Paying the price
Are passive sponsors ‘bread upon the waters’?
OVER RECENT YEARS investors have become accustomed to yet another entry in the growing list of advisers, auditors and what-have-you at the foot of financial announcements: “sponsor” for companies listed on the JSE main boards and “designated adviser” (DA) for those on the AltX. Just what are these creatures and what do they do?
They were introduced as a JSE listing requirement with a view to improving corporate governance: in particular, the quality and adequacy of reporting. Their functions are broadly similar, though as Arcay Moela Sponsor CEO Kevin de Villiers explains, once a company is listed a sponsor’s role is largely passive, whereas a DA remains much more closely involved.
The JSE regulations provide that sponsors/DAs will normally be corporate brokers, banks and other professional advisers which have undergone a qualifying process, including a written exam, paid a fee and been put on the JSE’s register of approved sponsors, which is reviewed annually. All sponsoring firms must have at least three qualifying executives. Currently, there are just under 30 registered sponsors, including legal firms, accountants, stockbrokers, merchant and other banks and corporate advisers.
Sponsors/DAs help with listing documentation and thereafter provide continuing advice on applying the letter and spirit of the listing requirements. Among other things they have to approve profit forecasts or estimates and any announcement that requires a working capital statement.
De Villiers reckons that, especially for DAs, the duties are similar to those of directors and they need the same information. He stresses the role is no sinecure: not only does the JSE sanction perceived derelictions of duty, and can remove a practitioner’s licence, an even bigger penalty is reputational damage.
How much does a DA cost an AltX company? That’s rather a “how long is a piece of string” question, but De Villiers guesstimates a range of R10 000 to R30 000/month, depending on size. He says at this level a DA probably loses money but accepts it as bread upon the waters, as the contact improves the quality of the corporate advice it can offer and may also stimulate fee-earning deal flow.
For main board listings the fees may be around half as much for companies of comparable size but there’s probably only a quarter of the work – so being a sponsor is profitable. Main board companies tend to have greater secretarial and corporate affairs resources so can perform internally some functions with which an AltX company may need external assistance.
Do companies find the service useful? Asher Bohbot, CEO of main board listed EOH, for one has no doubts. “They’re not useful – they’re essential. Since we listed 10 years ago, the regulations have become so complex and are updated so often that it’s just not practical for the JSE to explain them to all listed companies. Sponsors are an indispensable interface between companies and the JSE.”
For so useful a service, the price seems worth paying.
They are essential. Asher Bohbot