Initiatives like ZAR X will break BEE shareholder log jam
A relatively new kid on the block as far as South African exchanges go, ZAR X has listed three companies so far: agricultural group Senwes and its holding company, Senwesbel agribusiness as well as TWK Investments. ZAR X has five more listings in the pipeline, including the as yet unnamed BEE listing.
ZAR X competes with the JSE as well as new entrants 4 Africa Exchange and A2X Markets. Nel said the new exchanges would help solve the problem of a lack of liquidity that the stock market faces. “The biggest problem (is that) we have 1300 unit trusts at present, which is four times the amount of stock shares. The point is that with so few shares this affects liquidity," he said.
“If you strip out the top 20 JSE shares from liquidity stats, liquidity and transactability falls off a cliff. We are trying to address that to get financial inclusion.” Nel said: "The reality is that we have pioneered the concept of black economic empowerment (BEE) in perpetuity. Why can’t we have black South Africans trading shares with other South Africans?"
He said currently companies set up a BEE structure that will last 10 years. At the end of the 10 years shareholders were expected to make a choice to either take the cash or stay in the listed company. According to Nel, the common perception of corporates it to say “typical black shareholders sell out”.
Nel said: "I’m on the other side of the fence. I’m saying hold on, where were you 10 years ago? It is a long time. Your life has changed fundamentally. Corporate South Africa expects people to put in hard earned money into a BEE scheme and then you hear nothing for 10 years.
“There is the wrong perception that everyone wants to cash out, but there is no transactability within that period, which is disempowering. What difference does it make if it is black shareholder A or black shareholder C trading your shares? When it is listed you can create a transparent market. Everyone wins and is empowered.”
ZAR X promises to change this static state of BEE investment and liven up the sector. Nel said the ease of doing business on the exchange would facilitate this process. “ZAR X is like a G-mail account for investments. No monthly custody fee for an investor, the account is for free, with real time settlement of trades,” he explained.
With ZAR X you can see the live trade on the ZAR X website, no app needed. “This is fostering the culture of investment and savings.” Nel wants people to be able to invest R1000 and get South Africa trading.
But there is an even more ambitious global growth plan for ZAR X. The Reserve Bank has given ZAR X the green light to do inward listings from outside of South Africa as well as primary listings. In future, he said African exchanges would partner with ZAR X. Nel said: “The focus now is on low hanging fruit. Basically, we want to trade African securities here. We ask why not, a lot. We have started talking to the regulators about becoming a Pan-African exchange.”
Andile Ntingi, the chief executive of GetBiz, said: “An initiative like ZAR X will help in deepening the secondary markets for BEE shares, where black investors can sell their shares to the highest bidder without being shackled by the lock-ins.” In the past, BEE investors were faced with one fundamental problem. There was no secondary market for trading their shares and they were locked up in contractual agreements that prevented them from selling their shares for up to 10 years or more. The lock-ins went against the basic principle of investing, which is to “buy low and sell high”. In essence, black shareholders could not sell their shares to take profits and were exposed to single stocks that they were obliged to hold for up to 10 years, he said.
Following public outcry over BEE lock-ins, a secondary market was created for black investors, but the trading was done over-the-counter, where BEE investors traded among each other. Later on, the JSE introduced an empowerment segment to cater for companies that have implemented BEE share schemes. This has allowed BEE investors to buy and sell shares in a regulated environment, Ntingi explained.
- BUSINESS REPORT