International Capital Markets
Capital Markets - Johannesburg Stock Exchange Listing
JSE Limited (previously the JSE Securities Exchange and the Johannesburg Stock Exchange) is the oldest existing and largest stock exchange in Africa. The JSE is currently ranked the 19th largest stock exchange in the world by market capitalization.
The JSE Limited (JSE) is currently the only licensed securities ‘exchange’ in terms of the Financial Markets Act in South Africa. The JSE Listings Requirements are aligned with international best practice and aim to improve company reporting practices through the adoption of various statements of IFRS. Companies that list on the JSE agree to adhere to the JSE Listings Requirements, and risk incurring penalties, being censured, having the trading in their shares suspended or their listing terminated should a breach occur.
The JSE Listings Requirements set out the conditions for listing, as well as the continuing obligations of listed companies. The Listing Requirements also contain specific provisions for mineral companies, property companies, investment companies, specialist securities and dual listings and listings by external companies.
On July 1, 2009 the JSE merged with the Bond Exchange of South Africa. Debt instruments may be listed on one of two platforms, namely the Yield-X board and the Interest Rate Market.
Insider trading and other forms of market abuse are prohibited by the Financial Markets Act 2012.
JSE’s equity markets
The JSE has a number of equity markets, the most significant being:
the Main Board
the Alternative Exchange (or Alt X).
In deciding which market to choose, one needs to look at factors such as the size of the company, funding requirements, and what is sought to be achieved by listing.
Listings on the Main Board requires a sponsor, while a designated advisor must be appointed to a company wishing to list on the Alt X. Nanocap / Microcap Ventures is associated with both a JSE Market Sponsor and a JSE Designated Advisor.
The essential listings criteria are:
a subscribed capital of at least R50 million
not less than 25 million equity shares in issue
audited financial statements for the preceding three financial years; and (a) the last of which disclosed an audited profit of at least R15 million before tax and after headline earnings adjustments on a pre-tax basis; or (b) a subscribed capital of at least R500 million
must be carrying on, as its main activity, an independent business that is supported by its historic revenue earnings and gives it control (50 per cent + 1 of the voting shares) over the majority of its assets (and must have done so for the preceding three financial years); or must have a reasonable spread of direct interests in the majority of its assets and the right to actively participate in the management of such assets (and must have done so for at least 12 months)
20 per cent of each class of equity share to be held by the public to ensure reasonable liquidity.
The JSE may, at its absolute discretion, list a company which either:
is in its development stage (other than a mineral company) and which does not have the required profit history
has only controlled the majority of its assets or had a direct interest in the majority of its assets for 12 months, subject to certain conditions being met.
In determining the shareholder spread requirements for a listed company, certain shareholders such as directors, their associates, the trustees of an employee share incentive scheme or pension fund, any person interested in ten per cent or more of the securities of the relevant class (unless otherwise determined by the JSE), and certain other shareholders, will not be regarded as being included in the public.
Alternative Exchange (Alt X)
This is a market for small to medium companies that are in a growth phase. Applicants that meet the criteria for listing on the Main Board or any other sector of the list will not ordinarily be granted a listing on the Alt X, and the JSE reserves the right to request such applicants to route their applications to those other sectors of the list. When issuers with a listing on Alt X reach the stage that they comply with the criteria for a Main Board listing, the JSE may transfer their listing to the Main Board.
The essential listings criteria for this market are:
A subscribed capital of at least R2 million.
The public must hold a minimum of ten per cent of each class of equity securities to ensure reasonable liquidity.
The directors must have completed the Alt X Directors Induction Programme or must make arrangements to the satisfaction of the JSE to complete it.
The applicant must appoint an executive financial director and the audit committee of the applicant must be satisfied that the financial director has the appropriate expertise and experience to fulfill his/her role.
The applicant must produce a profit forecast for the remainder of the financial year during which it will list and for one full financial year thereafter, subject to certain exceptions.
The applicant’s auditors or attorneys must hold in trust 50 per cent of the shareholding of each director and of the designated advisor from the date of listing and a certificate to that effect must be lodged with the JSE by the applicant’s auditors or attorneys. These securities must be held in trust until the publication of the audited results for the financial years referred to in the preceding paragraph, after which half may be released and the balance may be released one year later.
The applicant must have control (at least 50 per cent + 1 of the voting shares) over the majority of its assets unless it is an investment entity and qualifies for an exemption from this criteria; or it must have a reasonable spread of direct interests in the majority of its assets and the right to actively participate in the management of such assets.
Shares held beneficially, whether directly or indirectly, by the designated advisor will not be regarded as being held by the public.
Generally, the Listings Requirements applicable to the Main Board will apply to Alt X, with minor modifications.
Generally, the Listings Requirements applicable to the Main Board will apply to Alt X
All companies wishing to list on the JSE ought to satisfy the conditions for listing. The JSE Committee has the discretion to grant or refuse a listing to an applicant that does not satisfy these conditions. The following are the more important conditions that apply:
The applicant must be duly incorporated or otherwise validly established under the law of its country of incorporation, must be operating in conformity with its memorandum of incorporation or other relevant constitutional documents and must agree that it will comply fully with all the Listings Requirements, irrespective of the jurisdiction in which the applicant is incorporated.
The directors and senior management collectively must have appropriate expertise and experience for the management of the applicant’s business and the applicant must appoint an executive financial director.
The directors of the applicant must not have any conflicts of interest between their directors’ duties to the company and their private interests.
The applicant must appoint a company secretary, chief executive officer and a chairman.
The financial statements produced in connection with the listing must conform to IFRS and the SAICA Financial Reporting Guides issued by the Accounting Practices Committee, and Financial Pronouncements issued by Financial Reporting Standards Council. The listing particulars must include a working capital statement in relation to the sufficiency of working capital for the ensuing 12 months after the date of issue of the listing particulars, except in the case of a banking, insurance or financial services business where the issuer’s solvency and capital adequacy are suitably regulated by another regulatory body.
The securities to be issued must be fully paid up and freely transferable and, unless otherwise required by statute, must rank pari passu and must be issued in accordance with the law of the applicant’s country of incorporation or establishment and in accordance with the applicant’s memorandum of incorporation or other relevant constitutional documents.
Exchange control approvals
The JSE Committee will not approve some issues of securities and listings where non-residents are involved, or in the case of a number of other transactions, until such time as it has received copies of the requisite authority from the Financial Surveillance Department of the South African Reserve Bank giving a ruling regarding the use of funds to be introduced through normal banking channels from abroad, or from a non-resident account, or from an emigrant’s blocked Rand account.
The Listings Requirements set out details of the contents of a pre-listing statement/ prospectus. These offering documents must contain a responsibility statement, must be formally approved by the JSE Committee before publication and must not omit relevant information unless approved by the JSE Committee. In the case of an initial public offering they must also include all the prescribed content of a prospectus as required by the Companies Act. In other words, a single offering document must comply with both the Listings Requirements and the Companies Act.
A supplementary pre-listing statement/prospectus must be published if, after publication but before the commencement of dealings in the relevant securities, the applicant becomes aware that there is a material change or a new material matter that would have been required to be disclosed in the original pre-listing statement. Pre-listing statements are not required for issues of securities by applicants whose securities are already listed and which fall into certain specified categories.
The Listings Requirements also set out details of information that may be required in circulars relating to rights offers, capitalization issues and Category 1 or 2 transactions (described below). These include detailed information as to the applicant and its capital, directors, managers and advisors, the securities forming the subject of the corporate action, group activities, financial information, general information and statements concerning documents and consents to be available for inspection.
Category 1 and 2 transactions
The Listings Requirements differ depending on which of two prescribed categories the acquisition or disposal may fall into.
Each category is measured by percentage ratios referred to as ‘consideration to market capitalization’ and ‘dilution’. For transactions to be settled partly in cash and partly in shares, the category size is calculated by first assessing the cash-to-market capitalization percentage and then adding this percentage to the dilution percentage.
Category 1 refers to a transaction where any percentage ratio is 30 percent or more or if the total consideration is not subject to any maximum; and Category 2 refers to a transaction where any percentage ratio is five per cent or more (but is less than 30 per cent).
A reverse takeover, involving an acquisition by a listed company of a business, an unlisted company or assets where any percentage ratio is 100 percent or more or that would result in a fundamental change in the business or in a change in board or voting control of the listed company, would generally constitute a new listing governed by the conditions for listing, set out in the Listings Requirements. The announcement of the reverse takeover must contain a warning as to the uncertainty whether or not the JSE will allow the listing to continue following the acquisition. The listed company must prepare a Category 1 circular and listings particulars as though it were a new applicant.
Various requirements are specified depending upon whether the transaction falls into one of the two categories mentioned above, or is a reverse takeover. In general terms, a Category 1 transaction will have stringent requirements as to disclosure and shareholder approval while a Category 2 transaction will require no more than a detailed announcement of its terms. If securities are acquired in a company that becomes a subsidiary of the listed company, the listed company must confirm that the Memorandum of Incorporation of the subsidiary has been amended to comply with the Listings Requirements.
Other listings requirements
The following Listings Requirements should also be borne in mind:
The Listings Requirements apply to and require compliance by directors in their capacities as directors and in their personal capacities.
The JSE is able to suspend or terminate a listing when it deems it to be in the public interest to do so.
There are continuing obligations which include obligations to publish cautionary announcements regarding material price sensitive information and trading statements and to disclose periodic financial information.
Listed companies are required to publish abridged annual financial statements on SENS (the Stock Exchange News Service) on the date of issue of their annual financial statements.
It is mandatory for listed companies to comply with certain corporate governance principles of the King Code of Governance Principles and the King Report on Governance (King III).
Directors of listed companies and their major subsidiaries will require clearance prior to trading in the listed company’s securities.
Periods in which directors of listed companies and their major subsidiaries are prevented from dealing in the listed company’s securities (closed periods) and their effects are defined.
The threshold for related party transactions is 0.25 per cent.
The JSE has the right to classify a transaction as a related party transaction if extraordinary conditions exist.
Johannesburg Stock Exchange
One Exchange Square