Tech listings continue to falter in SA
• The JSE has had many delistings in recent years
As Naspers mulls the listing of a number of its e-commerce platforms to unlock value and digital lender TymeBank considers a stock market flotation, the spotlight is on the apparent unattractiveness of SA’s public market.
Technology companies and investors agree that SA is a tough environment in which to raise large amounts of capital to grow a business into a global player.
As part of a broader effort to unlock value for shareholders, Naspers’ international unit, Prosus, is positioning businesses such as payments company PayU for potential initial public offerings (IPOs). But a primary listing on the JSE is unlikely for any of these units.
SA-based digital lender TymeBank is on course to list in about five years, but as co-founder and CEO Coen Jonker highlighted in a recent Business Day Spotlight podcast, questions abound about whether the JSE is the best IPO destination.
“Yes, we would like to list the business. The time is not right yet. But I think four or five years from now, once there’s space, we would be keen to list,” he said. “A big question for us is, where would be a good place to list? Is the JSE the best market or should we consider something like Nasdaq, New York Stock Exchange, London Stock Exchange [or others]? So we’re keeping an open mind.”
The bank, backed by Patrice Motsepe’s African Rainbow Capital Investments, has clocked up more than 8-million customers since its launch in February 2019, and has a valuation approaching R20bn.
The JSE has experienced many delistings in recent years, particularly of technology firms, with Jasco, Adapt IT, Alaris, Etion and Alviva all having left.
GOOD RATING
Depressed market conditions have been blamed for several listings not proceeding, including Telkom’s Swiftnet unit, which had been expected to bring in R13bn but was shut down at the start of 2022.
On public markets, Irnest Kaplan of Kaplan Equity Analysts said companies are not getting a good enough rating on the JSE.
“There are a multitude of reasons for this, but ... one of the main causes is lower confidence for the future.
If a company is listed on the JSE, [it wants] to attract good investors and get a good rating, so they can make acquisitions if need be.”
This is especially relevant in technology, which tends to have a global focus.
“It’s hard to do this when your rating is so low. Hence they seek other jurisdictions and pools of capital for their listing. Until the general confidence in SA improves, I don’t think it will be easy to reverse this.”
The decision to list is also inextricably tied to a country’s macroeconomic outlook.
Philip Short of Flagship Asset Management said the current economic and political environment in SA is not conducive for any business, let alone technology.
“SA consumers as a whole are getting poorer. This is reflected in our shrinking GDP and high unemployment rate. If you’re looking at launching some type of tech business in Africa, Kenya and Nigeria spring to mind as more favourable destinations” for unlocking or highlighting value for technology businesses.
According to the African Private Equity and Venture Capital Association, venture inflows to Africa in 2023 stood at $6.5bn across 853 deals. Nigeria and Kenya are ranked above SA as investment destinations for venture capital, the industry that helps to support businesses through the growth phase before listing.
LOWERING TAXES
Ntsako Baloyi, senior manager in the technology business at Accenture Africa, said the government could help entice more local activity.
“Another major driver for business outflows is business tax; countries that incentivise businesses to list and have their headquarters locally by lowering taxes tend to see a lot more investment.”
In 2021, Cartrack owner Karooooo raised $33.8m through a listing on the Nasdaq, effectively moving its primary listing from the JSE.
The complex deal was done to open up Karooooo to larger pools of capital on offer in the US market, with the group having felt undervalued on the local exchange.
Former Altron subsidiary Bytes, a software, security and cloud services specialist, listed on the London Stock Exchange in December 2020 with a secondary inward listing on the JSE after a demerger that created R13bn in value for shareholders.
Altron had argued that the true value of the UK business was not fully reflected in its share price. Since the listing, the company’s stock is up 94%, its market capitalisation having grown to R32.12bn.
Naspers, by far the JSE’s biggest listed tech company, is valued at R616bn. It opted to spin out its international assets under Prosus with an Amsterdam listing, because it had become too large for the local exchange.
The JSE is not oblivious to the trends, having recently expanded its secondary listings framework by allowing secondary listings for companies primarily listed on Hong Kong Exchanges and Clearing. This is in a bid to boost liquidity on the exchange.
With a total market value of more than R18-trillion, the JSE is still by far Africa’s largest and most liquid stock market, but the volume of listed shares on its platform has been shrinking over the past two decades, raising concern among money managers who are left with fewer potential investment opportunities.
Over about the past year, the JSE has reformed its normal listing requirements to encourage more IPOs, launched actively managed exchange traded funds, and introduced transition- and sustainability-linked bonds.