Stock Exchange Listings

continued

The Listings Requirements

The Listings Requirements are divided
into two parts: the General Principles (a
very short list of points) and the Main Body
( a very thick book of rules).
The General Principles are designed to
inform the interpretation and application of
the main body of rules, and to cover
situations not covered by the main body.
The key theme is investor protection.

General Principles
(i) to ensure the existence of a market for the raising of primary
capital, an efficient mechanism for the trading of securities in the
secondary market, and to protect investors;
(ii) to ensure that securities will be admitted to the List only if
the JSE is satisfied that it is appropriate for those securities to be
listed;
(iii) to ensure that full, equal and timeous public disclosure is
made to all holders of securities and the general public at large
regarding the activities of an issuer that are price sensitive;
(iv) to ensure that holders of relevant securities are given full
information and are afforded adequate opportunity to consider in
advance and vote upon any of the following:
(1) substantial changes in an issuers business operations; and
(2) other matters affecting a listed companys constitution or the
rights of holders of securities;

General Principles
(v) to ensure that all parties involved in the
dissemination of information into the market place,
whether directly to holders of relevant securities or to
the public, observe the highest standards of care in
doing so;
(vi) to ensure that all holders of the same class of
securities of an issuer are accorded fair and equal
treatment in respect of their securities; and
(vii) to ensure that the Listings Requirements, and in
particular the continuing obligations, promote investor
confidence in standards of disclosure and corporate
governance in the conduct of applicant issuers affairs
and in the market as a whole.

The Listing Process

Appointment of professional
advisors
Having taken a decision to list its shares
on the JSE, the first thing a company must
do is appoint professional advisors, some
of which are mandatorily required in terms
of the Listings Requirements, and some of
which are not mandatory but are needed
in order to ensure that the process runs
smoothly.

Professional advisors
The Sponsor:
is mandatory for a listing on the main board of
the JSE.
will invariably be a large merchant bank.
has the primary responsibility to advise the
company on its application for listing, and to
guide the company through the listing process.
has a duty to the JSE to ensure that the
company meets all the requirements set out in
the Listings Requirements.

Professional advisors
liaises between the JSE and the company
during the listing process.
submits all documentation to the JSE on the
companys behalf.

Interestingly, the major sponsors of

companies listing on the JSE are all SA
subsidiaries of foreign banks: JP Morgan,
Merrill Lynch, Deutsche Securities and
UBS.

Professional advisors
The Corporate Advisor:
usually appointed, but not mandatory.
often, this role is filled by the same bank that
acts as sponsor.
advises the listing company on the timing,
size and pricing of its share offer.
works together with the legal advisors in
drafting the listing documentation.
markets the share offer to the investment
community (book building).

Professional advisors
if the shares are to be introduced to the
market via a placing, arranges the placing.
if the shares are to be introduced via a public
offer, the corporate advisor will either
underwrite the offer itself, or arrange for one
or more other banks to underwrite it.

Professional advisors
The Legal Advisor:
not always mandatory, but always appointed in
practice.
has primary responsibility for drafting all the
listing documentation (eg. prospectus), which
must comply with the Listings Requirements.
drafts all the ancillary contracts, for example
between the company and the underwriter.
will usually have a large number of other
contracts and agreements to draft, eg. share
option schemes for the directors / employees.

Professional advisors
Note that although it is not always
mandatory to have a legal advisor to
advise the firm on the listing process, it is
mandatory for the firm to have an attorney.
Section 7.B.13 requires the firm to
disclose the name and address of its
attorney, which implies that an attorney
must be appointed.

Professional advisors
Where the listing is taking place in such a
way that a prospectus has to be issued
(bear in mind that a prospectus is not
always obligatory see Section 6 of the
Listings Requirements) then a legal
advisor must be appointed, as the advisor
must issue a certificate confirming that the
prospectus complies with the Listing
Requirements (see s.16.10(d)).

Professional advisors
Accountant:
it is mandatory for the company to appoint a
registered accountant and auditor to report on
the financial position of the company over the
past three years, and the financial data which
is included in the prospectus.

Professional advisors
Transfer Secretaries:
the company must appoint a firm of transfer
secretaries to set up and manage the share
register, issue share certificates, and mail out
company circulars and reports.

Computershare is the largest international

firm of transfer secretaries, and has a
dominant position in the SA market.

Professional advisors
Technical Advisor:
mining and mineral companies are required to
appoint a technical advisor to report on the
companys exploration and/or mining
activities. The report must be included in the
prospectus. (Section 12 of the Listings
Requirements deals specifically with mineral /
mining companies).

BEE Codes of Good Practice

General principles of
interpretation
Contained in schedule 1 to the Codes:
In the event of uncertainty, give preference to a
reasonable interpretation consistent with the
objectives of the Act.
Words referring to persons should be
interpreted widely to include individuals,
partnerships, companies, trusts, government
agencies, etc.
Schedules and annexes are integral parts of the
Codes.

Important definitions
Entity: a natural or juristic person
conducting a business, trade or profession
in South Africa.
Measured entity: an entity or an organ of
state, which is subject to measurement
under the Codes.
Qualifying small enterprise (QSE): an
entity with a turnover of between R5m and
R35m per annum (future: R10-50m).

Important definitions
Exempted micro-enterprise (EME): an
entity with a turnover of less than R5m per
annum (future: R10m).
Black people: Note that the current
definitions in the Act and the Codes are
different. The Act defines black people as
African, Indian or Coloured people. The
Codes define black people as African,
Indian or Coloured South Africans.

Future definitions (s.1 of Act)

black people means Africans, Coloureds, and
Indians
(a) who are citizens of the Republic of South
Africa by birth or descent; or
(b) who became citizens of the Republic of South
Africa by naturalisation
(i) before 27 April 1994; or
(ii) on or after 27 April 1994 and who would have
been entitled to acquire citizenship by
naturalisation prior to that date but were
precluded from doing so by Apartheid policies.

Code 000
Code 000 sets out the general framework
for measuring BEE, the eligibility criteria
for qualifying as an EME or a QSE and the
generic scorecard for measuring BEE.

Exempted micro-enterprises
EMEs are businesses with annual turnover
of R5m or less (in future R10m or less).
EMEs automatically have a BEE status of
level four contributors and procurement
recognition of 100%.
If the EME is more than 50% owned by
black people (ie. black South Africans) it is
a level three contributor with procurement
recognition of 110%.

Qualifying small enterprises

QSEs are businesses with annual turnover
of R5m R35m (in future R10m - 50m).
A QSE may select any 4 of the 7 elements
of the BEE scorecard for purposes of
measuring its compliance in terms of the
QSE scorecard contained in Code 800.

The generic scorecard

The objective is for any business to be able
to determine its BEE contributor status by
working out a score out of 100, based on
the seven elements of BEE, each of which
has a different weighting in the scorecard.
The weightings are:
Ownership: 20%
Management control: 10%
Employment equity: 15%

The generic scorecard

Skills development: 15%
Preferential procurement: 20%
Enterprise development: 15%
Socio-economic development: 5%

Depending upon the number of points the

business scores, it is then assigned a
contributor status which is in turn linked
to a procurement recognition level.

Adjusted generic scorecard

Note that statement 004 of Code 000
contains an adjusted scorecard which
applies to entities which do not fit within
the normal definition of a business, eg.
universities and non-profit organisations.
QSEs have their own scorecard, which is
set out in Code 800.

The Future
The draft future Codes reduce the number
of elements from 7 to 5, by merging
Management Control and Employment
Equity into a single element (to be known
just as Management Control) and by
merging Preferential Procurement and
Enterprise Development into a single
element (to be known as Enterprise and
Supplier Development).

The Future
The proposed future weightings are:
Ownership: 25%
Management control: 15%
Skills development: 20%
Enterprise and supplier development: 40%
Socio-economic development: 5%
(Note that these total 105%)

Future priority categories

It is proposed that there will be 3 priority
elements: ownership; skills development;
enterprise and supplier development.
Large companies will have to meet at least
40% of their target in each element (QSEs
must meet 40% ownership plus one of the
other 2), or face a downgrade of 2 levels
for large companies and 1 level for QSEs.
Ownership is problematic for foreign
multinationals doing business in SA.

BEE Contributor Status

100 points: Level 1 contributor, 135%
procurement recognition.
85-99 points: Level 2 contributor, 125%
procurement recognition.
75-84 points: Level 3 contributor, 110%
procurement recognition.
65-74 points: Level 4 contributor, 100%
procurement recognition.

BEE Contributor Status

55-64 points: Level 5 contributor, 80%
procurement recognition.
45-54 points: Level 6 contributor, 60%
procurement recognition.
40-44 points: Level 7 contributor, 50%
procurement recognition.
30-39 points: Level 8 contributor, 10%
procurement recognition.

BEE Contributor Status

0-29 points: non-compliant contributor, 0%
procurement recognition.
Why does contributor status matter?
Because the state and state-linked entities
(eg. municipalities) take it into account in:
Awarding tenders
Granting licences and concessions
Entering into public-private partnerships
Selling state-owned entities or assets

The Future
The draft new Codes propose raising the
number of points required for each
contributor level except level 1. This is the
subject of on-going lobbying by
businesses whose contributor levels will
fall if the proposals are brought into effect.

The weight of the BEE score

Bear in mind that in, for example, awarding
tenders or granting licences, the BEE
score will usually carry a relatively small
weighting in the overall decision-making
process (10% or 20%). Other factors
might include:
Price (invariably the dominant factor).
Functionality (track record for similar projects).
Capacity to create new jobs.

Measurement of BEE status

Verification
There is no mandatory rule which makes it
compulsory for any business to have its
BEE status verified. In other words, a
business is entitled to work out its own
BEE score, and then advertise that score
to potential business partners.
BUT, in practice no-one will accept any
BEE status unless it is confirmed by an
accredited verification agency.

Verification
The South African National Accreditation
System (SANAS) grants accreditation to
verification agencies (which are private
companies) which in turn audit businesses
for BEE compliance, and issue BEE
verification certificates.
The certificate serves as conclusive
evidence of a businesss compliance
status.

The Future
It is intended that in future the IRBA (the
regulatory body of the auditing profession)
will be the B-BBEE Verification Professional
Regulator, and will regulate the BEE
verification industry.

Test reminder
The test will be next Thursday (24
October) at 07h45 in the Great Hall.

Ownership
Code 100

Introduction
Each of the 7 existing (5 future)
elements of the BEE scorecard is
allocated a code, which sets out how
that element of the companys BEE
score is to be calculated.
As an example, we will look at the
Ownership element, which is set out
in Code 100 in both the existing and
the proposed future systems.

Weighting
The ownership element currently counts
for 20 points out of 100 in calculating
the BEE score of a large* company.
In future, it is proposed that ownership
will count for 25 out of 105 points.
*Note that codes 100-700 (current) and
100-500 (future) do not apply to EMEs
and apply indirectly to QSEs.

Components of Ownership
The ownership category is divided into 7
sub-categories, each of which has a
maximum number of points (currently
totalling 20, in future 25) and a compliance
target.
For example, exercisable voting rights in
the enterprise in the hands of black people
will count for 4 out of the 25 ownership
points (currently 6 out of 20 points), with a
target of 25% plus one vote.

Components of Ownership
So if 25% plus one vote (or more) of
the exercisable voting rights are in
the hands of black people, the
company will get 4 points. If black
people have less than 25% plus one
vote, the 4 points will be reduced
proportionally.

The new sub-minimum

Once the scores for each of the 7
components of ownership have been
calculated and added up, there will be
an overall ownership score out of 25.
It is proposed that in future all
companies except EMEs must score at
least 10 out of 25 (ie. 40%) on
ownership, failing which large companies
will be reduced by 2 levels, and QSEs by
1 level of BEE contributor status.

Adjusted recognition for gender

Note that while, as a general principle,
the proposed amendments to the Act and
codes remove the adjusted recognition
for gender (ie. extra points for black
women) from most areas of BEE, the
proposed new ownership scorecard still
allocates up to 4 points specifically to
voting rights (2 points) and economic
interest (2 points) in the hands of black
women.

The Exam

Time and Place

Friday 1st November
08h30
Mullins

Format
2-hour paper
Counts 70% of the total mark in the course
(assignment 15%, test 15%)
70 marks (1,7 minutes per mark)
3 questions. All must be answered.

Content
Q1: divided into (a) and (b) for 15 marks
each (total 30 marks). Part (a): is a
double case note in which you are asked
to discuss two connected cases, and
express a view on them. Part (b): is a
problem-type question dealing with an
aspect of the FMA.
Q2: divided into (a) and (b) for 10 marks
each (total 20 marks). Part (a): is on BEE.
Part (b) is on takeovers.

Content
Q3: is a 20-mark question covering a
range of competition law issues.