JSE hoping for more IPOs as economic conditions improve
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THE UNCERTAIN business and market environment caused by the pandemic has resulted in falling share price valuations, which in turn has caused the founders and controlling shareholders of listed companies to consider delisting and buy-back minority shareholdings.
However, “looking forward into 2021/22, the roll-out of Covid-19 vaccines should underpin an economic recovery. There is a resurgence of a positive sentiment that companies that had withdrawn or delayed IPOS (initial public offering) are now considering their return to the market and we should start seeing some more corporate actions and spin-offs into listed companies,” the JSE said in response to BR questions.
In a bid to reduce costs in the tough environment, it had proposed relief measures in June 2020 to stimulate liquidity through discounted trading fees, and discounting the additional listing fees on secondary capital raising, to provide support to these stocks.
Capital raising fees were lowered by 25 percent for all Small Cap and Altx companies and a further 50 percent for brokers who traded these stocks.
This was in the response of a difficult macro climate and to lower the cost of capital for small cap companies.
Despite some delistings through the pandemic, the total market capitalisation of new listings has exceeded the market capitalisation of companies that had delisted, the JSE said.
In 2020, the market capitalisation of new listings was R179 billion, compared to R169bn of companies that opted to delist.
There were similar trends over longer periods, with market capitalization of new listings since 2010 to date coming at R7.3 trillion, versus R2.1tn for delisted companies, resulting in a positive net effect of R5.3tn, the bourse said.
The JSE said it also continued to pursue more inward listings onto the exchange through its expanded secondary listing framework, and to utilise the domestic classification to fulfil investor mandates.
A frequent complaint among companies wishing to delist was the cost of maintaining the listing, including for increased regulatory compliance.
For a company applying to be listed on the exchange, the JSE charges a documentation fee to cover the regulatory costs of screening and documenting the instruments in accordance with the Listing Requirements of over R104 392.
Once the listing is approved, an initial listing fee is charged for the listed instrument, based on the market cap and share price of the listed entity.
In the proceeding year, annual listing fees are also charged in accordance to market capitalisation bands that the listed company is operating in.
At the JSE primary listing fees are covered by initial and the subsequent annual listing fees. The secondary listing fees are discounted at 30 percent.
A2X, an alternative market of secondary listings, does not charge companies to list their shares on the alternative exchange and the share transaction fees are substantially less than the JSE, A2X co-founder Kevin Brady said.
However, A2X did not compete directly for issuers with the JSE for issuers, as the companies listing on A2X for a secondary listing need to have a primary listing and comply with all the requirements of the JSE, he said.
Brady said nearly all developed markets had alternative exchanges for the secondary listing market, and there was no cost to the issuer, no extra regulation to comply with, it required only the authority of the issuer, and the same shares are transacted as on the main listing.
Brady said traditionally secondary markets provided investors with lower costs and improved efficiency, they provided slightly lower prices and reduced spread among prices, they increase liquidity in the shares, and they reduced the cost of trading and the raising of capital, resulting in the development and growth of the overall market.
He said that while the rate of adoption of the A2X market had slowed during the Covid-19 pandemic last year, this had since accelerated. There were now 52 listings on the market, 35 of which were companies, and 17 were Exchange Traded Funds (ETF’S).