Call for JSE to amend listing rules during crisis
Stephen Koseff, the co-founder and former CEO of Investec, has called on the JSE to amend its listing rules and allow companies to issue shares without the consent of shareholders to enable them to quickly raise funds in times of crisis instead of relying entirely on bank finance.
“It would be very easy for our stock exchange to change the rules to allow companies to issue shares very, very quickly without interference from shareholders, because you need that in a time of crisis, like now,” Koseff said.
He was speaking on Tuesday at a webinar hosted by Ninety One Asset Management, which was known as Investec Asset Management before its separate listing in March.
Local companies are required to seek majority shareholder approval before issuing more shares. While some companies routinely include this as a standard resolution to be voted on at annual general meetings, not all of them are passed.
Koseff, one of the architects of the launched R200bn loan guarantee scheme to assist otherwise viable small companies with liquidity challenges during the Covid-19 crisis, said a relaxation would allow companies to rapidly bolster resources in times of crisis.
“Funnily enough, SA has not used the stock market at all. We know that in the UK and other markets, there have been significant amounts of capital raised over the last six weeks as companies shore up their balance sheets,” he said. The JSE was not immediately available to comment.
Developed markets changed the rules during the 2008-2009 crisis to allow companies to raise finance quickly at a time when banks, which were at the centre of the turmoil and didn’t have the capacity to lend to other companies, also had to raise funds to shore up their own balance sheets.
Raising capital via the equity markets does not come with the same obligations as debt, and gives companies the freedom to deploy the money as they see fit.
SA’s corporate bond market was also effectively shut for the first few weeks of the lockdown, but has since seen a muted resumption in the issuance of paper. That put more pressure on banks to restructure debt and provide additional facilities to companies navigating the national shutdown.
In an indication of how banks are responding, Nedbank said on Friday that in the five weeks following the start of the lockdown on March 27, it had restructured R81bn of debt, or approximately 10% of all assets.
Koseff, who stepped down at Investec in 2018 after 38 years, said the ability to issue stock quickly does not necessarily have to come at the expense of smaller shareholders.
“Many of the developed markets have a rule that you can go and place 10%, 15% of stock overnight without talking to anybody [seek approval] and some of them say you have to give the retail shareholders an opportunity to claw back,” said Koseff.
Letting smaller-scale investors with a mechanism to claw back or buy shares at a later date would prevent them from being diluted as a result of any emergency rights issue, he said.
Speaking at the same event, Ninety One CEO Hendrik du Toit said that while SA had moved quickly to confront the health challenge, the economy now had to be the main priority so that the country could come up with a long-term plan to restore its growth potential.
“We are entering a challenging period for the world, especially emerging markets,” he said. — BDlive