Every South African capital-raising opens with a ritual disclaimer printed right on the cover page.
The disclaimer is generally some variation of the following;
“This document is not a prospectus as defined in the Companies Act 71 of 2008 and does not constitute … an offer to the public.”
The boilerplate paragraph has little to do with reality. The wording doesn’t reflect the actual structure of the offer, nor the commercial intention – it’s there to ward off the Companies Act. It’s a recycled ritual phrase.
It often appears alongside the invented term “qualified investor”, which serves to suggest tiers of investors that no South African law or regulation has ever defined.
It has become the routine language of exclusion: a message to the plain reader that they are not welcome. Even the sophisticated financial press often takes it at face value – surely it must mean what it plainly says? Yet somehow, I – an old-school retail investor, not especially qualified in anything – received an email invitation to participate from my stockbroker.
So, which is it really? Not an offer to the public, but an offer made through the intermediaries who are the public’s only gateway to the public market?
Because if an issuer’s offer is made to a regulated intermediary – a stockbroker or FSP – even if that intermediary is acting purely as agent for retail clients – the offer is exempt from the public offer requirements.
Effectively, what Section 96(1)(a)(i) – (ii) of the Companies Act says is that if you are offering shares through our well-established and regulated public market ecosystem, it is not a public offer. And the only qualification you need to be a “qualified investor” is to have a stockbroking account.
But is this contradiction the whole point?
Out-of-touch lawmakers
The original drafters of Section 96 of the Companies Act imagined a world already fading by the mid‑twentieth century. It was a world of slick promoters peddling unlisted shares to naive on-the-street investors seduced by hype and promises of easy fortune, denied disclosure and reliable information. The lawmakers, responding to this, regulated public offers, but created exemptions for professional intermediaries and financial institutions.
And yet, decades later, every investor in our now-digital public market is “intermediated”. You cannot participate in the market without being the client of a highly regulated stockbroker or FSP.
That legalistic dissonance does real harm – it confuses, reduces participation, and reinforces an insider culture that thrives on ambiguity.
The effect is generational. Anyone not already plugged into a broker or FSP relationship – first-generation investors, young professionals, people who came to markets through ETFs or investment apps – is effectively frozen out. The words on the page say they’re not invited, so why shouldn’t they believe it?
This is the contradiction of modern South African capital-raising: it manages to appear exclusionary while legally being the opposite.
Why? Because this approach preserves arbitrary discretion in the ultimate allocation of the shares.
The old “not an offer to the public” clause has become the cover for selective inclusion. It’s all about controlling the allocation of shares – and, by inference, exercising financial exclusion – and maybe foreshortening the listing timetable by a week or two by avoiding a regulated offer period.
When an offer is called a “private placement”, the disclosure obligations partly disappear. There’s still a pre-listing statement required by the JSE – a prospectus in all but name and equal in effort – but it need not tell the full story of how the shares were allocated or why.
That failure of communication is compounded by a failure of disclosure.
Retail investors must take a huge leap of faith and apply blindly through their brokers, days in advance of the offer closing date, having fully pre-funded their full applications in cash, with no idea how much the applications will be arbitrarily cut back, while institutions enjoy access to credit lines and liquidity and can submit their applications at the last minute. Retail investors often receive only a fraction of the shares applied for, days later, after the well‑connected insider institutions’ bids have been more favourably filled.
The market calls this “book-building” – a supposedly sophisticated auction process, but without any predetermined or disclosed rules or guardrails. I call it opaque discretion at the cost of retail investors. This is despite issuers and their advisors claiming the process will be some variety of “appropriate and equitable” – just never, ever fully disclosed after the fact.
Fair allocation is the last remnant of justice in capital‑raising. You can’t regulate prices or guarantee returns, but you can ensure the distribution of opportunity remains transparent and just. And if we fail to protect even that, what legitimacy do our public markets have left?
Making capital raises fair
The thing is, you can take into account the circumstances of different investor classes. Maybe carve out a flexible portion of the placing for smaller investors and not require them to bid with five-to-ten times the cash of an eventual allocation. Agree, say, that the first R100,000 of every application will be filled first.
Or in the case of an “accelerated bookbuild”, give retail investors an Australian-style follow-on offer.
The JSE’s own listing rules recognise some of this in theory: public offers must be allocated fairly, and the allocation methods must be disclosed. Yet, once a deal disappears into the failing light of the “private placement” dusk, those fairness rules slip away. Allocation becomes a private negotiation between issuers, their advisers and the largest institutions. Retail investors can legally be included in the offer, via their brokers, but have no representative at the table.
In practice, the issuers and advisers allocate shares to the investors they know, the funds they need to please or reward and the clients they hope to keep to achieve the evidence-free claim of an optimal share register. Retail investors become the rounding error, an afterthought.
For retail investors like me, the contradiction is merely absurd. I get both a “not an offer to the public” notice and an invitation to participate in the offer, in the same inbox, in the same email.
This isn’t just bad communication; it’s bad for public markets, which depend on constant inflows of new, diverse participants. But when the allocation favours institutional insiders, the pool stagnates.
We wonder why the JSE is shrinking, why liquidity evaporates outside the top hundred shares, and why every new listing feels like an insiders’ stitch-up.
And please stop calling a private placement that you explicitly say is not a public offer an IPO – that is just silly.
We don’t need more regulation; we just need less hypocrisy. Write in plain language who can participate and how. Disclose the method used for share allocations. Understand that there is no such thing as a subset of “qualified investors” – call them selected or preferred or invited investors if you must.
The phrase “this is not an offer to the public” strikes me as a convenient legal fiction that serves nothing more than a cover for financial exclusion and unfair, opaque share allocations.
Top image: Rawpixel/Currency collage
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The rot is, unfortunately, much deeper. The lawmakers decided not to define what a prospectus is – so if you offer shares to the public, it must be accompanied by a prospectus. Unfortunately only a “registered prospectus is defined. Is “prospectus” a synonym for a “registered prospectus” – not by. long shot. The first will have to be defined in terms of the common law. Private companies cannot of securities to the “public” according to s 8 of the Companies Act. However, the lawmakers thought it wise to define “public” on in respect of offer of securities to the public that wil ONLY apply for Chapter 4 of the Act – not for the whole Act. So in respect of s 8 the common law meaning applies – and a cart and horses can be turned many times in the definition. The use, indiscriminately, of concepts foreign to our, like “IPO” causes manifold problems – the list is more or less endless. It is just hoped that our courts, like in the Panamo Properties SCA case where it was said that in respect of a particular provision that the “or” should be read as an “and”, will not keep crossing the prohibited (common law and Constitutional) line of division of powers between legislative and judicial – as this will only make uncertainty worse. Seems like the initial joke that the short title of the Companies Act will be the “Lawyers Unemployment Protection Act” is now true.