The JSE has issued a consultation paper proposing changes to the Listings Regulations to cut red tape and achieve an effective, fit-for-purpose set of regulations for financial markets
In March 2021, the JSE released a consultation paper to obtain input from market participants and stakeholders on proposed changes to the Listings Requirements, prior to actual amendments going through the formal process. This is the second consultation paper issued by the JSE. The previous consultation paper was issued in September 2018 and focused on improving the regulation of primary and secondary listings. It resulted in final amendments to the JSE Listings Requirements, which came into force in December 2019.
Key areas of focus in the latest consultation paper include the approval required for transactions in the normal course of business, share repurchases, capital raising by bookbuilds, allowing directors to follow a rights offer during a closed period and removing the obligation to publish an abridged version of the issuers' financial results on SENS. Other proposals relate to the removal of the requirements for (i) pro forma financial information in the case of a disposal by the issuer; (ii) revised listing particulars in the case of certain acquisition transactions; and (iii) a working capital statement to be included in the circular on category 1 disposals, where the consideration is paid in cash.
The JSE proposes the following measures for discussion in relation to these key areas:
- Enhancing the "ordinary course of business" exemption for category transactions and related-party transactions. The Listings Requirements currently provide certain exemptions from the requirements applicable to category transactions and related-party transactions, which include publication of a circular and/or shareholder approval of the transaction. One of these exemptions applies to transactions in the ordinary course of business, where the transaction's consideration is equal to or less than 10% of the issuer's market capitalisation. The JSE proposes that transactions in the ordinary course of business should no longer be subject to the categorisation requirements. Alternatively, the JSE is considering increasing the threshold from 10% to 30%, so that transactions that fall within the ordinary course of business will only require shareholders’ approval when they are categorised at (or above) 30%. In any event, issuers will still be required to engage with the JSE to determine whether their transaction falls within the "ordinary course of business" exemption and the JSE will make the final determination. The JSE believes the proposal will afford issuers more flexibility when conducting their business from a cost, timing and resources perspective. It will also bring the JSE in line with the London Stock Exchange’s requirements, which provide for a similar exemption, however without the 10% limitation. The JSE also proposes that ordinary course of business transactions with related parties should be announced through SENS, and deal with the pertinent details of such transactions.
- intragroup repurchases of securities. The JSE proposes to remove the application of the Listings Requirements and the required shareholders’ approval on intragroup share repurchases, provided the share repurchases take place (i) between the issuer and its wholly-owned subsidiaries; or (ii) between the issuer and Schedule 14 share incentive schemes (share schemes controlled by the issuer to incentivise employees and approved by the JSE). The JSE states that any repurchase of securities must also comply with the provisions of sections 46 and 48 of the Companies Act. In addition, the effect of an intragroup repurchase as described above is different from other repurchases because there is no money leakage form the issuer's group and no impact upon the earnings per share, headline earnings and net asset value per share, nor does it benefit one shareholder over another. The JSE argues that it has no active regulatory role to play, other than through disclosure of the repurchases in the annual report.
- Capital-raising through general issues of shares for cash. The JSE proposes to allow related parties to participate in issues of shares for cash pursuant to general authorities, subject to certain conditions. Currently, the Listings Requirements prohibit related parties from participating under a general issue for cash authority, which can severely limit the benefits of a bookbuild by eliminating potential participants who could be interested in providing capital to the issuer (e.g. holders of more than 10% of the share capital). One of the most common capital-raising methods in the market is the bookbuild process, often on an accelerated basis, which allows issuers to achieve the best price at which to issue shares to shareholders and/or investors. However, related parties of the issuer could possibly influence the price at which shares may be issued during the bidding process, more so when they hold a material interest in the issuer. For that reason, the JSE proposes that related parties may only participate in a bookbuild capital-raising process by putting in a bid “at best”, where related parties are excluded from a price formation bidding process. They may only take up shares once the final issue price has been determined on the completion of the bookbuild process. This will result in related parties being permitted to take up shares under a general issue of shares for cash authority through a bookbuild process, but only on the basis that they are price takers (at best), not price makers. The shareholder resolution granting the general authority to issue shares for cash will need to clearly state the fact that related parties are allowed to participate in the offer.
- Directors' participation in rights offers during closed periods. The Listings Requirements preclude directors, prescribed officers and company secretaries (excluded parties) from participating in a rights offer during a closed period (a timeframe from a financial period end until the date on which the relevant financials of the issuer are published or any period where the issuer is trading under a cautionary announcement). The JSE recognises that not allowing excluded parties (who hold shares in the issuer) to participate could negatively impact the issuer’s ability to raise cash, since the excluded parties are often considered to be natural contributors of cash to the issuer. The JSE proposes to remove the limitation on excluded parties following entitlements pursuant to a rights offer during a closed period. This proposal would bring the JSE in line with the London Stock Exchange requirements. The JSE is also considering extending this proposal to capitalisation issues and scrip dividends;
- No abridged report on published audited information. The JSE proposes to remove the requirement to publish an abridged report of the financial results on SENS when the issuer has published its audited annual financial statements. The abridged report provides no additional value when the annual financial statements and the short-form results announcements have already been published.