Giulietta TaleviA new listing on the JSE is about as rare these days as an honest ANC politician. So you’d think any company going public would want to make it, well, as public as possible. Especially when the JSE is due to welcome a company with mass appeal, like Pick n Pay’s low-cost arm Boxer.
Boxer, which has shown remarkably high growth, is one of the strongest limbs within the stable of the limping retailer, which is buckling under R6bn of debt. CEO Sean Summers hopes the listing will raise about R8bn – much of which will go to scrap that debt.
But instead of involving the wider public – many of whom would be actual Boxer shoppers – Pick n Pay has opted for a private placement: a cosy club of large institutional investors will bid for the stock, parcel it up among themselves and release to the funds they manage.
It’s a big missed opportunity, both for the struggling retailer, and the JSE.
Asked why the company didn’t make the IPO a more widespread issue, Summers says the decision was “carefully considered”.
“If we had gone the public offer route, it would have added several quite onerous regulatory requirements and extended our timeline,” he tells Currency.
Now, it’s true that Pick n Pay has had to act swiftly to staunch its many self-inflicted wounds. And, given that a consortium of banks – including RMB, Absa, Standard Bank and Investec – are owed at least R5.5bn and no doubt want their money back (plus fees), you can see who may be calling the shots.
This is clear from Boxer’s listing circular, released this month, in which Pick n Pay warned that, were it to miss the target date for the IPO, “lenders may take certain remedial measures, including an increase in interest rates across all existing facilities by 1%”.
For a company that had to fork out almost R702m in net interest charges in the 2024 financial year alone, you can see why that would be a target not to miss.
Perhaps more critically, Boxer’s listing is a vital part of Summers’s revival plan for Pick n Pay, a company that racked up a towering R3.2bn loss in its financial year to the end of February. This was a combination of a R1.5bn trading loss in its core Pick n Pay business, a R2.8bn impairment charge, and a jump in interest paid to its lenders, all of which meant it breached its loan covenants – a cardinal sin for a large corporate.
Clearly, time is of the essence. But that is still no excuse for giving retail investors the cold shoulder.
‘Shareholders are good customers’
“The only additional regulatory step for a public offer is to register a prospectus – a document near identical in content to a pre-listing statement which they have to do anyway,” says corporate financier Paul Miller.
The key difference is that a prospectus offer period has to be open a week or two longer, which gives outsiders time to climb into the detail; a pre-listing statement is initially distributed in confidence without publicity.
Still, Summers says the decision not to involve retail players, “was neither straightforward nor binary”.
“While some may feel aggrieved, the route we have chosen is in accordance with market norms,” he says. “The majority of JSE IPOs over the past decade have been implemented in this manner.”
Critics disagree. For Pick n Pay to describe the private placement as “standard practice” is nonsense, says Miller, who has increasingly taken up the cudgels on behalf of the JSE’s anorexic (and largely ignored) retail investor base.
He argues that exemptions in the Companies Act that enable companies to raise money quickly by doing a bookbuild – like Anglo American Platinum did recently – are meant to provide flexibility.
“What it’s not meant to do is destroy the whole concept of a public market by excluding the public. How could that ever have been the intention? Because, here’s the thing: shareholders are quite good customers,” he says.
One CEO who knows all about customers-as-shareholders is Purple Group’s Charles Savage.
One source, who asked not to be named, says Pick n Pay is making a meal of the supposed extra regulatory requirements, which it claims prevented it opening the offer to a wider group of investors.
“I would have thought that both Boxer and the JSE in this instance would want to take something that has such a strong retail brand and ensure it gets marketed to the masses,” Savage tells Currency.
Purple Group has about 150,000 retail investors in its own shares, all of whom use its low-cost stockbroking platform, EasyEquities. Savage says they’re “the most engaged customers; so they pitch up and use the platform more frequently than people who aren’t shareholders”.
While an investor base of 150,000 sounds immense (it’s the second-largest retail shareholder base on the JSE after Sasol), they account for less than 10% of Purple’s share ownership in terms of value. But, says Savage, “they are much more active and vocal in social spaces both in our defence and in times of exuberance. It’s like having an army of marketers.”
Admittedly, there is a gulf between the work needed to raise the same amount of money from a retail army where investors may have just R100 to buy your shares, and one large institution with R1bn to splash out.
Savage says that many companies weigh up the value of capital they’ll raise against the compliance boxes they’ll need to tick, and figure it’s not worth it.
“The point they miss is that if we don’t start to build a foundation of retail investors then that is never going to change. And the second point is: your shareholder is your most loyal customer,” he says.
Savage is critical of the JSE’s sponsors and lenders, whose evaluation system is purely based on financial metrics. “They can’t see past that and I think that is a massive failing of the South African listed space, for decades now.”
Eschewing democracy
Miller says it’s not a binary choice between a public offer and a private placement to large institutions. “Smaller investors can be accommodated via legacy stockbrokers acting as agents or via financial service providers including EasyEquities. You shouldn’t be allowed to run an auction and then exclude willing and able participants,” he says.
South Africa’s lack of focus on its retail investor base is stark when compared with the US and Australia, where retail investors are a standard feature in IPOs and a consideration when it comes to share splits. If a stock becomes too “expensive” at, say, $1,000, it’s common practice to do a 10-for-1 share split to encourage smaller investors to buy in.
Boxer’s approach has also been thrown into sharp relief by a far smaller IPO now taking place – that of Altvest.
Altvest, which specialises in giving retail investors access to alternative investment opportunities, began life on the Cape Town Stock Exchange and is moving to the JSE where it hopes to raise up to R115m – purely from retail investors.
“It is costing them a lot of money and when they compare the capital they’ll raise, it’s going to look hideously expensive, but it’s still the right thing to do” says Savage.
Founder Warren Wheatley says Altvest was established to democratise access to investments. “Now that we need more capital, I had to be consistent with that philosophy; it would be hypocritical if I chose the easier path,” he tells Currency.
The difficulty, he says, is that people invest what they can afford, whether it is R50, or R50,000. Wheatley will be sweating through the IPO as the JSE has imposed a minimum amount of money which must be raised: R6.5m in Altvest’s case, by midnight, October 1.
Counterintuitively, it spurs Wheatley on that many people have so little spare cash to invest. “South Africans need to be employed, they need to get access to markets and wealth generating mechanisms,” he says.
As for Boxer, which had 477 stores at last count, investors are getting access to an “extraordinarily profitable and compelling investment” reckons Opportune Investments’ Chris Logan.
Boxer’s return on equity sat at 101% based on its last published financials, Logan calculates – which stands in stark contrast to the parlous returns of its parent.
Pick n Pay’s missteps have been well documented, from the undue influence of the founding Ackerman family to an overly generous dividend policy, which stripped the company of capital needed for reinvestment for many years.
While Pick n Pay will keep a shareholding in Boxer of “at least 50% plus one share”, it says the IPO will see it give up full control “including a reduction of influence over Boxer’s … dividend policy”.
That can only be good news for Boxer’s advocates, who see it surpassing its parent in both financial strength and future prospects. It’s just a pity a wider base of investors isn’t being given the chance to get in from the outset.
Top image: Collage. Currency.
