Policy change helps JSE to entice foreign listed mining companies
Monday, 6 February 2012: A recent policy change by South Africa’s National Treasury makes it easier for South African investors to trade in foreign domiciled companies and the Johannesburg Stock Exchange now considers these companies eligible for inclusion in domestic indices. “This means that inward or dual listed shares on the JSE will be classified as domestic assets and they will attract increased investment interest,” says John Burke, head of Issuer Regulation at the Johannesburg Stock Exchange.
“This augurs well for the JSE attracting further resource listings and we look forward to meeting the international mining companies with assets in Africa during Mining Indaba. On account of the policy change, both retail and institutional investors will have more flexibility and this could increase liquidity in dual listed shares.”
Franco Lorenzani, CEO, Macquarie First South Securities South Africa explains, “Inward listed shares have traditionally attracted low volumes due to the limits imposed on foreign exchange allowances. Now the investment decision is based on merit rather than the shackles of regulatory issues and dual listed companies will be able to raise capital more easily in South Africa. There’s demand for commodities particularly out of Asia and other markets and this change was imperative to encourage investment in the region. National Treasury, the Reserve Bank and the JSE are to be applauded for tackling the issue as South Africa and the continent will benefit with increased employment, revenue and the social benefits of mining.”
Euan Worthington, chairman of DiamondCorp plc (listed on AIM and JSE Main Board) and deputy chairman of African Eagle Resources (listed on AIM and JSE AltX), says of dual listings on the JSE: “The process was uncomplicated, the Reserve Bank put no hurdles in our way and institutions were very receptive to our African story.”
Forbes Coal, which listed on the JSE in July 2011, has a primary listing on the Toronto Stock Exchange with a head office situated in Toronto. According to Stephan Theron, the CEO, “This gives us access to North American investors for early stage mining projects. We listed on the JSE as a South African Reserve Bank requirement but also to gain access to the South African investment community.
“The pre-listing experience was good; the JSE team was world class. Post-listing has been relatively good. We have yet to raise capital since our listing, thus the float of shares trading on the JSE is small. We will however consider raising funds out of SA which will allow us to increase the size of the share register on the JSE. If companies consider doing a dual listing I would recommend coinciding the listing with a capital raise.”
Sasfin Capital has approximately a quarter of its clients inward listed with primary listings in jurisdictions including TSX, ASX and LSE. Sasfin brought two inward listings to the JSE during 2011 – Forbes Coal as well as Ferrum Crescent (an iron ore project developer listed on ASX, AIM and since November 2011, JSE Main Board).
Sarah Williams from Sasfin Capital explains that their business has extensive experience in the listing process as well as ongoing compliance. “The process for an inward listing is very similar to that of a primary listing from a regulatory point of view with a number of added complexities, particularly in terms of creating liquidity in the South African market. We have worked closely with the JSE and various stockbrokers to find ways to improve the market’s perception of investing in inward listings.
“The recent relaxation by Treasury will go a long way to resolving these issues, and we believe that this creates a good opportunity for offshore companies with South African assets to list on the JSE and take advantage of these capital markets.”
If a company is already listed elsewhere, a secondary listing can be fast-tracked as the JSE recognises exchanges that are members of the World Federation of Exchanges. For mining companies, the specific additional requirements include a Competent Persons Report and the application needs to be compliant with one of these codes: SAMREC (South Africa) JORC (Australia), Ni 43101 (Canada).
South Africans, compared with the British, Canadian and Australians, tend to be more risk averse when considering resource stocks. However, according to the JSE’s John Burke, “South Africans are increasingly becoming more educated and understand that with exploration initiatives if an investor doesn’t get in early, he will not satisfactorily participate in the future returns of that business.”
The JSE also makes a considerable effort to expose its listed companies to both local and international fund managers and funds. During Mining Indaba, this year as in other years, two showcases are held which teach investors how to invest in mining companies and then give audiences the opportunity to hear from and meet senior mining company executives. These events are free and booking may be done at www.jse.co.za/events.
Burke continues, “The message that the JSE will share with companies with African assets is that there is capital in South Africa. The JSE has a responsibility to provide an enabling environment in which South Africans and Africans can benefit from their resources and companies operating here.
“The basic hygiene factors are in place. These include a sound macroeconomic environment, securities market regulation rated first in the world by the World Economic Forum, technology provided and operated by the London Stock Exchange, strong surveillance capabilities where we see to client rather than broker level and international best practice in terms of corporate governance. In terms of clearing and settlement, the JSE rates highly in terms of settlement risk .”
Burke concludes, “The reality is that if a business has projects in Africa, the JSE should be a viable preferred destination to list the business and raise capital for that project.” ENDS