EDITORIAL: With Coke on the way, let’s hope JSE will attract new suitors
Earlier this week, Coca-Cola hosted investors in a briefing to give them an overview of its SA-based African bottling division, where it operates, its strategy and a bit about its financial health.
The briefing came as the soft-drink giant plans to float the bottling unit, known as Coca-Cola Beverages Africa, in Johannesburg and Amsterdam, and it is safe to surmise that its initial public offering is on track.
That is good news. The listing, estimated to value the bottling division at more than R120bn, should boost the ranks of blue-chip consumer industry counters dominated by Shoprite, Tiger Brands and Pick n Pay.
Sadly, it won’t be enough to make up for what the JSE has lost or is due to lose due to a spate of delistings that, from where we stand, is nothing short of a crisis even as the boss of the exchange operator, Leila Fourie, disagrees.
Coca-Cola Beverages Africa will join the rapidly shrinking JSE. The number of companies listed on the bourse has dropped by more than half over the past 30 years to just under 300 with more than 14 companies leaving the bourse on average each year.
We are likely to see the departure of sizeable companies like Distell, a wine and cider maker in the middle of being bought out by Heineken, and Imperial Logistics, the shareholders of which overwhelmingly approved a takeover offer from DP World.
Sure, investors can still access a reasonably wide range of companies, and the JSE is still the main facilitator of large-scale funding to businesses. It is also true that a vast majority of small companies that leave the bourse tend to be overlooked, undervalued and discounted because their shares are tightly held by founders, making it difficult for investors, big and small alike, to easily get in and out.
Furthermore, the increasing popularity of cheaper exchange traded funds (ETFs), which tend to be benchmarked on large-cap companies, have undermined the logic of researching obscure small companies to determine if they will be the next Capitec.
Still, there is cause to be concerned for savers, the wider economy and the bourse operator itself. To begin with, a shrinking universe from which pension funds, compelled by law to invest a big portion of their clients’ money in domestic stocks, means there is less to choose from to prudently guard against risk.
For the wider economy, a stock market that is unable to retain or attract new listings, limits options for companies to raise capital for expansion at a time when the cash-strapped government’s economic revival project rests on private sector-led investment spending.
A shrivelled stock market also matters for the bourse’s operator as a business as the JSE earns its income from listed companies. No wonder Fourie is on the hunt for new income streams including striking up partnerships in Southeast Asia, where it hopes to attract new inbound dual-listings, and widening the range of ETFs and other products it offers.
It might be tempting to think the best way to stop the bleeding is for the government to block takeovers or the JSE to lower its listing standards. Thankfully, it is unlikely the former would happen as a reaction to the stagnation as there is no legal framework for it. But calls for the JSE to relax its standards are getting louder and louder.
The JSE’s listing rules, contained in almost 500-page document, have been cited by some small companies for choosing to leave. Add the almost 200-page Companies Act, the 84-page Financial Markets Act, and another 120 pages (at least) of the King IV Code, and it is easy to sympathise with growing frustration that being publicly traded is not worth the cost of hiring an army of compliance officers.
So, there is scope to cut red tape without allowing just about anything to come to the market. After all, listed companies consistently score higher than their privately held counterparts on issues such as anti-corruption, governance and transparency.
Who knows, Coca-Cola Beverages Africa could soon be joined by a cohort of promising start-ups like Gol, a corporate education content hub that recently became SA’s first start-up to earn the coveted “unicorn” status.
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