Jacques Magliolo reports on proposed changes to the Johannesburg Stock Exchange listings criteria
Shareholders are set to obtain greater control of companies listed on the Johannesburg Stock Exchange (JSE) from next month. But the changes in disclosure and listing requirements fall short of statements made in a document circulated by the JSE in August last
A draft consultation document was sent out in August 1994 to companies, auditors and stockbrokers for comment. Alterations were expected to be announced in January 1995 relating to pyramid and shareholder structures, cash shells, powers of the JSE, creation of new sectors and greater transparency for company
While the exchange took six months longer than planned — in order to consult more widely — it has backtracked on a number of moves that would have increased transparency and improved liquidity.
The first is the minimum shareholder spread. At least 10 percent of a company’s shares must now be in the hands of the general public. Companies will have to ensure this percentage remains in force at all times and existing companies will have until the year 2 000 to comply with this requirement.
The August Draft Consultation document had this figure at 25 percent, which would have gone a long way towards dismantling conglomerate control of the South African financial market. This would also have increased the number of shares traded and thus improved liquidity.
The issue of two-tiered pyramid structures is unresolved, which means that a listed holding company can only have one listed subsidiary. In turn, that holding company cannot have a major shareholder that is
“Commentators on the constitution draft were split on the desirability of listing such structures and instruments. The JSE and the government will discuss the issue later this year and, in the interim, they will be listed,” the exchange announced this week that
It seems pressure from business has forced the exchange to backtrack on minimum shareholder spread and call for talks with the government. Two examples highlight this:
* Black groups listed on the exchange in the past 12 months do not fulfil the 25 percent shareholder structure proposed in the initial draft document, but all encompass multi-tiered pyramids. These companies include the much publicised New Africa Investment Limited (Nail), Corporate Africa, Real Africa Holdings and Real Africa Investments.
Although Nail’s pre-listing statement indicated that 25,6 percent of its shareholders were “other black shareholders”, it did not provide details as to whether these are individuals or organisations. During an interview earlier this year Nail chairman Dr Nthato Motlana warned the JSE not to tamper with pyramids.
He said: “We will oppose the JSE’s forthcoming changes to regulations, particularly those affecting pyramid structures. Now that we are becoming more established in big business, the JSE and white conglomerates want to change the rules.’
Motlana’s reasons for insisting that pyramid structures remain are logical. He asserts: “Pyramids enable companies with small shareholder stakes to control larger companies. If this type of structure is abolished it will make it impossible for blacks to own companies or to help transfer wealth to disadvantaged people.” As such, Nail’s recent bid for the restructured JCI is highlighted.
* The second example is the unexplained delay in Mondi Paper’s listing. In January this year the company was ready to list, but industry analysts say that the hesitation has been caused by the draft document.
“Mondi does not need to list for financial reasons, but to improve its image,” says an insider. “A change in the shareholder structure means that Amic would have to sell a large stake in its subsidiary. I believe that Amic placed pressure on the exchange to reduce the 25 percent to 10 percent,” he says.
Despite these compromises, an important new direction for the JSE lies in its desire to strengthen company disclosure. Companies will be obliged to announce “as soon as possible any information which is of a price- sensitive nature”. This information will include details on possible takeovers, new contracts and even the discovery of new mineral resources.
Two new sectors are to be formed, namely a “redevelopment” sector to help black companies list and a “cash shell” sector. There are at present three cash shells listed on the JSE, namely Barnetts, Bergers and The Pharmaceutical Wholesale Group.
On becoming a cash shell, a listed company will be transferred to the new sector. If the company fails to acquire viable assets within six months, its shares will be suspended. Finally, the stock exchange has changed listing requirements for the Venture Capital Market to make it more accessible to the general public. The requirement for subscribed capital has been reduced from R2-million to R500 000.