JSE delisting crisis – and what the exchange is planning

A growing number of companies are delisting from the Johannesburg Stock Exchange (JSE) and other exchanges, painting a gloomy picture of South Africa’s public markets.

AmaranthCX revealed that South Africa had 332 listed companies across the JSE and the three challenger stock exchanges at the beginning of 2022.

AmaranthCX director Paul Miller said that during the first half of 2022, 18 companies delisted from the JSE and other exchanges.

Fourteen more companies are in the formal process of delisting or are subject to corporate action likely to result in their delisting.

There are also 16 companies suspended from trading or which have not been able to publish their financial results.

“A few are fighting hard to get their listings re-instated. A significant number of these companies are likely to be delisted at some point,” Miller said.

AmaranthCX’s research suggests that at least 32 companies, and potentially far more, will delist from South African stock exchanges this year. 

“The denominator has been shrinking for seven straight years, so this delisting number is getting very significant in percentage terms,” Miller said.

“Bottom line is that this year at least one in ten of all listed companies are anticipated to delist.”

Comparing the number of companies delisting to new listings should raise concerns among the JSE and other exchanges.

During the first half of the year, there have been six new listings – three on the JSE and three on the Cape Town Stock Exchange (CTSE).

However, two were transfers between South African exchanges, so only four new listings were added in real terms.

There are at least eight listings in the pipeline, including African Bank, Avis Budget Southern Africa, Copper360, Coca-Cola Bottling Africa, Fidelity, Cilo Cybin, Premier Foods, and Telkom’s Swiftnet.

However, none of the listing dates has been confirmed, and a few may be pushed into 2023.

Miller told Business Report there are many reasons why companies delist.

The most cited reasons are onerous listing requirements and red tape, the cost of maintaining a listing, and the cyclical nature of share prices.

Other reasons include South Africa’s poor economic environment, the electricity crisis, and business-unfriendly government policies.

However, Miller said, structural changes in how savings in South Africa are managed since the global financial crisis may be the biggest contributor to companies delisting.

Most South African savings are managed by eleven institutions that invest in only the top 100 companies by size and liquidity.

Foreign institutional investors hold another 40% of the local market with the same size and liquidity requirements as the top local institutions.

Many local stockbrokers have also morphed into wealth managers who move retail investors’ money into the local institutions’ funds and model portfolios.

The smaller end of the market gets severely neglected, making it difficult for smaller companies to raise primary capital in the local market.

“Over the last four years, new companies have not been able to list on the JSE and other exchanges to raise money,” Miller said.

“As a consequence, we are not seeing new companies replacing the ones that delisted over time.”

The JSE has plans to reverse the trend

The good news is that the JSE is actively looking at ways to attract new equity listings and increase activity on the exchange.

JSE CEO Leila Fourie said they plan to cut red tape by dropping some requirements related to auditors and simplifying the disclosure requirements of listed companies.

They are also planning to introduce a board that will focus exclusively on the needs of technology companies.

The JSE is also on a drive to promote South Africa as an attractive investment destination for foreign capital with deep and liquid markets.

Fourie added that they are reviewing their requirements for secondary listings to attract companies primarily listed elsewhere in the world to the JSE.

Difficult economic conditions

Patrycja Kula-Verster, business development manager at the JSE, told Daily Investor that the JSE focuses on attracting local and international companies to the exchange.

However, market conditions play a role in new listings.

“If we look at local macros, most businesses operate in an environment characterised by a high degree of uncertainty,” she said.

“Unfortunately, this uncertainty is compounded by a slow rebound in post-Covid-19 recovery and Russia’s invasion of Ukraine and its impact on the supply chain.”

There are also early indicators of a global recession – a very hostile macroeconomic environment characterised by the twin evils of recession and high inflation.

“Locally, companies have the added pressure of load-shedding and increasing fuel costs to keep generators going and dwindling consumer confidence,” she said.

“Finding the unicorns in these markets is not easy and ultimately affects the listing pipeline.”

Small- and mid-cap companies remain important

Kula-Verster said they are acutely aware of the importance of small-cap companies.

“We are committed to supporting SMEs to access investment capital and leverage the JSE as a strong platform for future expansion,” she said.

As such, the JSE hosts the small-cap investment forum as a platform for small caps and a channel to engage with investors to share ideas on growth strategies.

The JSE is also exploring implementing a market-making scheme to attract and incentivise brokers to provide liquidity on small caps.

It will help to create tighter spreads and less unwarranted volatility auctions typical of illiquid stocks.

To assist small and medium-sized enterprises in raising capital, the JSE offers listed and private equity options.

From a listing perspective, the JSE listed market offers a platform on which large and small businesses can list and raise capital.

AltX has been designed for entrepreneurial businesses giving them a platform on which they can list and raise capital.

“Since its inception, AltX companies have raised over R60 billion,” said Kula-Verster.

“Our role in facilitating private equity investors is via JSE Private Placements (JPP).”

The JSE is building a Future-Fit stock exchange that delivers a digital platform for unlisted companies to showcase their businesses and attract private equity funders seamlessly.

The JSE does this through JPP, which brings together next-generation fintech capabilities through Globacap’s platform to facilitate efficient and transformational private placements.

“Both of these solutions fit and assist with a dual-track strategy, which is the process of assessing and pursuing private equity and listing options simultaneously, either through JPP or listing route,” she said.