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Johannesburg Stock Exchange goes pan-African
In a move which is symbolic of South Africa’s increasing involvement in the rest of the African continent, the Johannesburg Stock Exchange (JSE) is taking significant steps to bring the stock exchanges of Africa closer and to improve the tradeability of stocks in African companies.
South Africa’s JSE is a giant compared to its sister exchanges on the continent, mirroring the size of South Africa’s economy in relation to the rest of Africa and the number of pan-African deals originating from South Africa. The JSE has a market capitalisation of over $280 billion, with 165 listed companies. Next largest is the Moroccan exchange, with a market capitalisation of $62 billion, followed by the Nigerian stock exchange with $33 billion.
In its first step towards pan-Africanisation, in October 2008, the JSE launched the FTSE/JSE All Africa 40 Index and the FTSE/JSE All Africa ex South Africa 30 Index. These indices are of special interest to Africa focused funds, as they show the performance of top African companies by providing investors with comprehensive, replicable and transparent indices, measuring the performance of the major capital and industry segments of the African continent. The first index shows the top 40 largest eligible companies listed on qualifying African stock exchanges (which include South Africa, Botswana, Egypt, Ivory Coast, Kenya, Mauritius, Morocco, Nigeria and Tunisia). The second index provides an adjusted picture by excluding economically dominant South Africa.
The second step came on 19 February 2009, with the launch of the JSE’s Africa Board. The Board allows investors access to the Africa market via a secure, accessible and regulated trading platform. The African Board utilises the JSE’s efficient trading, clearing and settlement systems. It is intended that companies on the Africa Board retain their local listing, if they have one, and take a secondary listing on JSE’s Africa Board. The JSE shares its trading revenue with the local exchanges. South African stock brokers are encouraged to enter into brokerage sharing agreements with brokers on the rest of the African continent, to preserve the spirit of “what’s good for the Africa Board is good for the other African exchanges”.
Africa Legal’s experience working with listed entities in Africa suggests that, from a legal perspective, the establishment of the Africa Board will have a positive impact on pan-African investment. The Africa Board will lead the way towards increasing harmonisation of the rules applicable to listed companies on African exchanges, and the practices surrounding those rules. For example, some of the smaller exchanges in Africa have very limited exposure to events which are uncommon on those exchanges but which are significant from a regulatory perspective. For example, the practices surrounding the issuing of cautionary announcements are sometimes inconsistent. Similarly, the regulatory treatment of off-market transactions (i.e. the sale and purchase of securities of listed entities which by-pass exchanges completely) may be uncertain due to lack of precedent. In these and similar cases, practitioners - and the exchanges - will find it very useful to refer to the rules and practices of the JSE, where relevant precedents familiar to international lawyers are often much more clearly established.
Another benefit of the Africa Board is likely to be in the improvement of corporate governance, flowing from the minimum Africa Board Listing requirements.
The primary economic benefit of listing on the JSE Africa Board as well as on a local exchange is that the JSE is accessed by a significant number of foreign investors, which is not the case on many of the other African exchanges. This factor, together with the much larger trading volumes and extended trading hours on the JSE, is expected to increase the liquidity of shares. Visibility to investors is also increased because the JSE, apart from being well recognised internationally, offers road shows and marketing events.
The Africa Board only lists “African” companies, which here means those domiciled in Africa or whose activities take place in Africa, or those domiciled outside Africa, but the majority of whose activities take place in Africa.
Africa specialised practitioners, including we at Africa Legal, hope that the Africa Board will increase the prestige and visibility of leading African listed companies. This, together with improved information and monitoring relating to those companies, will help to facilitate inward investment into Africa from the rest of the world. The beneficiaries of this investment will include not only the existing and prospective investors on the exchanges, but also the various African exchanges themselves, as well as brokers and professional advisers. Above all, the main beneficiaries will be the listed African companies, whose ability to attract capital will be enhanced.
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Julian Jackson Director, Africa Legal
Africa Legal Team
The Africa Legal team includes English solicitors, South African attorneys, and French, Hong Kong and Zimbabwean qualified lawyers. All team members have extensive pan-African deal experience and share a special interest and expertise in Africa. Click on the names or faces of the team members to see their résumés.