JSE misses out on ‘red-hot’ listings boom
SA’s dominant stock exchange risks becoming irrelevant as it misses red-hot global IPO market
ý The JSE is lagging its international peers by a large margin and risks trading at the same dismal market rating as the muchmaligned and distinctly old economy tobacco stocks.
These surprising contentions emerged at last week’s JSE AGM, where activist shareholders lambasted the bourse on a number of shortcomings.
The JSE was formed in 1887 and is the largest exchange in SA’s vibrant equity markets, even though a handful of rival stock exchanges have launched in the country in recent years. It has successfully diversified into other trading areas to build revenue streams, including the takeover of the Futures Exchange in 2001 and the Bond Exchange in 2009.
Of late, however, the JSE has been hit by a slew of delistings.
Coupled with a lack of new listing activity, this raises concern about the relevance of the local bourse as a platform to attract companies needing to raise capital.
The JSE’s share price has lost over 35% of its value over the past three years, which does not compare favourably with other bourses around the world or, for that matter, with other specialised niche financial services stocks listed on the JSE such as Sygnia (up 65%) and Transaction Capital (120%).
Activist investor and Opportune Investments chief investment officer Chris Logan says the JSE’s performance has lagged 14 of its international peers (see table). Logan is most concerned, however, about the continuing delistings trend on the JSE despite “a red-hot global IPO market”.
The JSE’s most recent annual report acknowledges the net negative effect of delistings since 2016, but Logan believes it has understated the gravity of the situation.
JSE CEO Leila Fourie says delistings are at the “tail end” of the market and are small- and midcap as well as fledgling companies mostly delisted via a scheme of arrangement. Recent delistings include Anchor, ELB, Mazor, Peregrine, Unicorn, Tiso Blackstar and Indequity.
In perhaps the start of another trend, a couple of JSE counters — most notably Montauk Renewables and Karooooo — have retained their JSE listings but restructured to secure a primary listing on an offshore bourse where investors may be more receptive to their prospects.
Fourie argues that the collective market capitalisation of the JSE is a more appropriate measure of the JSE’s performance than the nominal number of listings on the bourse.
In 2020 the market cap of the JSE’s collective listings grew 20% to R18-trillion. In the same period, there were 20 delistings with a collective value of R70bn, less than 1% of the JSE’s market cap. “We are alive to the number of listings … but the market is a function of cycli
cality and at this point debt is cheaper than equity,” she says.
However, the JSE does appear to have missed out on a global IPO boom. Logan points out that US stock markets have had 496 IPOs since the start of this year. In emerging markets, the Indian stock exchange has had almost 50 IPOs, Israel 42 and Brazil 15. The Australian Securities Exchange has had 2,500 companies listed since the late 1990s — more than seven times the current number of JSE listings.
Fourie says the JSE has various initiatives under way to boost listing activity and raise interest in the bourse. These include a “cutting the red tape” initiative to attract new listings, which has received more than 40 responses. “We are delighted with the responses,” she says. The JSE is also approaching companies that could benefit from a listing.
In addition, it is launching a private placement market to boost activity in the infrastructure and SME segment. Its engagement with peer stock exchanges to track dual listings continues.
But David Holland, director of Fractal Value Advisors, questions the conspicuous lack of listing activities by junior mining and exploration firms on the JSE, given that the local bourse was once a magnet for new resource plays in SA and Africa. Thermal coal company Thungela did list on the JSE this week, but this was a spin-off from mining giant Anglo American.
The bourse is set to miss out on a upswing in the commodity cycle, and JSE chair Nonkululeko Nyembezi does not have the best news on this front. “There is not a single junior mining or exploration company coming to the JSE any time soon … for the single reason that the department of minerals & energy has not sorted out the licensing of exploration projects. [It] will need to sort this out before we see any flows in this regard.”
There is not a single junior mining or exploration company coming to the JSE any time soon
Nonkululeko Nyembezi