Band-Aid on bullet wound?

Listing my business on the JSE would be like putting my car on reverse.” So said one small business owner, summing up the perceptions of a host of other companies that have either left or are unconvinced about the merits of listing on Africa’s deepest capital market where instead of moving forward and growing, flotation leads to regression.

One factor contributing to this is regulatory and compliance burdens by the JSE, which takes great pride in its reputation for rectitude. The exchange operator has found itself grappling with a concerning trend for itself, savers and the broader economy: the listing crisis that has seen a steady exodus of companies and one that gained momentum in the recent years.

Days after Steinhoff revealed a R100bn-plus hole in its accounts in December 2017, the JSE was among those in the crosshairs of investors. A few months later, companies such as EOH and Tongaat Hulett hogged the headlines for dodgy governance and bookkeeping practices, inflaming the pain for the exchange still smarting from SA’s biggest corporate scandal in which R200bn in shareholder money vanished.

Where was the JSE when a group of executives at Steinhoff came up with a complex scheme in which intercompany deals were fraudulently recorded as external income to overstate assets and profits?

It became a no-brainer that the JSE would tighten its listing requirements as it sought to prove that companies under its supervision are not subjected to soft-touch regulation.

But the JSE went too far, if the bleeding of companies from about 600 three decades ago to just under 300 today, plus comments from business leaders such as the CEOs of delisted PSG Group and Anchor Capital are anything to go by. Both Piet Mouton, boss of the former, and Peter Armitage, who heads up the latter, cited intrusive compliance rules for going private.

The JSE’s listing rules are contained in almost 500-page document. Add the almost 200page Companies Act, the 84-page Financial Markets Act and another 120 pages (at least) of the King IV Code, and it is easy to sympathise with growing frustration that being publicly traded is not worth the cost of hiring an army of compliance officers.

So, there is scope to cut red tape without allowing just about anything to come to the market, the JSE has finally acknowledged. Last week, it unveiled the biggest shake-up in a generation, saying it had set the ball rolling to split its main board into two segments.

Let’s not mince words. The JSE’s biggest stab yet at stemming the listing crisis is commendable. It’s about time the exchange took some action to stop the haemorrhaging of listings that has left it looking more like a ghost town than a bustling marketplace. The new measures to ease the listing process for small companies are a nod for the little guys, an acknowledgment that small businesses been shouldering an unfair share of the regulatory burden.

Sure, investors still have a reasonable broad selection of companies on the JSE, which remains the key facilitator of funding for businesses. It also true that small companies are often overlooked and undervalued because their closely held shares make trading difficult for investors. Add the rising popularity of ETFs the appeal of researching small, obscure firms for potential growth akin to Capitec success diminishes.

Still, there are reasons to be concerned about a shrivelled stock market for savers, the wider economy and the JSE itself as a business. A diminishing pool of stocks limits pension funds’ options to diversity and manage risk. For the economy, a stock market struggling to keep or attract listings narrows avenues for businesses to secure expansion, especially when the state’s economic revival plans rests on private sector-led investment spending. The JSE’s financial health is also at stake as it derives some of its money from listed entities. No wonder there’s a palpable sense of optimism that these measures will turn the tide.

But let’s be real: the listing crisis is also part of the broader challenges facing the SA economy, which isn’t exactly a picture of good health. The JSE woes are symptomatic of much larger malaise. Investors and business leaders are jittery, policy certainty is as clear as mud and the structural constraints from loadshedding to dysfunctional logistics system add up to sour the mood in corporate and institutional investors boardrooms.

The JSE has made its move but it’s only the beginning. The true test lies in execution, and for stakeholders — the government and regulators — to build on them with a comprehensive regulatory shake-up and a concerted effort to bolster investor confidence.

THE JSE’S BIGGEST STAB YET AT STEMMING THE LISTING CRISIS IS COMMENDABLE