Afrox delisting follows trend that's seen listed SA equities halved
DURBAN - Monday's announcement of Afrox delisting follows a trend that has seen the number of listed South African equities halve in the past 20 years, Kondi Nkosi, the country head for global asset management firm Schroders, said yesterday.
Commentators have expressed concern following the Afrox announcement that the narrowing of options for South African investors due to delistings was becoming of concern, with fewer than 250 companies listed on the JSE currently than in 2000, while 21 companies had delisted in 2019.
Recently, Grit real estate and intu said they would also leave the Johannesburg Stock Exchange, following the likes of Pioneer Foods, Avior Capital Markets and Peregrine.
In the main, voluntary delistings over the past number of years have mainly been by “small” and “mid” capitalisation stocks, which were tightly held with relatively poor liquidity and analyst coverage.
Many companies complained that being listed was expensive and that reporting requirements were onerous. This, coupled with a lack of liquidity and ability to raise capital on the market, particularly in thinly traded stocks, led many listed companies to review why they were listed.
Other reasons for delisting have included mergers and acquisitions activity, rationalisations and business rescue.
Nkosi said the delisting phenomenon was not unique to South Africa, as “the number of companies listed on the world’s stock markets has collapsed over the past two decades”.
“In South Africa, the US and the UK the number has halved. New listings in the US averaged more than 300 per year before the turn of the millennium. Today, that average is down to about 100,” he said.
And while new listings in South Africa had also roughly halved over the past 20 years or so, in China and in the fast-growing Asian economies the number of listed companies had doubled. “Traditionally, stock markets were a venue for companies to raise money to finance growth - but the decline suggests that markets perform this function less and less,” he said.
Easier access to alternative sources of financing, alongside the increased cost and hassle of a public listing were all partly to blame.
“All is not lost. Equity markets are thriving in some parts of the world, and even where they appear not to be, they continue to serve an economic purpose, albeit one that is different to the original blueprints,” he said.
Old Mutual Corporate MD Prabashin Moodley said in a statement that the smaller pool of listed investment options in South Africa presented a “concentration risk for people saving for their retirement,” and consequently, recent calls for increased infrastructure investment might be good news.
“Infrastructure assets are less volatile than equities and show a lack of correlation with your traditional assets like property. Moreover, they deliver inflation-beating returns over the long run if properly structured and properly managed,” said Moodley.
According to the South African Institute of International Affairs, the private sector investment into African infrastructure represented only 2.8 percent of all investment into the asset class. Moodley said the mismatch between potential and committed exposure was an indication of the opportunity that could unlock long-term benefits for the country and investors alike.
The JSE said that in the six months to June 30, there had been 14 delistings versus 13 at the same time a year before, which it blamed on the constrained trading environment, while volatile markets resulted in only three initial public offerings versus two at the same time a year before.
There were, however, 74 new ETF listings, 4 new ETNs and 133 new warrants and structured product listings, the JSE said. During the pandemic, the JSE said it had provided relief measures, including fee reductions in certain market segments and flexible payment arrangements for distressed clients, reduced trading fees for small caps to encourage trading in lower liquidity stocks, while a digital annual general meeting solution and virtual training app for issuers was launched.
The JSE also temporarily adjusted its listings requirements to allow for an extended period for the publication of annual results, and the payment of distributions by real estate investment trusts, and it took steps to speed up listings and capital raising processes.