FSB happy to take flak over new regulations

Critics hit at tightening up on trade in unlisted shares

BERT Chanetsa, the deputy executive for capital markets at the Financial Services Board (FSB), is happy to take the heat for clamping down on trade in unlisted shares.

“We’re doing the right thing. All it takes is one disaster on one platform,” he said.

The FSB argues that the move, which will force all companies that trade shares on over-the-counter (OTC) platforms to register themselves as an “exchange”, is aimed at ensuring investors experience a “tremendous level of security”.

But the move has already sparked a lot of criticism, with some people saying that the regulator is interfering needlessly.

BEE firm Thembeka Capital, which is aligned to Jannie Mouton’s PSG, emerged this week as the first empowerment casualty of the FSB’s crackdown. Thembeka announced on Thursday that following the release of the FSB’s final directive it had decided “to cease all trading in its shares over the counter” from the end of the month.

Pundits believe the main target of the FSB’s new rules are the several empowerment schemes that allow restricted trading, including Sasol Inzalo, Abil Hlamba, Yebo Yethu and Phuthuma Nathi.

Several agriculture-related companies, whose shares trade over the counter, could also be affected by the FSB directive.

Last week, Thembeka advised shareholders that it was engaged in negotiations that could affect its business and share price.

This sparked speculation that Thembeka could be considering unbundling its asset to shareholders, or that it could buy other assets and list on the JSE.

There is a third, less radical, possibility — of Thembeka being merged into PSG, which is already Thembeka’s single largest shareholder with a 51% stake.

The remaining 49% is held by black investors.

Anthony Clark, an analyst with Vunani, said in a recent research note that three shares — PSG Group, Curro Holdings and Capitec — accounted for 75% of the value of Thembeka. It also had valuable holdings in Kaap Agri and Pioneer Foods as well as some cash.

But unbundling these shares does not seem likely, according to analysts, which means a merger with PSG is the most likely scenario.

A fringe benefit of this is that Thembeka’s black shareholders will then boost PSG’s empowerment status.

Last month, Zeder announced that it intended buying out the 51% of minority shareholders in Agri Voedsel, whose sole asset is a 30% stake in Pioneer.

Zeder CEO Norman Celliers told Moneyweb that Agri Voedsel would not qualify for a JSE listing, and that unbundling the shares would have significant adverse financial consequences because of capital-gains and dividends tax.

The current OTC market has operated without any scandal for aeons

While acknowledging the security-related concerns, traders have been extremely critical of the FSB’s move, and say the steep costs of regulation could destroy a vibrant market that has experienced little of the insecurity the FSB talks about.

“The current OTC market has operated without any significant scandal for aeons, and many of the companies that undertake the platforms run their businesses with the same level of financial disclosure and compliance as if they were a JSE-listed entity,” said Clark.

At present, the FSB charges a fixed licence-application fee of R450 000. In addition, there are steep variable costs.

Traders and many of the BEE schemes are hoping that Equity Express, which provides an efficient and inexpensive platform for trading, will be able to reach some kind of settlement with the FSB that would allow for a lower-cost solution.