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South Africa: JSE Listings Requirements – Market Segmentation Project

22 April 2024
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Overview

  • Through its Market Segmentation Project, the JSE has proposed changes to its Listing Requirements aimed at reducing delistings and providing attractive prospects for new entrants on the JSE’s market.
  • The JSE is of the view that the process of undertaking corporate actions should be simpler for small companies compared with that for large corporations.
  • Smaller issuers stand to benefit from the changes, which will provide the flexibility to raise capital with lower costs and reduced regulation and resources, if implemented.

The JSE has introduced the Market Segmentation Project to amend its Listings Requirements (JSE Listings Requirements).

The JSE currently has a two-tiered equities market, namely: the Main Board and AltX. The proposal is now being made to reposition the JSE’s Main Board into two segments: the ‘Main Board Prime’ and the ‘Main Board General’ Segments (otherwise known as the prime and general segments) to cater for the differing needs of large corporations from smaller ones.

The changes are aimed at reducing delistings and providing attractive prospects for new entrants on the JSE’s market.  

The intention is to achieve this by providing an effective level of regulation depending on the size and liquidity of Main Board issuers, while also maintaining investor confidence in disclosure and the status of existing listed Main Board companies.

116 of the 220 existing Main Board Primary listed issuers are thought to be eligible for segmentation (i.e.52.7%).

The JSE invites comments by close of business on 20 May 2024. 

Proposed changes

  • The definition of ‘Main Board’ is proposed to be amended and read as ‘all securities listed on the Main Board of the List, classified as either in the prime or general segment’.
  • The default position for all Main Board listed issuers is classification in the Main Board Prime Segment. Application must be made to the JSE for classification in the general segment. The general segment affords issuers with a main board primary listing with different application of certain provisions of the JSE Listing Requirements. An application may be made in respect of new listings (if unlikely to be included in the FTSE/JSE All Star Index in the near future) and also by existing issuers (if not included in the FTSE/JSE All Share Index).
  • An issuer in the Main Board General Segment will be reclassified in the Main Board Prime Segment after being a constituent of the FTSE/JSE All Share Index for a period of 12 consecutive months. An issuer in the general segment may apply to the JSE for re-classification to the prime segment at any time.
  • Paragraph 4.59 proposes key reforms for the Main Board General Segment, which are subject to the MOI of the issuer and the Companies Act. The reforms are as follows:
    • the obligation to announce results dealing with condensed financial statements do not apply, and will be limited to the release of the annual report within four months from the financial year-end (rather than the current requirement of three months);
    • the removal of fairness opinions for a specific issue of shares for cash, general authority, specific repurchase, related party transactions and small-related party transactions under certain circumstances, with more emphasis on shareholder approval;
    • a general authority to issue shares for cash does not require shareholders approval if it does not exceed 10% of the issuer’s issued share capital;
    • in respect of specific authority to repurchase securities from parties other than related parties, shareholders approval in terms of paragraph 5.69(b) is not required if the repurchase of shares does not exceed 20% of issuer’s share capital in any one financial year.
    • a pre-listing statement is only triggered for share issuances exceeding 100% (currently 50%) over a three-month period;
    • only one year audited historical financial information is required for the subject of a category 1 transaction (this is currently three years);
    • the preparation of pro forma financial information is not required but a detailed narrative must be provided on the impact of the transaction;
    • in respect of paragraphs 9.20 and 9.21, shareholders’ approval and a circular is not required for transactions of a subsidiary that is listed on the JSE;
    • the category 1 percentage ratio is proposed to be 50% (currently 30%);
    • the material shareholder definition percentage ratio will increase from 10% to 20%;
    • the small-related party transaction percentage ratio is less than or equal to 10%, but exceeds 3% (an increase from the current requirements); and
    • in relation to a new listing, an applicant issuer is not required to comply with paragraph 8.2(d), which is the historical financial information of any category 1 acquisition or disposal effected in the current or preceding financial year.

Conclusion

The JSE is of the view that the process of undertaking corporate actions should be simpler for small companies compared with that for large corporations. Smaller issuers stand to benefit from listing on the general segment as they would have the flexibility to raise capital, since the introduction of a general authority to issue shares for cash would not require shareholder approval, subject to limit and pricing limitations. Further relief is to be provided to smaller issuers in terms of lower levels of applicable cost, regulation and resources.