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South Africa: Amendments to the JSE Listings Requirements

11 May 2022
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On 4 May 2022, the JSE released amendments as part of the Cutting Red Tape Project, Aimed at Effective and Appropriate Regulation, which will be effective from 1 June 2022.

The approved amendments intend to create a more enabling environment to pursue listings and reduce delistings. The key changes relate to the following:

Ordinary course of business test

The JSE will consider additional factors in determining whether or not a transaction should be classified as being in the ‘ordinary course of business’. The test has been expanded to include the following considerations:

  • the size measured against similar transactions that have been concluded;
  • whether the transaction contributes to the issuer’s existing revenue stream, meaning income arising in the course of the issuer’s ordinary activities;
  • whether the transaction contributes to costs that relate directly to the revenue contemplated above; and
  • whether the transaction constitutes ordinary course of business for both the issuer and the other transacting party.

Ordinary course of business exemption

Currently, the definition of ‘transactions’ excludes ordinary course transactions whose applicable categorisation ratios are equal to or less than 10%. This is now being changed to ‘less than 30%’, making the limitation akin to the Category 1 transaction threshold requiring shareholder approval.

The London Stock Exchange (LSE) has similar related party transaction considerations, but without the 10% cap. The JSE will increase the applicable limit to 30% in an attempt to make progressive moves in line with international practice.

Ordinary course of business transaction

This is a new paragraph to the JSE rules which has two notable features:

  • transactions with a director/and or any associate of a director will not be classified by the JSE as ordinary course of business for an issuer; and
  • all transactions classified by the JSE as being in the ordinary course of business must be announced on SENS immediately after the terms have been agreed and where any applicable categorisation percentage ratio is 5% or more. A fairness opinion will not generally be required where related parties are involved.

Intragroup repurchase of securities

The Listings Requirements do not currently grant concessions to share repurchases that are intragroup. As such, the JSE intends to remove the unnecessary application of the need for shareholders’ approval on intragroup share repurchases. This will be applicable to the following transactions:

  • between the issuer and its wholly-owned subsidiary;
  • between the issuer and a Schedule 14 share incentive scheme; or
  • non-dilutive share incentive schemes (controlled by the issuer to incentivise employees).

However, application of section 46 (distributions) and 48 (repurchases) of the Companies Act will continue with regard to the repurchase of securities, as set out therein.

Announcement of intragroup repurchases

An issuer will be required to release an announcement on SENS immediately after the terms of an intragroup repurchase have been agreed.

General authority to issue shares for cash/ bookbuilds

A general authority to issue shares for cash does not currently extend to related parties: a specific authority would be required for this (limiting investment opportunity and further limiting the potential of the Bookbuild process which is a prominent capital raising measure).

Going forward, related parties will be allowed to participate in an issue for cash under a general authority through a Bookbuild. This will be subject to certain protection measures, including, inter alia:

  • the shareholders’ approval should expressly afford the ability to the issuer to participate in a general issue for cash through a bookbuild
  • related parties may only participate as with a maximum bid price at which they are prepared to take up shares or at book close price;
  • equity securities must be allocated equitably ‘in the book’ through the bookbuild process and the measures applied should be disclosed in a SENS announcement; and
  • the currently applicable pricing parameters in the Listings Requirements will continue to apply, i.e. a maximum discount of 10% of the VWAP measured over 30 business days. .

Pro forma financial information

Pro forma financial information is an objective assessment for the purpose of highlighting the impact of a corporate action to the investors. This assessment is done by showing how the action might have impacted preceding reported information.

An assurance report for the pro forma financial effects will no longer be required where a disposal is being effected by the issuer. It will only be required for an acquisition.

Abridged report

The obligation to produce an abridged report when the issuer has published its audited annual financial statements is being removed. The requirement added no regulatory benefit as the short form financial result need to be published on SENS and investors will have access to a link for the full audited financial statements. 

Revised listing particulars and reverse take-overs

The JSE is removing the issuer’s obligation to prepare revised listing particulars in the event of an acquisition, even where the percentage ratio is 100% or more. The requirement ensues where there is a fundamental change in the business of the issuer or a change in the board of directors or voting control (35%) of the issuer. Prior discussion with the JSE (and possibly a ruling) will be a prerequisite.  

Rights offers, directors and closed periods

Currently excluded parties (directors, prescribed officers and/or company secretaries) will be able to participate in a rights offer during a closed period, taking an LSE approach into account.

This amendment caters for a scenario whereby the pricing and final terms of the rights offer are not yet available before the start of the closed period.

Sponsors

The events that require the appointment of an independent sponsor have been clarified, allowing non-independent sponsors to attend to certain events.

These changes are a welcome development and are likely to achieve the objective of making listings more attractive to both local and foreign investors.

* This article was co-authored by Milda Mojapelo