The JSE’s latest discussion document proposes a reduction in some of its regulations, as it aims to reduce the burden of red tape on listed companies. Areas of focus in the discussion document released earlier this month include approval for transactions “in the normal course of business”; share repurchases; raising capital by bookbuilds and allowing directors to follow a rights’ offer during a closed period.
In its introduction to the ‘cutting red tape’ discussion document, the JSE’s director of issuer regulations, Andre Visser, notes that “The JSE has been very active since 2014 in reviewing the listings requirements on a regular basis to allow for a more effective applications” thereof. However the JSE recognises that because capital markets regulation and legislation have evolved significantly over the last few years there may still be provisions of those requirements that “appear to be redundant and/or not fit for purpose”.
The JSE is now considering removing the obligation to get shareholder approval for a transaction that falls within the definition of the “ordinary course of business” that is valued at more than 10% of the company’s market capitalisation.
Alternatively it is considering increasing the 10% cap to 30%. The change, says the JSE, will provide companies with more flexibility when conducting their business. It also brings the JSE into line with London Stock Exchange Requirements.
However companies will have to discuss “ordinary course of business” transactions with the JSE and it will be down to the JSE to assess whether or not the transaction does fall into the definition of the “ordinary course of business”.
The JSE is also proposing to remove the requirement for shareholder approval when shares are being repurchased from wholly-owned subsidiaries or from share incentive schemes controlled by the company. In support of this proposal, the JSE notes that such share repurchases involve “no money leakage” and have no impact on earnings per share, headline earnings per share or net asset value per share. The JSE says shareholders will still be protected by requirements of the Companies Act as well as the JSE’s own disclosure requirements.
Unfortunately, while much of its latest proposals are influenced by a desire to bring the JSE into line with leading international stock exchanges, the JSE does not take this opportunity to upgrade its current exceptionally poor disclosure requirements to bring them into line with such stock exchanges.
At present the required disclosure has only to be made in an annual report, which is published frequently several months after the repurchase and in which, is generally difficult to identify. The Australian and UK markets on the other hand employ best practice, which requires disclosure on a daily basis.
The proposal “to allow related parties to participate in the issue of shares for cash” is expected to generate considerable response from South African investors, given their generally high levels of opposition to proposals to issue shares for cash. But the JSE notes that mechanisms to raise capital have evolved over the years and that it might now be prudent to consider some of them.
“One of the most prominent capital raising measures being applied currently in the market is the Bookbuild process, often undertaken on an accelerated basis i.e. with a short time frame.” The objective of the bookbuild is to achieve the best price through a bidding process by selected participants leading to active price formation.
But at present the listings requirements prohibit related parties from participating under a general issue for cash authority, which can severely limit the benefits of a bookbuild as it would exclude anchor investors. The JSE’s proposal is aimed at removing this prohibition. However it does not address concerns that access to bookbuilds is restricted to “favoured clients”. Up-to-date technology should be used to ensure access is available to all investors.
The proposal to allow directors to follow their entitlements pursuant to a rights’ offer during a closed period will bring the JSE into line with the LSE approach. The approach, which will only apply where the same entitlements are afforded to all shareholders, will contribute to more successful capital raising by companies, says the JSE.
Interested parties are invited to submit their comments to the JSE by April 9.