1. business and industrial

Training workshop for
Designated Advisers of Lusaka
Stock Exchange
Overview
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Role of the DA
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Responsibilities
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Preparation for listing
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Methods of listing
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Marketing
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Modes of payment
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Disciplinary action
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Failures & successes
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Role of DA on JSE
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Prepares company for listing (with attorneys &
accountants)
Company on ALTx must have DA at all times
DA is company’s liaison /intermediary with JSE
DA attends all Board meetings
DA is observer at all Audit Committee meetings
DA must inform JSE of non-compliance
DA is company’s trusted adviser
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JSE Forum for DAs
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This forum was a noble concept promote by the JSE,
especially to share and learn from one another.
It however did not work in practice, and was
discontinued after a few meetings.
Why? We can only speculate:
 DA’s were reluctant to share information
 DA’s were not prepared to take up issues with JSE
as a consolidated front – preferred to do so
individually
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Responsibilities of DAs on JSE/LuSE
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Advise issuer of all its responsibilities i.t.o. the JSE LR
in a “competent, professional and impartial manner”
DA must immediately inform JSE of non-compliance &
when it has “reason to suspect a breach”
Confirm to JSE that applicant is “suitable for listing” &
complies with all Listings Requirements
Must brief new board members of their responsibilities
Must brief board of amendments to LR
Must review all financial info prior to publication
Must ensure appropriate disclosure in light of
performance of company
Must attend all board and audit com meetings in
advisory capacity
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Holding of directors’ shares in trust
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50% of shares in company held by directors must be
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held in trust by applicant’s auditor or attorneys
[LuSE: by the DA]
50% thereof released upon publication of results for
remainder of year in which lists plus one year thereafter
Balance released one year thereafter
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Why? To give comfort to shareholders that
directors/founders will not list and run
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Holding of DA’s shares in trust
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DA may hold shares in the listed company, but not
>20%
DA’s shareholding must be disclosed in prospectus
Subject to same restrictions as shares of directors:
 50% of shares in company held by directors must be
held in trust by applicant’s auditor or attorneys
 50% thereof released upon publication of results
for remainder of year in which lists plus one year
thereafter
 balance released one year thereafter
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Preparation for listing (1)
Misconception
- Client meets DA
- Client meets all Listings Requirements
- DA prepares presentation to ALTx Committee
- DA prepares prospectus
- Client lists within 3 months
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Preparation for listing (2)
Reality
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Client meets DA
Needs are determined via Business Assessment
If listing: Client does not meet all Listings Requirements
Client has to be prepared/ groomed for listing
Time goes by
Thereafter: presentation to ALTx Committee
Prospectus prepared
Roadshow & marketing
Client lists after 24 months!
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Preparatory steps
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Determine what has to be done & timetable
Sanitise: remove personal assets
Corporatise: MOI/agreements/licences
Restructure: create holding co & opco’s
Beef up Finance Department
Appoint non executive directors to Board
Establish corporate governance
Adopt appropriate policies
Wait for next set of clean audited results
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Our requirements for “listability”
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Audited track record
Sufficient size
Proper structure
Shares in public hands (free float) >20%
Credible management team
Presentable CEO
Balanced Board with non execs
Corporate governance in place (co sec)
WHY? BECAUSE INVESTORS HAVE CHOICES
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Matters for consideration
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Convert private company to public company;
Draft and adopt new memo & articles of association
complying with LR
Review structure of group
Consider current and new shareholders
Consider adequacy of share capital
Perform indicative valuation and determine issue price
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Matters for consideration
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Determine amount to be raised
Board composition
Share incentive scheme
Financials and forecasts
Legal due diligence: contracts, licences, litigation &
insurance
Draft detailed business plan for presentation to ALTx /
LuSE: Directors & DA present Prospectus to Listings
Committee
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Action list after approval
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Revise timetable
Firm up indicative fees & costs
Various submissions to Stock Exchange for approval
Register Prospectus with registrar of Companies
Design cover of prospectus
Plan communication campaign/ employ investor
relations expert
Plan marketing & roadshow to investors
Arrange for printing & proofreading
Appoint transfer secretaries
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Methods of listing
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Front door: comply with all LR and apply for listing
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Back door: approach cash shell (listco without
business); let them acquire client in exchange for
shares; draft revised listings particulars
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Reverse take-over: Listco has business; acquires
large target co in exchange for shares; shareholders
of target co become controlling shareholders; revised
listings particulars
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Marketing the issuer to investors
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To whom?
 Institutional investors & asset managers
 Stockbrokers
How?
 Draft investment analysis & report (optional)
 Invite parties to presentations (roadshow)
What?
 The company, history and prospects
 Attractive issue price
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Modes of payment for services
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Cash
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Shares:
 If shares are issued to DA in lieu of fees upon listing,
shares must be held in trust for 2 years (5.127)
 If shares issued to DA after listing in lieu of fees,
regarded as specific issue of shares for cash (5.50)
to be approved by shareholders (Ord res 75%)
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Disciplinary action against DAs
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Legislation: Financial Services Board, esp insider
trading [investigation; judgment; fine]
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JSE
 contravention of Listings Requirements [stern letter or
red carpet treatment]
 Investigations Unit [private/public reprimand or fine]
 Surveillance Unit [normally escalates to FSB]
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Takeover Regulation Panel
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Amendments to JSE LR
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JSE LR have been amended with effect from 1
October 2014. Examples:
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Written resolutions allowed for all companies listed on
ALTx; no meetings therefore required – only proxies.
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All circulars for companies listed on ALTx in summary
circular format only.
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Incorporation by reference allowed in circulars (full
disclosure in prospectuses); could help with CPR’s
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Failures: lessons learnt (1)
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Entrepreneurs are by nature over optimistic
Failure to meet forecasts – vital blow to credibility
Institutions are wary of newcomers: on trial for few
years
Some CEO’s unable to adapt to listed environment: e.g.
governance by non execs; interaction with investors;
doing business in the spotlight; approvals by
shareholders
Flaws in business model only exposed over time (e.g.
micro lenders)
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Failures: lessons learnt (2)
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Growth requires cash flow
Regulatory environment could be obstacle
Illiquidity affects share value and ability to do deals
Listing inflates egos
Some CEO’s surround them with yes-men
If Financial director is weak or disempowered
If IT systems are unreliable
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Failures: lessons learnt (3)
 If Audit Committees are mere rubber stamps
 Transactions fail for two reasons:
 Poor due diligence;
 Weak implementation
 Taking too much gearing (debt) on board
 Reporting not on time
 Disrespect for laws, regulations, stock exchange and
advisors
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Successes : characteristics
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Competent CEO
Quality and independence of board
Stable board with diverse skills
Strong financial management & systems
Institutional investors
Timeous reporting
No negative surprises
Sound business model
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Contact Details
Marius Meyer
Tel:
27 11 880 2113 or 082 495 4405
Email: [email protected]
Van Zyl Swanepoel
Tel:
27 11 880 2113 or 082 654 6719
Email: [email protected]
Mareo Bekker
Paul Pretorius
Tel:
27 11 880 2113 or 082 900 3804
Email: [email protected]
Tel:
27 11 880 2113 or
Email: [email protected]
Keeley Ermann
Tel:
27 11 880 2113 or 083 626 6814
Email: [email protected]
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Contact details:
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Address: 44A Boundary Road, Inanda, Johannesburg
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Telephone : 011 880 2113
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Fax : 011 447 4824
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Website : exchangesponsors.co.za
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