Investors could soon buy Eskom and Transnet on the JSE
The government is considering listing state-owned enterprises (SOEs) on the JSE, but this may not have the desired effect given how unattractive these companies are to investors and how quickly the JSE is shrinking.
This is according to chartered accountant Khaya Sithole, who spoke on The Money Show with Stephen Grootes.
The Minister of Planning, Monitoring and Evaluation, Maropene Ramokgopa, recently suggested that the government wants to list state companies on the JSE after a meeting with the JSE’s leaders.
However, SOEs, like Transnet and Eskom, may not fare as well on the stock market as the minister hopes.
“Part of the difficulty lies in the fact that the primary attraction behind going to the JSE and getting listed is that you want to be able to attract capital,” Sithole said
In other words, businesses that list want investors to pour money into said business by buying their shares.
“The problem with the investor community is that before they make a decision to invest in your shares, they look at the underlying businesses.”
They will try to determine whether they are likely to get a return on their investment in the form of a growing business that pays out dividends.
“SOEs are notoriously bad at paying dividends, simply because they do not make enough profits in their current form.”
“The secondary issue,” Sithole said, “is that you are then also confronted with the reality that the JSE at large and stock exchanges at large have been shrinking in size over recent years.”
Over the last few decades, the JSE has been hit with a tide of delistings, going from approximately 850 listed companies in the 1990s to less than 300 today.
Many experts have blamed these delistings on the high administrative burden, excessive costs and regulations related to listing on the JSE.
According to Sithole, one major reason for this trend is the advent of new investment channels that are available today.
“The primary reason they’ve been shrinking in size is that, historically, they used to be the only channel where you and I could essentially invest in particular entities.”
“Now, the world of finance has evolved to such an extent that there are multiple channels that people can use in order to invest in companies.”
“You can go the private equity route, you can go through exchange credit funds. So the appetite for listing is not as strong as it used to be, and the JSE has been the greatest illustration of this.”

For SOEs, which already do not look like an appealing stock, attracting investors in this competitive environment seems even more unlikely.
“The idea that SOEs should go there is a very difficult one to sell,” Sithole said.
“Unless, of course, the minister knows of other reforms and other changes that are going to be implemented in those SOEs that will make them attractive, and also then make sure that those that have the capital to invest see them as a viable proposition.”
Sithole explained that if SOEs had been operating as privately listed companies instead, the situation would be very different today.
“Firstly, the one advantage that you would have had under a listed structure is that those whose money is essentially being managed would have been very demanding.”
“They would have not tolerated the type of malfeasance that you saw in some of these entities, so maybe the process of getting the right leaders in place would have been much faster than what we’ve seen with the state.”
However, it would not have solved the problem that some of these models are essentially no longer fit for purpose, Sithole said.
“We have business models like the post office, for example, that keep getting overtaken and superseded by new players who do things better.”
The South African Post Office (SAPO) has faced headwinds for years now, with mounting debt and losses worth billions.
Despite receiving R2.4 billion in the 2023 Budget and entering into business rescue proceedings, the SOE has kept calling for a bailout of R3.8 billion.
Sithole added that it is difficult to imagine how the SAPO would have performed differently under a listed environment.
“If you had listed some of them, you would have then discovered that you actually cannot afford to be as lethargic as the government has been in the past in managing these entities.”
That would have meant that some decisions would have been made much faster to try and resolve issues in these companies.
However, if they kept making losses in the same way they are doing now, they would not have survived very long on the JSE either.
“Somebody would have said, ‘Well, let’s pull the plug. It’s no longer worth keeping our money in this entity.’”
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