The JSE has certainly taken to heart the advice about not wasting a good crisis.
Following what must have been one of the most turbulent years in its history, the exchange has released a slew of proposed amendments to its listings requirements to address the worst of the threats to its integrity.
The amendments now up for discussion are wide-ranging and hard-hitting.
They include an attempt to make the CEO and CFO more directly accountable for the financial statements their boards sign off on, as well as proposals that will make it tougher to get onto the main board.
As expected, the JSE’s general manager of issuer regulation, Andre Visser, is naming no names and won’t link any of the proposals to specific companies.
"The proposed amendments take into account what has happened in the market over the past 18 months," says Visser, staying well clear of any comment related to the controversial Sekunjalo group, the Steinhoff collapse, EOH or even the property companies that destroyed so much shareholder value.
Investors and commentators, who have looked on in bemusement as one after another Steinhoff executive explained why he could not be held responsible for that company’s implosion, will welcome the proposed amendment to section 3.84 of the listings requirements.
The proposal will require the CEO and CFO to sign a "responsibility statement" after "due, careful and proper consideration" of the financial statements.
The CEO and CFO must also be satisfied with the effective design and operation of the company’s internal financial controls.
If Visser and his team have their way, it will no longer be acceptable for an executive to claim he cannot be held responsible for all that goes on in his complex company.
However, some critics contend the increased obligation will be used to justify higher remuneration without having any impact on the quality of governance.
In the wake of the events of the past 18 months, Visser says he has some sympathy for this scepticism but notes the JSE is increasingly focusing on the party responsible for contraventions and not on the company, which results in all the shareholders being penalised.
"We are going after the specific executive responsible; if we reach a negative finding we can disqualify an executive from holding office," Visser tells the FM, acknowledging that the market does need to see that there are consequences.
The good news for shareholders of several listed companies who have watched on in dismay as share prices were hit by forced selling by executives is that these executives will in future have to disclose the extent of encumbrances on their shareholdings.
While there were several instances of feral companies highlighting weaknesses in the rules governing the running of listed companies, Sekunjalo’s efforts to list Sagarmatha in April 2018 highlighted the need to tighten access to the JSE’s main board.
No doubt some of the JSE’s top executives still shudder at just how close this so-called unicorn came to being listed.
It would have been a travesty and done even more damage to the JSE’s reputation than the listing of Sekunjalo stablemate Ayo a few months earlier in December 2017.
Magda Wierzycka of Sygnia Capital tells the FM that mere common sense would have prevented the Ayo listing, which had raised many red flags.
Despite having no profit history and weighed down by R2.3bn of debt, Sagarmatha came within a hair’s breadth of getting a JSE listing. Its prelisting statement talked of an inferred value of R47bn and plans to raise between R3bn and R7.5bn in a private share placement.
This for a collection of unimpressive low-tech and media assets that included loss-making Independent Media, the recently created African News Agency and 83.3% of online retailer Loot.
Its zero capital base would be bumped up by proceeds from the listing.
As one commentator noted at the time, the extravagant valuation inferred by the prelisting statement — and endorsed by California-based valuer Redwood Valuation Partners — was almost seven times the collective value of listed media counters Caxton, Tiso Blackstar and eMedia, each of which had a long-term profit-generating track record.
There was also the matter of Sagarmatha’s so-called public shareholders. To qualify for a listing, 20% of the equity must be held by the public to ensure reasonable liquidity. In Sagarmatha’s case, as in that of Ayo a few months earlier, this "public" consisted largely of related parties.
Another stand-out aspect of the listing was that the prelisting statement was issued just one week before the scheduled listing date. Also significant was that this was Easter week, which included two public holidays and was a major holiday period for most investors.
If Sekunjalo hoped to achieve something without drawing too much attention, this was the week to do it.
It was almost as good as the week before Christmas, which was when Ayo suddenly appeared on the JSE in 2017.
But like it or not — and many people didn’t — Sagarmatha ticked almost all the boxes required for a listing on the JSE.
That Sagarmatha did not make it to the JSE was not down to the dismal quality of its assets, its lack of capital or the total absence of a track record, but primarily because of a technical oversight: some regulation wonks at the Companies & Intellectual Property Commission (CIPC) noticed that it had failed to submit its annual financial statements to the CIPC as required by the Companies Act. It also turned out the company had failed to publish its reviewed provisional results.
The JSE said it could not allow the listing to go ahead.
The proposed amendments to the listing requirements attempt to deal with most of these issues. Companies applying for a listing which do not have a profit history will be required to have R500m subscribed capital prior to the listing. In addition, the definition of public shareholder will exclude entities linked to the directors, their associates and extended family members as well as management.
And, in a move that should help reduce the chance of an Easter or Christmas ambush listing, the notice period has been increased from five business days to 10.
Just as the JSE was damned whichever way it ruled on Sagarmatha, the proposed tougher amendments will be deemed too little by some — who feel the market is threatened by excess behaviour — and too much by others, who feel regulation is undermining the market’s effectiveness.
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.