Picture: JSE
Picture: JSE

With more than R3-trillion invested in the JSE’s debt capital market, there’s no question that investors such as Futuregrowth would demand stiffer protection rules.

While the JSE has built a solid reputation for its regulatory safeguards for equity investors, it has come short in protecting investors in companies’ listed debt instruments with a tighter disclosure regime.

Equity listings requirements require a much higher level of disclosure from companies, including putting out price-sensitive information promptly when it is available, telling investors about changes to boards of directors as well as requiring extensive information from all directors about their experience and integrity.       

Until this week, disclosure rules governing companies with listed debt instruments were far from adequate in ensuring that investors have access to critical information.

It is a major leap forward that the rules for debt securities came into effect this week, broadly forcing companies to disclose as much as is practically possible and adhere to the latest nonlegislative guidelines on corporate governance as laid down in the King IV code.

It has been a long time coming.

But perhaps the biggest catalyst was the state-capture project, a web of despicable corruption and patronage that drained billions from the public purse and ensnared state-owned companies from Transnet and Denel to Eskom and various water boards. Along with the government, state-owned companies are some of the biggest issuers of debt on the exchange.

When investors read in newspapers about a trove of leaked documents detailing how state companies have been used to line the pockets of politically connected individuals, it would be an understatement to say sentiment in boardrooms of fixed-income managers such as Futuregrowth, a unit of Old Mutual, was sour.   

However, it would be naive to expect the new debt listing rules, which had been in the making since 2017, would put an end to corruption in the SOEs. But what it should do is to give investors a bigger window into the companies they’re considering funding in exchange for fixed return.

Such disclosure obligations are already common for equity investors, helping them make sound investment decisions except in rare cases such as the one involving Steinhoff, which was under even stricter disclosure and investor safeguards in Germany where it has its primary listing.  

More often than not, the listing requirements should be able to give Futuregrowth and others a better sense of how prudent it would be to fund companies, especially those owned by the state and with  boards that are minefields of conflict of interest issues as they are filled with cadre deployees and other politically connected individuals.  

Under the new rules, investors will now be able to demand disclosures on how state-owned companies treat political heavyweights such as a president or leader of a political party. In addition, SOEs will be obliged to craft and disclose policies on loans and tenders where related parties are involved.   

Having said that, it’s also easy to sympathise with the sentiment from Futuregrowth and the Association for Savings and Investments of SA (Asisa) that the new rules do not go far enough in protecting investors as borrowers still have the upper hand when it comes to negotiating the terms of loan agreements, but it is investors who need to cough up legal fees if and when the borrower defaults.

But the JSE cannot make everybody happy. It has to strike a fine balance between imposing burdensome regulatory safeguards and protecting investors. It would help nobody, including the JSE — which has faced accusations of lacking impartiality as it earns its profits from listing fees — if more companies become reluctant to sell bonds on the exchange.  

On the whole, the new debt-listing requirements will go a long way to holding companies with debt instruments closer to the standards that have made the JSE’s equity market one of the world’s best regulated.  


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