A Guide to Listing on the JSE

The Johannesburg Stock Exchange (JSE) is Africa’s largest exchange and one of the top 20 largest stock exchanges in the world. A stock exchange acts as a marketplace where stock buyers can connect with stock sellers and trade different financial products such as equities, commodities and bonds. Small to medium businesses might want to consider listing on the JSE.

The JSE is run by a Board of Directors and is privately owned and funded. According to the City of Johannesburg website, it is regulated by the Stock Exchanges Control Act, 1 of 1985 (“SECA”), which governs the equities market and the Financial Markets Control Act, 55 of 1989 (“FMCA”), which governs the derivatives markets. The exchange currently offers five financial markets namely equities and bonds as well as financial, commodity and interest rate derivatives. Additionally, there are five platforms that make up the JSE. These are the Main Board, AltX, for small and mid-sized listings, Yield X for interest rate and currency instruments, the South African Futures Exchange (SAFEX) and the Bond Exchange of South Africa (BESA). South Africans looking to invest in the country’s top companies can buy shares on the JSE. For investors, the biggest advantage of the JSE is the access to quality listed African companies such as mining company, Anglo American Plc. Other notable companies are Naspers, a global Internet group and one of the largest technology investors in the world, and BHP Group, a diversified resource business.  FirstRand Limited which is the largest financial services provider and AB InBev, a multinational drink and brewing company, also make the list.

Listin g on the JSE is a good option for businesses looking to raise capital and expand. The benefit of this fund raising method is that it enables companies to tap into large pools of local, global and institutional investor capital. While still often seen as the reserve of the big companies, listing is becoming a viable option for and a growth strategy for small and medium businesses as well. While companies of all sizes can list on the Main Board it is largely made up of big companies. The JSE’s AltX, however caters specifically to smaller and  entrepreneurial companies. This alternative market was launched as a catalyst to grow SMEs in the country.  It provides additional support and quality control for businesses such as a designated advisor (DA). Their function is primarily to provide guidance for businesses undergoing the listing process.

Methods of Raising Capital on the JSE

There are two main ways that businesses are able to raise capital through the JSE – either through public offers or rights issues. Public offers are the most common way companies raise capital. How this process works is a company first determines the number of shares it wants to sell to the public. This is followed by a valuation of the business, after which a starting share price is announced. It’s only then that stock trading by the general public can begin. With the capital raised ,a business can expand into new markets or locations, invest in research and development (R&D) or gain a competitive advantage. With rights issues, existing shareholders are allowed to buy additional shares in the company at a discount to the current trading price. According to Investopedia, a cash-strapped company may go this route to raise capital in order to pay down debt.

Below is a Guide for listing on the JSE and important considerations before undergoing the process.

Similar to other capital raising methods such as equity funding and debt financing, it’s as important to assess your company to ensure that listing on the JSE is the best way to achieve your goals. Some aspects of your business that should be considered are the company’s management, resources, stage of development, long-term strategy, goals and future prospects. The JSE recommends that companies consider some of the following questions:

• What are our likely capital requirements?
• How strong is our competitive position and how can it be maintained or strengthened?
• What is the quality of the management team, both at board level and throughout the company and does it need strengthening?
• Are all members of management working to the same agenda?
• What will attract investors to the company and are we ready to commit time to communicating with investors?

The benefits of listing on the JSE go beyond just exposure to investor capital. According to Lloyd Hughes, business development manager of capital markets at the JSE, listing can also help businesses to generate media interest,“which helps to improve your corporate reputation and profile”. It can also improve a business’ dealings with banks, suppliers, distributors and customers. Finally, it can boost dealings with banks, suppliers, distributors and customers due to greater transparency, regulation and monitoring that companies are subjected to. Other benefits of listing, according to the JSE website are as follows:

• Better enables the company to obtain other forms of finance, such as bank loans.
• 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.
• Better enable the existing shareholders of the company to realise all or part of their shareholdings.
• The value of the company’s shares will be enhanced if demand is greater than supply.
• Gives the company a wider shareholder base and broadens its exposure.
• Enhances the status of the company, which will better enable the company to attract and maintain good employees.
• Makes a company’s share incentive scheme more attractive to employees, as their shares will be more marketable.
• Facilitates broad-based economic empowerment deals.

Listing disadvantages, on the other hand, are as follows: Despite having major advantages, there are, however, cost and compliance implications that SMEs should be aware of. To start, there is an annual listing fee that each company has to pay to maintain its listing in addition to the costs of listing, Hughes advises. Secondly, the JSE, being a regulated environment, requires that all listed companies comply with the listing requirements. This includes disclosure of financial information, as well as other governance matters. “These can be expensive in terms of cost and management time. Listed companies can be sanctioned by the JSE if they breach the listings requirements,” Hughes adds.

The JSE operates two markets:

• Main Board; and
• AltX

Each of these markets has different criteria for listing.

Main Board Requirements for Listing on the JSE

The principal requirements for a Main Board listing include:

• a subscribed capital (including reserves but excluding minority interests, and revaluations of assets and intangible assets that are not supported by a valuation by an independent professional expert acceptable to the JSE prepared within the last six months) of at least R 50 million;
• not less than R 25 million equity shares in issue;
• a satisfactory audited profit history for the preceding three financial years, the last of which reported an audited profit of at least R 15 million before taxation and after taking account of the headline earnings adjustment on a pre tax basis;
• 20% of each class of equity securities shall be held by the public to ensure reasonable liquidity.

ALTX Requirements

In addition to the requirements set out above, SMEs looking to apply for a listing on AltX must comply with the following requirements.

• the applicant issuer must appoint a designated adviser ;
• the applicant issuer must have share capital of at least R 2 million (including reserves but excluding minority interests, and revaluations of assets and intangible assets that are not supported by a valuation by an independent professional expert acceptable to the JSE prepared within the last six months);
• the public must hold a minimum of 10% of each class of equity securities to ensure reasonable liquidity;
• the directors must have completed the ALTX Directors Induction Programme or must make arrangements to the satisfaction of the JSE to complete it;
• the applicant issuer must appoint an executive financial director and the audit committee of the applicant issuer must be satisfied (and submit confirmation in writing to the JSE ) that the financial director has the appropriate expertise and experience to fulfill his/her role;
• the applicant issuer must produce a profit forecast for the remainder of the financial year during which it will list and one full financial year thereafter;

In 2022 the JSE announced changes to listing rules as part of an effort to attract more firms to the stock exchange. The JSE has reduced the requirement for tradeable shares (also known as free float) from 20% to 10%, which is in line with the measures taken by the UK and European stock exchanges. Furthermore, it also amended its special purpose acquisition companies (SPAC) rules “to align with international leading markets to ensure the attractiveness and competitiveness of Spacs”. SPACs are shell corporations listed on a stock exchange with the purpose of acquiring a private company. Currently, the minimum capital to be raised by a SPAC is R 500 million for a listing on the Main Board of the JSE and R 50 million for a listing on the AltX of the JSE. Lastly, as part of the amendment the JSE eased rules for financial reporting disclosures with changes to debt instrument listing rules also expected.

According to the JSE, the listing time frame is between 9 and 13 weeks, “depending on the method of listing, the competence of the professional advisors and the complexity of the listing”. Below are all the professionals whose services a company will need to enlist in order to list:

• Professional advisors who will provide guidance before deciding to list.
• A sponsor is required by the JSE to be able to list on the main board to ensure that the criteria for listing are met and that the company is suitable to list.
• A corporate advisor to advise on the method of listing, the marketing, the size and terms of the offer, the timing and pricing of the offer; as well as advising on market conditions.
• Legal advisors whose responsibilities are to assist in the drafting of the listing documentation and to ensure that all legal requirements are complied with.
• An accredited and independent accountant to report in the prospectus or pre-listing statement, including the profits of the company over the previous three years and the financial position of the company over the previous three years.
• Transfer secretaries who will be responsible for setting up the company’s register of members, the issuing of share certificates, the registration of transfers and the mailing of company circulars.
• Companies must be approved as STRATE eligible in terms of the Central Securities Depositary Rules, for the dematerialisation shares to be registered.

The JSE provides a useful checklist of all the steps required for a successful listing which includes:

• Appoint advisors
• Meet to consider legal, financial and tax implications
• Decide on method of listing
• Prepare timetable for listing
• Commence preparation of accountants report
• Commence drafting of documentation
• Drafting meetings to finalise draft documentation (prospectus / pre-listing statement)
• Finalise accountant’s report
• Draft documentation submitted to the JSE for informal comment and Registrar (if public offer)
• JSE formal approval, and Registrar’s approval (if a public offer) obtained
• Listing commences if an introduction, or placing or public offer commences
• Placing closes
• Listing commences if a placing or public offer closes

The cost of listing will depend upon the method of listing adopted and the complexity of the listing. All new listings are however subject to a New Listing documentation fee of R 72 526.32. Additional documentation fees are, however, applicable to Mining and REIT companies. The price list is available here on the JSE website.