Listing on The JSE As an Expansion Strategy For Your Business – Everything You Need To Know

Posted on April 14th, 2016


When Gold Brands Investments, which owns the popular Chesa Nyama franchise, listed on the JSE in February this year, they took advantage of one of the strategies available for companies seeking growth.

Stelios Nathanael, CEO of Chesa Nyama and COO of Gold Brands Investments told Moneyweb at the time that the listing, through which the company was able to raise R25 million, would be used primarily for the expansion of its flagship franchise.

Their expansion strategy has seen the traditional flame-grilled meat franchise become one of South Africa’s fastest growing national brands with almost 300 franchises across South Africa and employing over 3 000 people.

Gold Brands followed their listing on the JSE’s AltX market with news that they would be taking the Chesa Nyama brand to the US.

Not just for the big dogs

While often seen as the reserve of the big companies, the likes of AB InBevBHP Billiton and Anglo American, listing on the stock market has been used as a growth strategy by small and medium businesses as well.

Lloyd Hughes, business development manager, capital markets at the JSE says that while the heavyweights account for a large share of the market capitalisation of the JSE’s Main Board, a diverse range of companies of different sizes and sectors can be found on this board.

“The JSE is an ideal listing destination for companies looking to raise capital by tapping the large pools of local, global and institutional investor capital”

The AltX is the JSE’s board for small and medium-sized high-growth companies, says Nicole Cheyne, business development manager, capital markets. The AltX provides smaller companies with access to capital while providing investors with exposure to fast-growing smaller companies in a regulated environment, she says.

Hughes says the JSE is an ideal listing destination for companies looking to raise capital by tapping the large pools of local, global and institutional investor capital.

“Today, the JSE is one of the top 20 stock exchanges in terms of market capitalisation and considered to be a gateway to investing in quality listed African companies.The local and international investment community considers the exchange to be a mature, efficient, secure market with world class regulation, trading, clearing, settlement assurance and risk management,” says Hughes.

Hughes, together with Prejelin Naggan, head of primary markets talks to SME South Africa about why knowing your business’ market value is important if you are in expansion and how to know you’re ready for listing on the JSE.

Consider this 

Some of the biggest reasons businesses fund their expansion through listing on the JSE include being able to access capital for growth and increase their profile, says Hughes.

Naggan adds that listing also allows you to use your shares to make acquisitions.

“Once your company is listed its shares are tradable on the JSE and therefore has market value at any given point in time. So if you are looking to fund an acquisition you are able to offer up a new issue of shares in order to do so,” explains Naggan.

Naggan also says businesses often list for greater liquidity. He says, “If you think that there are opportunities, for example a family-owned business who are looking to expand, raise more capital and develop their business a listing would provide firstly, the capital that those people need in order to expand their business and it also provides an opportunity for the incumbent shareholders to offer up their shares for a listing. So they get to monetise their investment,” Naggan says.

But first, ask yourself

If your business is in the process of expansion, before deciding to list on the JSE Hughes says you should firstly seriously think about where your business plan is taking the company, what your likely capital requirements are, how strong your competitive position is as well as how can it be maintained and strengthened.

He also says you should similarly consider the quality and experience of the management team and that all members of the management team working to the same agenda.

“What outside perspectives, such as non-executive directors, does the board have access to and what will attract investors to the company and are you committed to spending time communicating with these shareholders are other questions you should ask,” he says.

The good news

The advantages of raising equity capital through listing on the JSE versus debt financing and other forms of funding, according to Hughes, include local analyst coverage as well as high media interest, which helps to improve your corporate reputation and profile.

Other benefits are your business can potentially attract international investors who are easily able to trade in JSE-listed shares without any restrictions as well as help you improve your capital raising ability which can be used for funding organic growth or to fund acquisitions.

“Being listed should make your company in many respects more attractive to investors because of the requirements for listing and to maintain a listing”

“Listing also allows businesses to become eligible for inclusion in the FTSE/JSE Africa Index Series, providing additional exposure for your company both locally and internationally, marketing your business to investors with the assistance of the JSE Business Development Team and enhancing relations with many stakeholders such as banks, suppliers, distributors and customers.”

Companies can also benefit in the form of Share Option Incentives to employees which can increase their ability to attract and retain high-quality talent.

Hughes adds that listing can also enhance dealings with banks, suppliers, distributors and customers due to greater transparency, regulation and monitoring that companies are subjected to.

Listing, Hughes says, also allows businesses to increase liquidity for investors and allows shareholders to realise the value of their investments through a public trading platform and facilitate broad-based black economic empowerment (BBBEE) deals.

The bad news 

The disadvantages, however, include an annual listing fee the company will have to pay to maintain its listing in addition to the costs of listing, Hughes says.

Upon listing, the company is also bound to comply with the listing requirements of the JSE. Listing compels the company to improve its reporting and so improve the quality of information available for decision-making.

“These impose requirements on the company beyond those required under the Companies Act, and complying with them can be expensive in terms of cost and management time. Listed companies can be sanctioned by the JSE, if they breach the listings requirements,” he says.

What you will need to know

Hughes says business owners should keep in mind that once you are listed you are in a regulated environment where certain disclosures need to be made, your share price is traded and people understand the market value of your shares.

“People can do a better evaluation of your company because of the financial information that is disclosed, you have other governance matters which you need to comply with to remain listed, so being listed should make your company in many respects more attractive to investors because of the requirements for listing and to maintain a listing.”

“Once you are listed your stakeholders, from a shareholders’ perspective, from a regulators’ perspective they all change. So once you list your shareholder base changes, your stakeholders now include other institutional investors and other regulators that may not have been part of your business before the listing” Hughes says.