PSG Group, the Stellenbosch-based investment company that has built and listed some of SA’s most successful ventures, has urged the JSE not to tangle its listing requirements with regulatory red tape.
PSG CEO Piet Mouton told the FM that, in the current circumstances, it was unlikely that PSG would list any of its smaller investments. In the past PSG has created enormous shareholder value with the listing of companies including Capitec Bank, Curro Holdings, Zeder Investments, PSG Konsult and Stadio Holdings.
Speaking at an investment presentation last week, Mouton argued that "red tape" related to maintaining a listing on the JSE was becoming excessive. "This is inherently unfair … the environment that listed companies have to operate in compared with unlisted companies."
Mouton’s comments ominously coincided with news that the JSE will lose stalwart industrial listing Afrox, which is set to be bought out by its international parent company, Linde.
The number of firms listed on the JSE has declined markedly over the past five years — driven partly by poor market valuations in, mainly, the small cap sector.
The number of new listings has also dried up — and market watchers believe onerous regulatory and compliance issues were perceived as being too taxing for entrepreneurial smaller companies. Regulations have been tightened in reaction to a string of local corporate failures.
JSE CEO Leila Fourie says the bourse is engaging the market to identify opportunities to streamline listing requirements.
More specifically, Fourie says the JSE is investigating a private placements market that would offer an alternative to listed capital raises. "A private placements market will open access to capital with reduced regulatory requirements."
The JSE had 24 delistings last year — including industrial services business Howden Africa, specialist retailer Verimark and beverages group Clover Industries. This year the JSE lost large listings including Pioneer Foods (bought out by PepsiCo), mining giant Assore and aviation business Comair.
The bourse possibly stands to lose a few more firms this year. Companies including Metrofile, ELB Group, Indequity, Unicorn Capital Partners, Grit Property, Intu, Tiso Blackstar, Peregrine, Montauk and Mettle Investments look likely to delist.
Prabashini Moodley, MD of Old Mutual Corporate, says the smaller pool of listed investment options presents a concentration risk for people saving towards retirement. She notes that the number of listings on the JSE would reduce to less than 350, from more than 600 in 2001.
Mouton emphasises that it is good for the local economy if there are a lot of listed companies. "But, in time, we might see further delistings because of the red tape."
PSG executive Johan Holtzhausen concedes stricter regulations on the JSE are "a sign of the times we live in … with a lot of corporate failures". But he intimates there is a risk of going too far in regulating the JSE. "As always, it’s a question of balance."
Mouton hopes the JSE will take note of his remarks. "I’ve spoken about this in the past."
But he adds that it is unlikely that PSG, which owns a number of private investments under its PSG Alpha subsidiary, would list something again in the future.
The JSE markedly tightened its regulations following large corporate failures including Steinhoff International, where alleged creative accounting policies inflated the profits and value of underlying operations.
The JSE, Mouton says, is trying to address corporate failure with red tape. "These days you have huge board packs with many pages dedicated to compliance issues. Meetings can last five or six hours. It ends up where people are focused on the wrong stuff, and it’s probably more likely that something can slip through."
Not many executives have spoken on the record about frustrations with JSE regulations, though the FM is aware of a number who have privately bemoaned a demanding regulatory regime as time-consuming and a distraction from core operational functions.
Late last year Arnold Shapiro, CEO of small investment company Trematon, criticised the JSE in the annual report as "officious" and "difficult to deal with".
Shapiro said the increasingly turgid regulatory environment had led to many of the best transactions being undertaken by private equity investors.
He also argued that the regulatory environment added costs and "friction".
This made it hard for small caps to act quickly and flexibly.
"With far fewer companies to oversee, oversight by the JSE, though doubtless well-intentioned, has become very officious and has become increasingly difficult to deal with for entrepreneurial companies," he said. "This has led many of the best entrepreneurs to look elsewhere for funding and has prevented some groups from engaging in attractive transactions."
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.