With the tide having turned on South Africa’s economy, sentiment-wise at least, the JSE is girding for a sharp rise in listings.
“We’re starting to see a shift in the environment, with some quite sizeable companies about to list,” says Leila Fourie, the CEO of the local bourse, in an interview with Currency. “We’ve seen Boxer coming out of Pick n Pay, and French television channel Canal+ has already indicated their intention to list overseas, with a secondary listing on the JSE.”
Yesterday, Fourie’s view was underscored when Assura, the largest property company focusing on health care in the UK, began trading on the JSE as a secondary listing, alongside its main listing in London.
The big daddy of JSE listings, however, would be Coca-Cola Beverages Africa, which bottles 40% of Coca-Cola volumes sold in Africa. The listing was mooted in 2021, but it is now finally expected to happen next year, with the company valued at more than R150bn – which would make it among the top 25 largest by market value.
This U-turn would be good news for the JSE which, like many other global bourses, has seen a slew of companies delisting, opting to raise money privately. Locally, there are now 275 companies on the JSE, compared to 601 in 2001 – and many big names, like stalwart brewer SABMiller, Massmart and beverage company Distell have gone.
In the JSE’s most recent annual report, chair Phuthuma Nhleko, said stock exchanges globally operate in an environment “currently not conducive to initial public offerings”, while South Africa’s exchange has the additional burden of being located in a country with low growth.
Even in the US – where the number of listed companies has plunged from 7,300 to 4,300 since 1996 – it’s a problem. In April, JPMorgan Chase CEO Jamie Dimon wrote in a letter to shareholders that “I fear we may be driving companies from the public markets” through unnecessary red tape.
In response, these exchanges have largely tinkered around the edges, cutting their governance requirements, slashing costs, or doing cross-border deals with other exchanges in a bid to woo secondary listings, which give local investors exposure to a foreign company.
On the margin, this has worked. Assura, which made use of the JSE’s “fast-tracking” for its listing in South Africa, is a case in point. In its pre-listing statement, it says that South African investors will, for the first time, get exposure to its £3.2bn portfolio, which includes more than 600 health-care buildings through which more than 6-million patients are served.
This is something of a coup for the JSE, as there’s no obvious reason for Assura to list in South Africa, other than the fact that property stocks have found strong purchase among the country’s investment community. In Assura’s rationale for the listing, it says it will “diversify the company’s shareholder base”, providing a new pool of South African investors.
Certainly, its half-year results for the six months to September, released yesterday, will have done wonders to encourage South African investors, as its profit rose to £77.1m, from a £28.8m loss for the previous year.
Fourie says Assura’s arrival shows that the JSE’s reforms to its listings rules, designed to attract foreign companies keen on a secondary listing, is working. In particular, the decision to introduce these “fast-tracked listings” – which allow companies to list on other exchanges without having to report separately – are a key way to “reduce friction” for companies.
A rising tide lifts all boats
But as much as the JSE is having some success, perhaps a bigger factor driving the renewed appetite for listing in South Africa is the confidence imbued by the government of national unity.
Last month, Fourie spoke to a number of international investors in New York about South Africa’s economic prospects, and she said there was far greater appetite for the country again since the big “overhangs” on the economy – mostly electricity blackouts and Transnet’s logistics pipeline – had largely receded.
And this rosier view is mirrored in the shinier pipeline of potential listings.
“We’re seeing a willingness from companies to raise capital through the JSE that we really haven’t seen in many years. And a central part of this is that it is connected to the wider health of the country, and the noises we’ve seen on that this year has been promising,” said Fourie.
The JSE, not that it needed pointing out, doesn’t exist in a vacuum. So, healthier prospects for the economy translate into more investment, and better value for companies that list on the exchange.
At the moment, fingers crossed, momentum is on the country’s side. On Friday, S&P Global Ratings raised the outlook on South Africa’s credit rating to “positive”, which suggests a ratings upgrade may be on the cards if things keep going the right way.
S&P said the better outlook “reflects the potential for stronger growth than we expect”, based on the “renewed business confidence that the [unity] government could accelerate growth and business-friendly reforms, as well as improve services delivery”.
Now, of course, the hard work begins of backing up the sentiment with actual results.
Fourie is clear on this point too. “We have seen foreign inflows improve this year, since the election, and there has been a material interest from Europe and places like Saudi Arabia. So the perception of risk has started to shift. But what these investors want to see is the sustainable delivery on policy promises,” she says.
In other words, the 5.8GW of new renewable energy added to rooftops, and the 36% reduction of the waiting time for investors in South Africa’s ports need to translate into a meaningful increase in GDP growth. Last month, President Cyril Ramaphosa, and Discovery CEO Adrian Gore, spoke of how, given the changes since the coalition government took charge, the country’s GDP growth could lift beyond 3%.
But as S&P pointed out in its assessment of South Africa this week, this can only be achieved if actual policy reforms happen. The downside scenario, it said, would happen if “economic and governance reforms do not progress, resulting in a deterioration in economic growth or higher-than-expected fiscal financing needs and interest burdens”.
Listings taskforce
Either way, the JSE is not resting on its laurels, and has other ideas too on how to ensure the listings pipeline remains strong.
Sam Mokorosi, head of origination and deals at the JSE, says the exchange is considering proposing a task force, along the lines of the London Stock Exchange (LSE) model, to South Africa’s government.
“We’ve been working with the National Treasury and regulators around broader ways to deal with the delistings issue, but we haven’t formally proposed the task force yet. But we like what the UK is doing, so we’d look to see if we could apply that idea locally,” he says.
It is a controversial idea, as many exchanges have looked to dilute the governance requirements to attract more listings – which could leave investors more exposed.
In the UK, the Local Authority Pension Fund Forum, which represents £350bn of government pensions, said it was “very concerned” about such a move. “In lobbying to lower the governance and listing regime the LSE not only risks loss of its reputation, but also ‘poisoning the well’ making the UK an unfavourable place to allocate capital,” the pension forum said.
Hopefully, with the listings pipeline starting to pick up, the JSE may not need to take the more drastic steps of slashing governance rules, needed to protect investors scarred by disasters like Tongaat Hulett, Steinhoff and EOH. As Mokorosi says, with a number of listings looming, “it seems that the mood may be lifting”.
Top image: Leila: Leila Fourie, CEO of the Johannesburg Stock Exchange. Photo by Drew Angerer, Getty Images.
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