Eduan Kapp
February 2, 2023
The Cape Town Stock Exchange (CTSE) was originally launched as 4AX in 2016, and subsequently relaunched as CTSE in October 2021 and is one of only two exchanges in the country with a licence to list both equity and debt
Its head office is in Cape Town but they have presence in Johannesburg, and work with businesses all over the African continent. CTSE adopted modern, scalable technology to reduce the cost and increase the efficiencies for companies issuing equity and debt. It is a completely digital exchange with a cloud based platform offering simple, transparent and secure listing and trading.
Importantly, the CTSE has its own in-house registry (run off its own registry technology), reducing cost and cutting through red tape.
All CTSE group entities are 58.38% black owned, qualifying as exempted Micro Enterprises and are Level 2 B-BBEE Contributors with 125% B-BBEE procurement recognition.
Importantly, the CTSE has its own in-house registry (run off its own registry technology), reducing cost and cutting through red tape.
All CTSE group entities are 58.38% black owned, qualifying as exempted Micro Enterprises and are Level 2 B-BBEE Contributors with 125% B-BBEE procurement recognition.
When compared to the Johannesburg Stock Exchange (JSE), listing on CTSE offers specific benefits –
As a licensed exchange for both equity and debt, CTSE offers issuers the opportunity to be closer to the head offices of several institutional investors and pension funds.
Equity is accommodated through general listings, new ventures, discretionary investment companies (i.e. PE funds), non-discretionary investment vehicles (such as BEE schemes) and international issuers. CTSE offers investor diversification through bonds issuances, offering companies benefit from having the distant relationship between issuer and bondholder as opposed to the traditional bank funding relationships. Generally, the bond market offers bondholders a measure of legal protection relative to equity investors. Further, CTSE has amended its Debt Listing Requirements and established the Default Protection Fund for the protection of investors. Investors may utilize the Default Protection Fund to institute a claim against an issuer resulting from any issuer default.
Debt listing options include preferential share issues, bonds and notes, debentures, commercial paper as well as fixed and/or floating rate instruments. The CTSE debt market provides an efficient platform relative to the incumbent JSE debt market, which has been criticised for lacking sufficient investor protection. The CTSE Debt Listing Requirements have been drafted using the ASISA guidelines offering increased transparency and promoting fairness. CTSE provides an efficient platform to issue debt at a significantly lower cost when compared to the JSE.
When considering the impact of the CTSE structures and digital platform (and in-house registry) on existing BEE schemes within listed entities, we firstly need to consider certain common characteristics within such schemes in South Africa –
This inevitably results, from a liquidity perspective, in rather typical BEE scheme structures that severely curtail the ability of BEE shareholders to exit or trade on any upside in the company’s valuation or, alternatively, to leverage themselves on the basis of such company’s financial performance.
We therefore see limited interim liquidity mechanisms on the basis that final unwinding of the structure will only be allowed post the contractually stipulated lock-in periods –
Based on PWC’s latest valuation survey report, BEE shareholding with a lock in period of 5-10 years will on average have a discounted value of +/- 30% which can be unlocked (or partly unlocked) if these shareholders are able to trade on a listed trading platform;
Based on PWC’s latest valuation survey report, BEE shareholding with a lock in period of 5-10 years will on average have a discounted value of +/- 30% which can be unlocked (or partly unlocked) if these shareholders are able to trade on a listed trading platform;
Allowing for the BEE shareholders under a BEE scheme to separately list on CTSE would offer the following benefits –
By virtue of the CTSE having its own registry, the costs pertaining to the above mentioned JSE requirements (and generally the administrative burden for investors) are saved as all investors (whether institutional or retail) trading on the exchange will already be verified regarding their BEE status.
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