SA companies becoming more foreign
IN THE LAST SIX YEARS offshore investors’ net investment on the JSE amounted to more than R208bn – more than enough to have bought the fourth biggest company on our exchange, Richemont, at a current market value of just over R202bn. It is also substantially more than the biggest primary listed company on the JSE, Anglo Platinum, with a market capitalisation of R181bn.
The benefits of this foreign investment are debatable. Government is preferably looking for real investments in fixed assets as the investment in stock markets can be very flighty. The slightest whiff of an emerging market crisis or any SA domestic issue and the snowball effect of dumping shares, selling rands, depreciation of our currency, rising inflation and interest rates can be very sudden and detrimental to the economy.
According to the December quarterly bulletin of the Reserve Bank, non-residents’ net purchase of JSE listed shares amounted to R56,5bn. Buying interest waned in the third quarter of 2006 with net purchases only at R2,6bn.
Foreign buying supported the market during 2005 and 2006 (see graph). This contributed to the improvement in the financial account, reflected in a surplus of R35,4bn at the end of September 2006, which helped the Rand despite the record deficit in the current account. But the Reserve Bank noted that “the dividend and interest payments to non-residents remained strong, buoyed by positive profit announcements as well as the higher level of the outstanding foreign debt and non-resident ownership of South African shares”. This negatively affected the current account deficit.
In terms of market capitalisation, BHP Billiton, with a history of SA assets, is currently the second biggest company on the JSE. But only less than half of this GBP 54bn company is listed on the JSE. Only 21,75% of its shareholding is SA based with 1 145 individuals, 19 banks or nominees and 12 investment trusts making up the bulk of the 1 197 shareholders. And 21,59% of the shares are held in three nominee companies.
The bluest of blue chip SA companies, like Anglo American, SAB and Old Mutual, moved their primary listings off-shore while retaining a secondary listing on the JSE.
This caused their shareholding to internationalise substantially, with Anglo American left with local shareholding of only 26,13% and Old Mutual 32%.
Investec didn’t opt for any secondary listings but retained its primary listing on the JSE since 1986. Another primary listing on the LSE in 2002 created a dual listed company structure. A DLC is an arrangement whereby two separately listed legal entities are combined into a single economic enterprise through contractual arrangements. Shareholders effectively have economic and voting rights as if they held shares in a single company. 82% of JSE listed Investec Ltd is held by SA entities while a sizeable 25% of the LSE listed entity is also held by SA based parties. Incidentally the Public Investment Corporation is the biggest shareholder in both entities, with 11,4% in Ltd and 6,7% in plc.
Gold shares have always been a favourite with international (especially USbased) investors. More than half of AngloGold Ashanti (76%) and Harmony (57,58%) shares belong to off-shore shareholders.
51% of AngloGold Ashanti free float shareholding, excluding Anglo American plc’s 41,8% and Government of Ghana’s 3,4%, is held in North America, confirming their gold bull status. SA represents 24% and the UK 14% with the rest made up of continental Europe and the Middle East and Asia Pacific.
33% of Harmony shareholders are based in North America and 12% in the UK.
On the other hand, it is quite surprising that platinum mines – considering that platinum can be seen as a more attractive precious metal due to its industrial use in vehicle catalytic converters – still
have the majority of their shares in SA. Anglo Platinum’s free float shareholding is 56% based in SA.
The company in the top 40 that could claim the “Proudly South African” prize is Pick ‘n Pay Stores, with 97% local shareholding.
The average local shareholding amongst the top 40 companies for which information was available was 73,4%.