, its main shareholders are RAI (51=20 percent), The Metal Workers Provident Fund (2,1 percent)=20 and “placees”, who control 30,3 percent of the shares.=20 Only six percent of its shares lie in the hands of the=20
In all likelihood, these “placees” are unions and=20 directors. Since the listing of New Africa Investments=20 in 1994, South Africa’s two largest unions, the Congress=20 of South African Trade Unions (Cosatu) and the National=20 Council of Trade Unions (Nactu), have been courting=20 black-owned business for a real stake in control.=20
Another problem is one of pyramid structure. The JSE=20 intends to break up and prohibit second-tiered pyramids.=20 This means that a holding company which is listed can=20 only have one listed subsidiary. In turn, that holding=20 company cannot have a major shareholder that is listed.=20
It is almost as if the JSE used RAI and RAH as a perfect=20 example of a two-tiered structure. RAH is a holding=20 company which is listed, but it does not have only one=20 listed subsidiary, but three — Aflife, NSA Investments=20 and Oceana. In turn, RAH’s major shareholder is RAI,=20 which is also listed.=20
How will RAH and RAI directors solve these structural=20 problems? To accommodate the listing of black-owned=20 companies, the JSE has shown willingness to bend its own=20 deadlines to change regulations pertaining to=20 shareholder and pyramid structures.=20
Last year it sent out a press release stating that 25=20 percent of all shares will have to be placed in the=20 hands of the public by the year 2000, but that pyramid=20 structures would have to be changed by the end of 1995.=20 It has now also changed this to the year 2000.=20
Another problem lies in the diverse nature of the=20 group’s target markets, which range from financial=20 services to fishing, and from food to health care. While=20 diversification often reduces the negative effects of=20 economic, political and product cycle risks on overall=20 profits, if diversification is too vast it can affect=20 shareholder perceptions. Directors cannot know=20 everything about every product.=20
Unless a company’s future progress is a dead certainty=20 in the eyes of shareholders, they will eventually lose=20 interest and sell the shares. Since the listing of RAI=20 and RAH its share prices have not shown strong=20
The shares of RAH listed at 200 cents and quickly=20 climbed to 220 cents before falling to the present level=20 of 190 cents. RAI listed at 250 cents, and climbed to=20 270 cents before falling back to the listing price.=20
Without continuous disclosure and a completely open and=20 clear statement to the shareholders that the company=20 will undertake corporate changes without a disruption of=20 operations, the shares cannot sustain present levels.=20