The JSE Africa Board – a failed project or what?
Business news headlines today have it that the Johannesburg Stock Exchange (JSE) will be scrapping its separate board for sub-Saharan African companies, after a three-year programme that was largely met with lacklustre demand from African firms.
According to a JSE Africa Board marketing brochure issued last year to prospective firms, the JSE cited that the Africa board offered an opportunity to trade on a platform with similar standards to most developed exchanges such as LSE, NYSE and TSX. Furthermore, it also pitched the fact that companies would become visible to investors and South African fund managers that had specific Africa focused mandates such as Investec, Old Mutual (OMIGSA), RMB, BOE and Allan Gray.
Nonetheless, the strategy has been reversed and the JSE is now looking to place sub-Saharan Africa corporates directly onto its main board, or its AltX for smaller companies.
During an interview, Siobhan Cleary, Director of Strategy at the JSE said, “In future, there will be no differentiation between African and non-African companies. For equities, this will mean that we will list the companies on the main board or AltX as applicable. We will also actively market and profile the African companies that are already listed.”
She also added that the JSE has found out that companies wanted to be ranked with sector peers and the Africa Board did not allow this, hampering the enthusiasm of prospective issuers.
Another factor curbing the appetite for an Africa Board listing was the misconception that it was less visible than a main board listing, even though the Africa Board was in fact part of the main board.
There are also sentiments that the JSE Africa Board did not have much success because of South Africa’s foreign exchange regulations.
We opine that the lack of traction on the JSE Africa Board was largely a result of “wrong timing”. The JSE African Board initiative started just before the global financial crisis when appetite for listings was very low and sovereign issues in most African countries stood as a major impediment to such listings.
Furthermore, we note that there were fears by African exchanges and brokers that volumes would be taken away from the smaller frontier markets as there was an argument that local markets should be left to develop first.
Another key issue had to do with compliance to different sets of accounting standards for the JSE versus what would have been needed on local exchanges.
Another school of thought considers competition from global exchanges as a key hindrance. The London Stock Exchange (LSE) for example has been quite aggressive in terms of attracting new African listings as evidenced by increased road shows to Africa by LSE executives.
According to the LSE, African companies have been coming to London for over 60 years, with one of the most recent listings being Egyptian company, Palm Hills Developments SAE, a real estate company. Yesterday, in our daily note we also highlighted that Nigerian tycoon Aliko Dangote was planning to list his USD 11.0bn cement business on the LSE next year.
Overall, we think that the JSE African Board may have come ahead of its time. In a region with markets still trying to grow from a low base, there was bound to be resistance to what may have been perceived as a poaching expedition by big brother JSE.
However, we still are of the view that in the long term, markets will need to look at integration, perhaps first as regional blocs such as what has been done successfully by the BRVM, and what the EAC is looking at doing, so as to ensure enough liquidity to encourage listings and secondary market trading by the large international investors.
Imara is an investment banking and asset management group renowned for its knowledge of African markets.