A Guide to Listing Companies on the JSE Limited
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Page LC.1
BUSINESS BLUE-BOOK
OF SOUTH AFRICA, 2008
A Guide to Listing Companies on the JSE Limited
This memorandum was prepared for the Business Blue-Book by Rod H MacLeod, a director of Imara Corporate Finance
South Africa (Pty) Limited, a specialist corporate finance and investment banking advisory house, registered sponsor and
designated advisor on the JSE. It is based on the latest available information at the time of publication and is intended as
a guide only. Readers are advised that since the JSE may amend its rules and regulations from time to time, they should
seek professional advice should they contemplate listing on the JSE.
1. The Essence of a Listing
Listing is taking a non-public owned business and inviting public shareholders to invest in the business in a manner in which they
can hold or trade their investment in that business on a stock exchange.
The fundamental role of any stock exchange is to create a regulated and orderly marketplace where providers of capital and organ-
isations that require capital can transact to their mutual benefit. The JSE fulfils this role by creating a mechanism through which
providers of capital can earn a return on their investments by way of dividends, interest and/or capital growth, while the organisa-
tions in which they invest provide employment opportunities and economic development.
2. The History and Role of the JSE in South Africa
• 1887: The JSE was established as a stock exchange to enable new mining ventures to raise funds for the development of the then
fledgling mining industry.
• 1947::The Stock Exchanges Control Act was promulgated to regulate the operation of exchanges in South Africa.
• 1963: The JSE became a member of the World Federation of Exchanges.
• 1995: Formation of The South African Institute of Stockbrokers.
• 1996: The open-outcry trading floor was closed on 7 June and replaced by the electronic JET system.
• 1997: Securities Exchange News Service (SENS) was introduced to ensure early and wide dissemination of all information that
may affect the prices of securities trading on the JSE.
Page LC.2
BUSINESS BLUE-BOOK A Guide to Listing Companies
OF SOUTH AFRICA, 2008 on the JSE Limited
• 1999: The Insider Trading Act was promulgated; STRATE was established as the electronic trading system.
• 2001: The JSE acquired the South African Futures Exchange (SAFEX).
• 2002: All listed securities are successfully dematerialised and migrated to the STRATE electronic settlement environment and
the JET system was replaced by the LSE’s SETS system, operated by the LSE in London.
• 2003: AltX is launched in partnership with the DTI.
• 2005: By 2005, the JSE had achieved the following:
* a total market capitalisation greater than R3, 5 trillion;
* the FTSE/JSE All Share Index was the world’s seventh best performing index for the year;
* the JSE is the seventeenth largest stock exchange world-wide by market capitalisation;
* the JSE is among the top five emerging market exchanges in terms of market capitalisation; and
* the JSE accounts for over 75% of the market capitalisation of shares listed on all African exchanges.
Liquidity on the JSE has grown from 5% in 1996 to nearly 40% by December 2000 and has been relatively stable since then. The
market capitalisation of the JSE equities market grew from R1 trillion in 2001 to in excess of R3,5 trillion in 2005.
In addition, the value traded on the JSE’s equities central order book in January 2006 was R148 billion as compared to value trad-
ed in January 2005 of R84 billion. This represents an increase of 76%.
3. Is the Business Ready for a Listing
Making the decision to list requires careful consideration, and requires examination of a wide range of issues in order to assess the
suitability and preparedness of a business for listing.
The questions that should be answered are:
• Is the timing right in terms of both the business and market conditions?
• Is there clarity on the long-term goals and strategies for the business, and do these indicate valid commercial reasons for a list-
ing?
• Does the business have the necessary senior management and board director skills to comply with a regulated environment? In
other words, are directors and senior managers prepared for greater disclosure, accountability and transparency after listing?
• Are the directors and management willing to accept that certain future decisions, such as mergers, acquisitions or disposals,
must be submitted to the shareholders for consideration?
• Will the operational, financial and management information systems stand the business in good stead as a listed organisation?Page LC.3
BUSINESS BLUE-BOOK A Guide to Listing Companies
OF SOUTH AFRICA, 2008 on the JSE Limited
• Would the current owners of the business be prepared to accept a dividend policy more suited to market requirements than their
own?
• What steps have been taken to implement corporate governance compliance and procedures?
• What issues, such as outstanding tax matters, employee contracts, and pipeline acquisitions, need to be resolved before a list-
ing?
• Do the directors understand what investors and the market expect and require from them, and do they understand what their
expectations and requirements from the market and investors are?
4. Listing Categories
In addition to assessing the readiness of the business for a listing, care should be taken early in the planning process to ensure that
the business complies with the minimum admission criteria as set out in the Listings Requirements of the JSE.
Historically, the JSE had three listing categories: the Main Board, the Development Capital Market (DCM) and the Venture Capital
Market (VCM). The Alternative Exchange (AltX) was
launched in October 2003 as an additional market for small to
Table 1. Key criteria needed to meet the Listings Requirements of the four
medium companies. It is the intention of the JSE that the AltX boards on the JSE
will become the preferred market in place of the DCM and the
VCM. However, for now the DCM and VCM will continue to Criterion Main Board DCM VCM AltX
operate.
Advisor JSE JSE JSE designated
Table 1 summarises the key criteria needed to meet the sponsor sponsor sponsor advisor
Listings Requirements of the four boards on the JSE, and each
is expanded on in the ensuing text. Number of Shares 25 000 000 1 000 000 1 000 000 2 000 000
4.1 Sponsors and Designated Advisors (DA)
Value of subscribed
Note that the JSE updated its Listing Requirements during Capital R25 000 000 R1 000 000 R500 000 R2 000 000
2003 to take account of global trends towards greater levels of
corporate governance and compliance with Statements of Profit History 3 years audited 2 years audited not required not required
Generally Accepted Accounting Practice (GAAP).
Public Spread 20% 10% 10% 10%
Accordingly, all companies seeking admission to the Main
Board, DCM and VCM must appoint a JSE registered sponsor Number Shareholders 500 75 75 100Page LC.4
BUSINESS BLUE-BOOK A Guide to Listing Companies
OF SOUTH AFRICA, 2008 on the JSE Limited
as an ongoing advisor to the company in all matters relating to the JSE. These issues include:
• publication of financial results;
• issue of cautionary announcements;
• directors dealing in shares of the company;
• acquisitions or disposals; and
• all matters relating to the Listings Requirements and the continuing obligations of listed companies.
Similarly, all companies seeking admission to AltX must appoint a DA who is to be an ongoing advisor to the issuer and is to attend
all board meetings of the company.
The DA may hold up to 20% of the applicant’s issued shares and must ensure that the listed company complies with the Listings
Requirements and Disclosures required in terms of the Companies Act, the Securities Regulation Panel’s Code on Takeovers and
Mergers and GAAP.
A reliable sponsor or DA will discuss the requirements and the implications related thereto with an applicant prior to its listing or
prior to it undertaking a transaction.
The responsibility of the sponsor or DA is to advise and guide companies on the application of the Listings Requirements, ensur-
ing that continuing obligations are complied with and that all documentation submitted to the JSE has been reviewed for correct-
ness and completeness.
The sponsor or DA will keep a close watch on the publication of all financial information and other corporate actions that require to
be released via SENS and in the press. The sponsor or DA will also report to the JSE on the adequacy of financial reporting proce-
dures, the preparation of profit forecasts and the adequacy of working capital.
The sponsor or DA will play an important role in advising companies on a range of matters, such as:
• how the listing can best be used to enhance shareholder value;
• advising on the best strategies to grow the business, whether to undertake acquisitions or make disposals;
• determining prudent debt/equity levels;
• pricing the issues of securities; and
• ensuring adequate disclosure to shareholders and upholding corporate governance.
4.2 Main Board Requirements
The principal requirements of a Main Board listing include:
• a subscribed capital (including reserves, but excluding minority interests, revaluations of assets and intangible assets that arePage LC.5
BUSINESS BLUE-BOOK A Guide to Listing Companies
OF SOUTH AFRICA, 2008 on the JSE Limited
not supported by a valuation by an independent professional expert acceptable to the JSE prepared within the last six months)
of at least R25 million in the form of not less than R25 million equity shares in issue;
• a satisfactory profit history for the preceding three years with a current audited profit before taxation of at least R8 million;
• 20% of each class of shares to be held by the public; and
• a minimum of 500 public shareholders excluding employees and their associates.
4.3 DCM Requirements
The JSE announced on 16 July 2004 that the DCM would remain open. The DCM was established to encourage growth of smaller
businesses that are not able to list on the Main Board. While still demanding quality and stability from a DCM company, the criteria
to be met are less rigorous than those of the Main Board.
It is expected that a DCM company will use the capital raised to expand to a level where it meets the listing requirements of the
Main Board and be promoted.
The principal requirements of a DCM listing include:
• a subscribed capital, excluding revaluations of assets, of at least R1 million, in the form of not less than one million shares in issue;
• a satisfactory profit history for the preceding two years with a current audited profit level of at least R500 000 before taxation;
• a minimum of 10% of the number of shares in issue shall be held by the public; and
• a minimum of 75 public shareholders.
4.4 VCM Requirements
The JSE announced on 16 July 2004 that the VCM would remain open. The VCM was established to assist developing businesses
specialising in venture capital projects or single venture companies.
A venture capital conglomerate must have as its dominant business the professional operation of a company that holds and will in
future hold a portfolio of investments in ventures. The JSE will consider listing a venture capital project after reviewing a business
plan showing:
• that an investment is substantially an equity one;
• that the company has the ability to support each of its underlying venture projects with added value;
• that adequate research has been conducted into the management strength and commercial viability of each of its underlying ven-
tures and of the combined portfolio; and
• the forecast financial statements for three years based on a number of different scenarios.
The principal requirements of a VCM listing include:Page LC.6
BUSINESS BLUE-BOOK A Guide to Listing Companies
OF SOUTH AFRICA, 2008 on the JSE Limited
• preparation of a business plan;
• subscribed capital, excluding revaluations of assets, of at least R500 000 in the form of not less than one million shares in issue.
The JSE would like to see that the entrepreneur is financially committed to the project by requiring that 75% of the shares held
by directors and entrepreneurs are held in trust for two years;
• no profit history is required but it should, in its analysis of future earnings, indicate above average returns on capital;
• a minimum of 10% of all shares in issue shall be held by the public;
• a minimum of 75 public shareholders;
• should have directors and management, the majority of whom have successful records of achievement in their respective posi-
tions; and
• must have, in bold block letters at the beginning of its prospectus or pre-listing statement, a warning of the speculative nature of
investment in such a company.
4.5 AltX Requirements
AltX has been established as a division of the JSE and is a market for small to medium companies that are in a growth phase. AltX
has been modelled on the highly successful Alternative Investment Market in the United Kingdom. The JSE has undertaken to con-
duct ongoing marketing and promotion of AltX among investors, the media, AltX companies and prospective applicants.
The requirements for an applicant to list on AltX are:
• the company must have share capital of at least R2 million with a minimum of 100 public shareholders holding a minimum of 10%
of the equity shares. There is no requirement of a profit history;
• a profit forecast for up to two financial years must be produced;
• the directors must complete the AltX Directors’ Induction Programme;
• the DA must be satisfied by the expertise and experience of the executive financial director to be appointed;
• 50% of the shareholding owned by each director and the DA must be held in trust for up to two years;
• at least 25% of the directors must be non-executive;
• the front cover of all documents issued must contain a warning as to the risks of investing in the applicant;
• all announcements must be published on SENS as a minimum;
• applicants are to comply with the JSE’s corporate governance rules and have an audit committee comprising the non-executive
directors and the DA;
• rules for transactions and issues of shares for cash are less onerous for AltX than those applicable on the main board. In this regard,Page LC.7
BUSINESS BLUE-BOOK A Guide to Listing Companies
OF SOUTH AFRICA, 2008 on the JSE Limited
LISTING REQUIREMENTS AND SPONSORS
The JSE Limited (JSE) updated its Listing Requirements during 2003 to take account of global trends towards greater
levels of corporate governance and compliance with Statements of Generally Accepted Accounting Practice.
All listed companies now need to appoint a registered sponsor as an ongoing advisor to the company in all matters relat-
ing to the JSE. These issues include:
• publication of financial results;
• issue of cautionary announcements;
• directors dealing in shares of the company;
• acquisitions or disposals; and
• all matters relating to the Listings Requirements and the continuing obligations of listed companies.
Companies wishing to list on the JSE need to discuss the advantages and disadvantages of listing with a corporate
finance advisor or sponsor to obtain a considered opinion as to whether a listing is the best option for their company.
The Listings Requirements for a listing on the main board of the JSE include having a satisfactory profit history for at
least three years including a pre-tax profit of at least R8 million in the most recent year and a spread of at least 500 pub-
lic shareholders holding 20% of the company.
The Alternative Exchange (Altx) was established from October 2003 as a market for small to medium companies that are
in a growth phase. Applicants must have share capital of at least R2 million with a minimum of 100 public shareholders
holding a minimum of 10% of the equity shares. Although there is no requirement of a profit history, the applicant must
produce a profit forecast for up to two financial years. All applicants must appoint a designated adviser (DA) to advise the
company and attend all board meetings.
Companies wishing to list would need to discuss the method of seeking a listing with their sponsors. A listing could take
various forms such as a public offer or private placement or the utilisation of an existing cash shell (a listed company with
cash as its only remaining asset). The pricing of a share issue is a complex matter and is dependent on, inter alia, market
conditions, the specific industry and the company’s historic and future growth prospects.
Rod MacLeodPage LC.8
BUSINESS BLUE-BOOK A Guide to Listing Companies
OF SOUTH AFRICA, 2008 on the JSE Limited
general issues of shares for cash may not exceed 50% of the applicant’s number of equity securities in issue, provided there is approval
by a 75% majority of the votes cast in favour, excluding those securities held by controlling shareholders and the DA;
• where a transaction is entered into by an AltX listed company that is 50% or more of the consideration to market capitalisation
or dilution, the transaction will be subject to inter alia the publication of an announcement, a circular and the approval of share-
holders in addition to complying with the provisions relating to re-listing statements. Where the percentage ratio is less than 50%,
an announcement will need to be published in respect of the transaction; and
• with regard to related party transactions, the rules applicable to Main Board have been simplified in relation to AltX.
Prior to being granted a listing, the applicant’s directors and the DA must present, in person, the pre-listing statement and prospec-
tus to the AltX Advisory Committee. This committee shall advise the JSE as to the eligibility of the proposed listing.
4.6 General
The JSE is the only equities exchange in South Africa and is responsible for the approval of all companies seeking a listing on any
of the JSE’s equity markets. The JSE prescribes the Listings Requirements in terms of the Securities Services Act and monitors the
initial and ongoing compliance therewith of listed companies and product issuers. The JSE Listings Requirements are based large-
ly on the UK Listings Authority’s Listings Requirements and the level of investor protection and disclosure required is world class.
5. Benefits and Drawbacks of Listing
Companies wishing to list on the JSE should discuss the advantages and disadvantages of listing with a suitable corporate finance
advisor, sponsor or DA to obtain a considered opinion as to whether a listing is the best option.
5.1 Benefits of a listing
Stock exchanges have been successfully listing companies for many years due to the following benefits that can be derived from a
listing:
• Improved access to capital growth
Listing provides the opportunity to raise capital (by raising equity or debenture capital) other than from the current shareholders
to fund acquisitions and/or organic growth.
• Heightened public and investor profile
Listing generally raises your organisation’s public profile with customers, suppliers, investors and the media through
adherence to principles of corporate governance and compliance with GAAP. In addition, listed companies may also be
covered by analyst reports and may be included in an index.Page LC.9
BUSINESS BLUE-BOOK A Guide to Listing Companies
OF SOUTH AFRICA, 2008 on the JSE Limited
• Institutional investment
A listing will facilitate the introduction of institutional and professional investors to the company.
• Market-based valuation
Being listed generates an independent valuation of the company by the market, and enhances the carrying value of the
company’s shares in the balance sheets of existing shareholders.
• Exit strategy
A listing provides the mechanism for founder members, family holdings or private equity or venture capital providers to realise
their investments at a market-related value.
• Employee/management interests
The ability to offer participation in a company by means of a share incentive scheme in a listed company enables the company
to attract and retain good staff, and the process of remunerating employees, executives and directors with shares is simplified,
making it easier to align the interests of employees with the goals of the organisation.
• Creditworthiness
Customers’ and suppliers’ perception of the company’s financial and business strength is improved.
5.2 Drawbacks of a listing
A listing is not suitable for all businesses. In some cases, the following drawbacks may outweigh the possible benefits:
• Compliance
The relevant disclosure provisions of the Companies Act and the JSE’s rules and regulations regarding disclosure to sharehold-
ers and the general public may impact adversely on the company’s competitive position in the market place.
• Burden on management
Management can sometimes feel unduly inhibited by the new responsibilities to shareholders and the continued scrutiny
from investors, stockbrokers and the media, and by the amount of time dedicated to attending to compliance issues.
• Limited freedom of action
Certain decisions will no longer be the prerogative of the management team and former owners, many of which will need
to be referred to shareholders.
• Returns to investors
The pressure for a consistent dividend policy could affect short-term profitability and liquidity.
• CostsPage LC.10
BUSINESS BLUE-BOOK A Guide to Listing Companies
OF SOUTH AFRICA, 2008 on the JSE Limited
A listing requires expenditure on a number of items not previously required, such as:
* the issue of financial statements to shareholders and the JSE;
* the costs of maintaining a public share register;
* the costs of advertising interim and annual results and making company announcements;
* other costs associated with being listed, such as appointing a sponsor or DA, which can be significant; and
* annual JSE listing fees.
6. Alternative Methods of Listing
There are a number of ways of introducing an applicant to a listing. These fall into two primary categories — as a new applicant or
by way of reversal into an existing issuer.
The decision on which method to adopt in order to raise capital and obtain a spread of shareholders will depend to a large degree
on what the controlling shareholders wish to achieve for their company. Some of the issues to be considered will include:
• the amount of capital to be raised;
• the required spread of shareholders;
• the required publicity and profile associated with the listing; and
• accommodating the aspirations of business associates such as customers, suppliers and staff.
6.1 New applicant listings/introduction
6.1.1 Initial Public Offer (IPO)
A company can obtain a spread of shareholders and the capital it requires by undertaking a public offer of existing shares and/or
an issue of new shares.
The investing professionals generally prefer an issue of new shares, as the new equity introduced into the company indicates that
the management intends to grow with the company rather than cash out their own investment.
A prospectus is required to be published, giving investors information inter alia about the history and nature of the business being
listed, details of its management’s achievements and its historical and projected financial prospects.
6.1.2 Private placement and/or preferential offer
A company can obtain the spread of shareholders required by the JSE by undertaking a private placing and/or a preferen-
tial offer to existing members of the investing community, suppliers and customers.Page LC.11
BUSINESS BLUE-BOOK A Guide to Listing Companies
OF SOUTH AFRICA, 2008 on the JSE Limited
Depending on the circumstances, a private placing memorandum or a prospectus will be required in order to place these
shares.
Once the spread of shareholders has been obtained, a prelisting statement will need to be published. While a prelisting
statement is governed by the rules and requirements of the JSE rather than Schedule 3 of the Companies Act, its disclo-
sure requirements are very similar to those of a prospectus.
6.1.3 A combination of an IPO and a private placement and/or preferential offer
6.2 Reverse Listing
The term reverse listing refers to a transaction whereby an existing listed company buys an existing unlisted business in such a
manner that the owners of the unlisted business become the owners of the listed company, thereby effectively obtaining a listing for
their previously unlisted business.
Reverse takeovers usually involve a ‘cash shell’. Cash shells are companies listed on the JSE that have disposed of or wound up
their previous business undertakings and have as their largest (and often only) asset, a certain amount of cash.
The business reversed into such a listed company must itself comply with the JSE’s initial listing requirements. It should be noted
that a reverse listing is more expensive than that of a new application/introduction because of possible transfer and issue duties
payable, as well as the premium usually paid for the listed company. In addition, the disposal of the business to such an entity will
probably be a disposal event for capital gains tax purposes, and vendors need to consider the ramifications of this.
No prospectus is required for a reverse listing unless it is combined with a new issue of shares to the public. However, a prelisting
statement (which may be abbreviated) describing how the principal business of the company has changed as a result of the acqui-
sition, needs to be published in the press.
7. Underwriting
In new applications or introductions it is usually advisable, although not a requirement, to have the issue or placing of shares under-
written. This ensures receipt of funds by the vendors and/or the company and lends credibility to the offer. The underwriter can also
assist in obtaining the necessary spread of shareholders required for a listing.
8. Determining the Offer Price
Determining the correct price at which to offer shares should take account of:
• the company’s historic and future expected financial performance;
• the sector in which the company operates; andPage LC.12
BUSINESS BLUE-BOOK A Guide to Listing Companies
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• market conditions at the time of listing
in order to ensure a successful listing.
It is normal to factor in a discount to the expected market rating and trading price in order to ensure that the company’s share price
moves up when the listing commences.
A drop in price often has a negative impact on perceptions of the company’s business and image that may take some time to
reverse.
9. South African Reserve Bank Approval
Prior to any proposed listing, close consultation will be required with the exchange control authority of the South African Reserve
Bank to ensure that all necessary approvals and potential dispensations in respect of any proposal envisaged are obtained in advance.
10. Costs of Listing
It is difficult to compute the costs of listing without knowledge of the capital structure and the amounts of any capital to be raised.
The following is a summary of the likely cost categories:
• stamp duties;
• JSE listing and documentation fees;
• underwriting fees;
• capital raising fees;
• merchant bank or corporate advisor’s fees;
• legal costs;
• auditor’s fees;
• sponsor’s fees;
• cost of printing and publishing of prospectuses, pre-listing statements and press announcements; and
• transfer secretary fees.
11. Further Requirements
JSE listed companies are required to publish their financial results within three months after the year-end and the half-year. All
financial results need to comply with GAAP. Where applicable, trading updates are required to be published on SENS to alert share-
holders of changes in expected results.Page LC.13
BUSINESS BLUE-BOOK A Guide to Listing Companies
OF SOUTH AFRICA, 2008 on the JSE Limited
The appointment or resignation of a director must be published on SENS. All new board appointees must complete and file a direc-
tor’s declaration. Directors are required to obtain written clearance before dealing in their listed company’s securities. No director
may deal in the company’s shares within a closed period (ie between a financial year-end and the date of publication of results).
Details of a director’s remuneration and shareholding must be disclosed in the annual financial statements.
All listed companies must adopt the King Code with regards to corporate governance. There needs to be a defined policy with
regard to board appointments via a nomination committee constituted by non-executive directors. Companies are required to
appoint an audit and a remuneration committee and if required, a risk committee and a nomination committee. Brief CVs of each
director standing for election or re-election at the annual general meeting should accompany the notice of the annual general meet-
ing. The listing requirements also specify the categorisation of directors into executive, non-executive and independent directors.
Contact: Rod H MacLeod, Imara Corporate Finance South Africa (Pty) Ltd, registered sponsor and designated adviser on the JSE,
PO Box 701, Northlands 2116; Tel (011) 550-6006; Fax (011) 550-6040; e-mail greatscot@imaracf.co.zaYou can also read
