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South Africa: JSE Simplification Project – a rewrite of the JSE Listings Requirements

3 October 2023
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Overview

  • The Johannesburg Stock Exchange (JSE) is proposing a complete rewrite of its JSE Listings Requirements (Requirements) in terms of a Simplification Project which has recently commenced and is expected to run over the next 18 months.
  • A staggered consultation process has commenced, the first stage of which concerns: Section 1 (General Powers of the JSE); Section 2 (Sponsors and Designated Advisers); Section 9 (Transactions); and Section 10 (Related Party Transactions).
  • This article provides a summary of key proposed changes.

The Johannesburg Stock Exchange (JSE) is proposing a complete rewrite of its JSE Listings Requirements (Requirements) in terms of a Simplification Project which has recently commenced and is expected to run over the next 18 months.

Click here to access a dedicated portal made available by the JSE to provide detailed information.

A staggered consultation process has commenced, the first stage of which concerns Section 1 (General Powers of the JSE); Section 2 (Sponsors); Section 9 (Transactions); and Section 10 (Related Party Transactions). The JSE invites comments by close of business on Monday, 23 October 2023.

A summary of key proposed changes follows below.

Section 1 (General Powers of the JSE)

  • ‘Regulated Parties’ definition: a new definition of ‘Regulated Parties’ has been proposed. This aims to cut down repetitive references to issuers, directors, officers, employees and agents, by rather including these in the definition of ‘Regulated Parties’.
  • Requirements’ definition: ‘Listings Requirements’ are proposed to be defined simply as ‘Requirements’.
  • JSE’s discretion to enforce requirements removed: it is proposed that the JSE’s discretion to modify the application of the Requirements be removed. This is currently applicable where the JSE considers strict application to conflict with the general principles. This aims to ensure that the JSE is more stringent in its approach of enforcing the Requirements, as required by the Financial Markets Act of 2012 (FMA).
  • Suspensions and removals of securities consolidation: the current position is to follow different approaches, depending on whether the JSE or the issuer initiates the procedure. The proposal is to consolidate the procedures so that the JSE and issuer will be able to initiate the process under similar circumstances.
  • Suspensions and removals of securities scope of application: this proposal expands the application of the provisions to have a similar application for foreign issuers in terms of equivalent legislation. For example, the amendment would:
    • allow for the removal of a listing of securities where a foreign issuer has been involved in something similar to a takeover or a scheme of arrangement resulting in all securities being acquired in a South African context, where the JSE is then satisfied that the issuer no longer qualifies for a listing; or
    • result in the suspension of the listing of securities where a foreign issuer undergoes something similar to a winding-up/ liquidation event or a business rescue.
  • Disclosure and publication requirements: these requirements may be amended to align with the FMA.

Partner, Nanga Kwinana, says: ‘The proposed amendments to section 1 of the JSE Listings Requirements will be particularly welcome to dual listed issuers, and issuers considering a secondary inward listing on the JSE in future. Recently, many acquirers of dual listed issuers have experienced frustration with the complexity of delisting from the JSE in comparison to the relative ease of establishing and maintaining a secondary inward listing on the JSE. These provisions clarify the position regarding the delisting of a secondary listed issuer pursuant to a foreign corporate action and align this process more closely with the intended purpose of the provisions while also ensuring credible protection for the position of shareholders on the JSE. The previous position was cumbersome and led to uncertainty as in some transactions the JSE, in principle, allowed issuers to delist voluntarily subsequent to the implementation of a foreign scheme of arrangement, while in other transactions, subsequent to a foreign scheme of arrangement, the issuer would be delisted in a JSE-driven process as it would fail to meet the spread requirements in order to remain listed. We are in the process of delving deeper into the potential consequences of these changes and will advise clients accordingly.’

Section 2 (It is proposed that ‘Sponsors’ are renamed ‘Sponsors and Designated Advisers’ as their responsibilities are almost identical)

  • Form portal: Schedule 2, dealing largely with administrative forms, is proposed to be removed from the Requirements and replaced with a dedicated forms portal on the JSE website, which will house JSE forms.
  • Designated Advisers (DAs): These are proposed to be removed from Section 21 and consolidated into Section 2. Currently, Section 2 only refers to sponsors and their application process and responsibilities. The proposal intends for DAs and sponsors appointment processes and responsibilities to apply equally, except where otherwise stated.
  • Trigger for significant interest: this proposal intends changing the trigger for a sponsor’s significant interest in an issuer from 3% to 10%. If triggered, this would preclude the sponsor from advising that issuer. A higher trigger threshold would allow fewer sponsors to be caught by the section.
  • SENS announcement when terminating the services of a sponsor: the proposed amendments are to remove the current requirement to have a SENS announcement when the services of a sponsor are terminated.
  • Working capital statement: this proposal is to no longer require a working capital statement from a sponsor. The rationale is that it is not necessary for a sponsor to provide such a statement, as this falls within the ambit of the board’s responsibilities.

Section 9 (Transactions)

  • Timing for categorising a transaction and the terms announcements of transactions: the proposed amendments seek to achieve consistency regarding the timing for categorising a transaction and the terms announcements of the transaction. Currently, there is different wording used, which regulates the timing for categorising a transaction and the terms announcements. The amendment would make the following clarification:
    • categorisation of a transaction ought to take place before the announcement of terms; and
    • the terms announcement must be done as soon as possible after the terms have been agreed (which aligns with the London Stock Exchange).
  • Categorisation of options: the proposals would simplify options categorisation. The existing paragraph 9.1(b) creates much uncertainty and is proposed to be deleted. The proposal is that where the right to exercise an option is at the issuer’s discretion, the transaction must be categorised when the option is exercised and only the premium/ consideration for the option must be categorised on the date of granting or acquiring the option.
  • Relaxation of consultation requirements/ requesting a JSE ruling: the proposed amendments intend to remove several paragraphs, which currently allow a party to consult with the JSE and ask for a ruling on whether or not a transaction is subject to the Requirements. The JSE is of the opinion that this is a general enabling provision of no regulatory value. However, the JSE intends to remain open for discussions and rulings in interpretation, especially where complexities exist. Similarly, portions of paragraphs specifying that (a) an issuer should consider the categorisation of a transaction early; and (b) the JSE should be consulted early to discuss reverse takeovers or aggregations and obtain a ruling, if necessary, are proposed to be deleted as they add little to no regulatory value.
  • ‘Reverse Takeovers’ definition: the JSE intends to add a definition of ‘Reverse Takeovers’. One of the effects of adding this definition is that it will adequately deal with what is currently contemplated in paragraph 9.23, which will become unnecessary and is therefore proposed to be deleted. Currently paragraph 9.23 directs that the issuer, as enlarged by the acquisition, must be suitable for listing as if it was a new applicant and must satisfy the conditions for listing as set out in Section 4.

Section 10 (Related Party Transactions)

  • ‘Fairness opinion’ definition: it is proposed that a definition of ‘fairness opinion’ be added, which refers to Schedule 5 and reduces any uncertainty as to Schedule 5’s applicability.
  • ‘Related party’ definition: it is proposed that the ‘related party’ definition be amended to include reference to the wider ambit of managers. This will include an ‘asset manager or management company of an issuer’ as opposed to the currently applicable ‘asset manager or management company of a property entity’. Effectively, this means that any management company of the issuer will be included in the definition of related party and not only those management companies who form part of a property entity. Notably, any reference to their controlling shareholders remains unchanged.
  • ‘Related party transaction’ definition: it is proposed that the ‘related party transaction’ definition be amended, which is currently dealt with at paragraph 10.6. This amendment would introduce an LSE concept of a transaction with any other person, which transaction’s purpose and effect would be to benefit a related party. These related party transactions would then be subject to more onerous requirements.
  • ‘Related party transactions’ to include financial assistance to directors: loans and financial assistance to directors have been the subject of much abuse. Therefore, the JSE proposes adding loans and other financial assistance to directors, pursuant to Section 45 of the Companies Act, to the scope of application of related party transaction.
  • Removal of fairness opinion for a Category 1 transaction with a related party: it is proposed that the requirement to procure a fairness opinion for a Category 1 transaction with a related party be removed. The JSE believes that there are sufficient safeguards in place to allow for the relaxation of this requirement, as follows:
    • full particulars of the related party and terms of the transaction must be provided to shareholders through a Category 1 circular;
    • related parties and their associates are excluded from voting on such matters;
    • far lower shareholder approval thresholds apply to related party transactions (shareholder approval for a related party transaction commences at a 5% categorisation threshold, which is much lower than that which is applicable to non-related party transactions which commences at a 30% categorisation threshold. This affords far greater and direct shareholder participation for a related party transaction to proceed or not);
    • the independent members of the board are required to express an opinion on the corporate governance processes that were followed to approve the related party transaction; and
    • the provisions of small-related party transactions (between 0,25%-5%) remain unchanged as regards the preparation of a fairness opinion.