9 November 2004
The capital-raising potential of black-owned small businesses has been boosted by an agreement between black business body Nafcoc and the JSE Limited, the operator of South Africa’s stock exchange.
The agreement, signed in May, sees black small and medium enterprises (SMEs) actively encouraged to list on the JSE’s small business index, AltX, through an education and awareness-raising programme run by the National African Federated Chamber of Commerce (Nafcoc) and the JSE.
In terms of an MOU signed in May, the initiative will promote the JSE and particularly the AltX as a solution for raising capital for black economic empowerment (BEE) initiatives.
“This will be an opportunity for our members to raise capital, to list their companies, which will enable them to liquidate their debt and build cash reserves”, said Nafcoc chief executive Sipho Mseleku.
Ninety percent of Nafcoc’s members are SMEs, and the AltX, with its less stringent listing requirements, is tailor-made for them.
However, many black-owned SMEs may not be aware of the opportunities the exchange offers. “Although we work at the JSE and we’re passionate about the JSE, we have to recognise that not everyone knows about the JSE”, said JSE chief executive Russell Loubser.
The initiative will help SMEs understand how the stock market works. Issues that will be dealt with include listing requirements and share ownership.
Nafcoc and the JSE also aim to seek suitable candidates as partners for BEE transactions.
The move may be a boost for the AltX exchange as much as for black business. Only eight businesses are listed on the exchange. All Joy Foods was the first BEE company to list on the exchange. The latest listing, DataPro Group, has 30% of its shares placed with empowerment companies.
AltX – springboard for smaller firms
AltX is a partnership between the JSE and the Department of Trade and Industry (DTI). It is designed to give a smaller companies the opportunity to issue new shares, raise capital, widen their investor base and have their shares traded in a regulated market.
According to DTI Director-General Alistair Ruiters, AltX complements the government’s BEE policies by creating a space for more black companies to participate in the JSE. AltX is geared to act as a springboard for smaller companies eventually to list on the JSE’s main board.
The exchange has reduced listing fees, but is supported by the full range of JSE services – including the trading of shares on the same system as the main board, market surveillance to eliminate irregularities, and settlement of AltX securities through the JSE’s electronic system, STRATE.
Its listing requirements are appropriate for SMEs, placing emphasis on initial and ongoing disclosure of company information. There is also a focus on the enhancement of the skills of directors of AltX companies, with a compulsory four-day directors’ induction programme offered by the Wits Business School.
Companies require no profit history to list, but a minimum share capital of R2-million is required.
Empowering the JSE
BusinessMap Foundation noted in a recent report on BEE that while the market capitalisation of black-controlled companies listed on the JSE increased from R44-billion ($6.7-billion) at the start of 2003 to R58-billion ($8.9-billion) by the end of the year, black control of total market capitalisation on the exchange remained at 3%.
The number of black-controlled companies listed on the JSE also dropped from 22 to 21 during 2003 – far below the peak of 38 in August 1999.
In 2003, R42.2-billion (US$6.5-billion) worth of BEE deals were made, but the beneficiaries of these deals belonged largely to the politically well-connected elite.