Sunday Times

JSE pro­pos­als seek to tighten bond-mar­ket list­ing rules

- By HI­LARY JOFFE Business · Bonds Market · Finance · Investing · Corporate Governance · Financial Markets · Emerging Markets · Stocks & Markets · Eskom · Transnet · JSE Limited · Business Law · Nomvula Mokonyane

● In June last year, the then wa­ter af­fairs min­is­ter Nomvula Mokonyane dis­solved the board of the Um­geni Wa­ter Board, leav­ing it with­out a per­ma­nent CEO or a board of di­rec­tors. Though Um­geni has R1.5bn of bonds listed on the JSE, none of this was dis­closed to in­vestors or rat­ing agen­cies and it was only af­ter as­set man­ager Fu­ture­growth raised the alarm that Um­geni is­sued a Stock Ex­change News Ser­vice an­nounce­ment in Au­gust last year.

The in­ci­dent high­lighted the dearth of dis­clo­sure or gov­er­nance re­quire­ments for JSE-listed bond mar­ket is­suers, which are not sub­ject to any­thing like the strin­gent rules with which eq­uity mar­ket is­suers have to com­ply.

Last week the JSE pub­lished pro­posed debt-list­ing re­quire­ments that aim to change this, im­pos­ing tougher dis­ci­pline, par­tic­u­larly on state-owned en­ti­ties which have listed bonds but, un­like most pri­vate-sec­tor cor­po­rate bond is­suers, are not also listed on the eq­uity mar­ket.

These in­clude Eskom, Transnet, San­ral and Um­geni, as well as the De­vel­op­ment Bank of SA and the Land Bank, and some larger mu­nic­i­pal­i­ties.

The new rules come af­ter a pe­riod in which the debt mar­ket helped to im­pose some dis­ci­pline on com­pa­nies such as Eskom, which the JSE threat­ened to sus­pend last year if it missed the dead­line to pub­lish its fi­nan­cial state­ments. The power util­ity was one of five pub­lic en­ti­ties to which Fu­ture­growth sus­pended lend­ing on con­cerns about gov­er­nance.

The ex­ten­sive pro­pos­als, on which the JSE has worked closely with the Na­tional Trea­sury and mar­ket par­tic­i­pants, would re­quire com­pa­nies listed on the bond mar­ket to dis­close de­tails of their di­rec­tors and how they are ap­pointed and to an­nounce and ex­plain any changes and any di­rec­tors’ deal­ings or hold­ings in the com­pany’s bonds. Is­suers will have to com­ply with manda­tory cor­po­rate gov­er­nance prac­tices, in­clud­ing the King code, ap­point an in­vestor rep­re­sen­ta­tive to rep­re­sent the in­ter­ests of bond­hold­ers and en­sure trans­parency by the is­suer.

The new rules also aim to ad­dress con­cerns about state cap­ture and cor­rup­tion by re­quir­ing is­suers such as state-owned en­ter­prises (SOEs) to dis­close their poli­cies on pro­cure­ment, and make avail­able an up-to­date reg­is­ter of pro­cure­ment part­ners rep­re­sent­ing 10% or more of their an­nual spend.

Is­suers will also have to dis­close, and have poli­cies on, any “do­mes­tic in­flu­en­tial prom­i­nent per­sons”, such as politi­cians, who have re­la­tion­ships with board mem­bers, or loans or pro­cure­ment re­la­tion­ships with the com­pany.

The Trea­sury said on Mon­day the new pro­pos­als would “bring about in­creased trans­parency and im­proved gov­er­nance for SOEs and com­ple­ment mea­sures to strengthen SOE gov­er­nance. SOE gov­er­nance is at the cen­tre of gov­ern­ment’s ef­forts to reignite growth in the econ­omy and com­bat cor­rup­tion.”

JSE list­ings depart­ment head John Burke said the pro­posed re­quire­ments would force bond mar­ket is­suers to en­sure proper gov­er­nance and trans­parency. Though the re­quire­ments were still not the same as for the eq­uity mar­ket, they went a lot fur­ther than be­fore.

Mar­ket play­ers are still study­ing the pro­pos­als,

We want is to cre­ate an en­vi­ron­ment where … an­a­lysts can as­sess gov­er­nance stan­dards in the same way that they an­a­lyse the fi­nan­cial state­ments An­drew Can­ter

CEO of Fu­ture­growth

which are open for com­ment un­til the end of the month.

Fu­ture­growth CEO An­drew Can­ter said the two thrusts re­quired in bond mar­ket re­form are for im­proved in­vestor pro­tec­tions and bet­ter re­port­ing on gov­er­nance is­sues. “If we can get those two thrusts right we will have gone a long way to im­prov­ing bond mar­ket stan­dards and gov­er­nance over­sight as well as sup­port­ing SA’s democ­racy.”

He added that “we want to cre­ate an en­vi­ron­ment where gov­er­nance re­port­ing stan­dards are stan­dard­ised and ro­bust enough so an­a­lysts can as­sess com­pa­nies’ gov­er­nance ap­ply­ing com­pe­tence and judg­ment, much the same way that they an­a­lyse fi­nan­cial state­ments. Gov­er­nance is re­ally a web of over­sight that is per­formed by com­pany in­sid­ers, share­hold­ers, lenders, au­di­tors, reg­u­la­tors, jour­nal­ists, rat­ings agents and even the pub­lic.”

 ?? Pic­ture: Sim­phiwe Nk­wali ?? The JSE has pub­lished pro­pos­als that are in­tended to tighten dis­clo­sure re­quire­ments for bond is­suers such as state-owned en­ter­prises.
Pic­ture: Sim­phiwe Nk­wali The JSE has pub­lished pro­pos­als that are in­tended to tighten dis­clo­sure re­quire­ments for bond is­suers such as state-owned en­ter­prises.

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