JSE eases rules on share issues
OVERSIGHT: KEY LISTING REQUIREMENT SUSPENDED Move will assist ‘Main Board issuers with the raising of capital on a more expeditious manner’.
Three days after former Investec CEO Stephen Koseff called on the JSE to amend listing rules to allow companies to issue shares “without interference from shareholders”, the stock exchange regulator moved to accommodate his request.
On 29 May it sent a letter to company secretaries, sponsors and designated advisors informing them that a key listing requirement had been suspended and listed companies could now issue shares for cash without holding a shareholders’ meeting.
The rule change does not remove all shareholder “interference”, but it ensures shareholders will have no ability to quiz management on the circumstances around the issue.
Corporate governance analysts have reacted to the unexpected move with concern; while they acknowledge the current extremely difficult circumstances, they query whether it is appropriate and point out that giving directors the authority to issue shares for cash has always been a sensitive issue for shareholders.
The resolution rarely secures the 75% approval needed at shareholder meetings.
At this stage, it’s unclear what oversight measures there will be to ensure there is no abuse of the rule change. “Presumably shareholders won’t wake up one day to discover they have a new major shareholder,” said one investor who is worried about the quality of disclosure around share issues under the more relaxed regime.
The change, which has already been implemented, sees a critical JSE listing requirement being lifted, so that the resolution needed to approve the issue of shares for cash can be done in written form instead of requiring a vote at a meeting of shareholders.
“The JSE is of the view that such a measure could significantly assist Main Board issuers with the raising of capital on a more expeditious manner,” said the JSE’s director of issuer regulation Andre Visser in a letter to company secretaries, sponsors and designated advisors, dated 29 May.
Visser explained that in its engagements with the market regarding the impact of the Covid-19 pandemic on the business and operations of listed companies, “the JSE has been approached by a number of issuers, sponsors and advisors exploring possibilities on how capital can be raised quicker and more efficiently”.
Although the obligation to hold a physical meeting of shareholders is a JSE listing requirement and therefore entirely within the JSE’s control, Visser said it sought, and secured, approval from the Financial Sector Conduct Authority (FSCA) for the exemption.
The FSCA’s Jurgen Boyd said, in a market notice issued on 28 May, that the lockdown had put the South African financial markets under immense strain and that capital raising is critical in ensuring the continued viability of a company as a listed entity and going concern.
One of the most effective capital raising measures for a listed company is to issue shares for cash, said Boyd, adding that this dilutes the interests of existing shareholders and the value attached to their shares.
“This is one of the important reasons underpinning the requirement that an issue of shares for cash resolution must be approved by achieving 75% majority of the votes cast by shareholders, subject to certain exclusions.”
Boyd said listed companies are still required to keep the market informed of share issues.
Lockdown had put the financial markets under strain