Methods of listing

Introduction

In Figure 1 above that presented the organizational structure of financial markets it was stated that there are four methods of issuing securities (i.e. raising capital):

• Public issue.

• Private placement.

• Auction.

• Tap issue.

In many countries there are three principle methods of obtaining a listing for ordinary shares on the share exchange:

• An introduction.

• A private placing.

• A public offer:

- An offer for subscription.

- An offer for sale.

An introduction

An introduction is suitable in the case of a company that does not need to raise capital and satisfies the JSE requirement in terms of the public spread of shareholding, capital size, etc. It is the quickest and cheapest means of listing, as there is no offer to the public and minimum formalities are required.

It will be apparent that the introduction is a method of obtaining a listing, and not a method of issue, because no additional shares are issued.

A private placing

The private placing (or private placement) is a common method used to obtain a listing. In this case, shares in the company are offered to prospective shareholders privately. This method of placing is often given effect by the appointed sponsor or corporate advisor (usually a merchant bank that acts in both capacities). A prospectus is required.

With the private placing new shares are issued and capital is raised. Often, the private placing is combined with a public offer (see next section) in order to obtain the required spread of shareholding (a listing requirement).

A public offer

A public offer is the same as the public issue mentioned in the figure on the organizational structure of the financial markets, and this method of issue / method of obtaining a listing may be either:

• An offer for subscription

• An offer for sale.

In the offer for subscription, the public is invited to subscribe for a specified number of unissued shares. The proceeds accrue to the company.

In the offer for sale, existing shareholders invite subscribers to purchase a certain number their shares. The proceeds do not accrue to the company, but to the existing shareholders.

The public offer method of listing requires the production of a prospectus, and this is required to be approved and registered with the Registrar of Companies. The public has a stipulated period within which to submit their applications and payment.

In the event of an over-subscription, the company has to decide on the basis of allocation. In most cases this is agreed in advance because most offers are over-subscribed. The company earns interest on the excess payments received if the offer is over-subscribed until the date of refund. The interest is used to offset the substantial cost of the public offer.

Steps involved in a listing

Introduction

The listing of shares by a company is a lengthy process and a number of advisors are involved in the process. The following is a rough guide to the steps involved in a listing:

• Appointment of professional advisors

• Time frame for a listing

• Other steps.

Appointment of professional advisors

Because the listing process is elaborate and detailed and the disclosure requirements are onerous, the assistance of experienced professional advisors is required. Much time is expended in finding competent and experienced professional advisors. The categories of advisors are as follows:

• Sponsor

• Corporate advisor

• Legal advisor

• Accountant

• Transfer secretaries (Central Securities Depository Participant - CSDP)

• Public relations consultant

• Technical advisors (in some cases).

The advisors' tasks are as follows:

Sponsor

The appointment of a sponsor is a requirement of the JSE. The JSE approves the sponsors (and a list is obtainable from the Listings Division of the JSE). The sponsor is required to:

• Satisfy itself that the listings criteria are met and that the company is a suitable candidate for a listing

• Guide the company as to the application of the listings requirements

• Explain to the directors of the company the nature of their responsibilities and obligations as directors of a listed company

• Submit the listing documentation to the JSE

• Fulfil a liaison role between the JSE / the public and the company.

Corporate advisor

A corporate advisor is a person from the corporate finance division of an auditor, a stockbroker or a merchant bank, and many companies desirous of listing find it useful to utilize the experience of such an advisor. The corporate advisor's main functions are to:

• Advise the company as to the application of the listings requirements and the directors as to the nature of their responsibilities and obligations as directors of a listed company (similar function as the sponsor's). (It is to be noted that often the sponsor and the corporate advisor are the same person/s.)

• Advise on the method of listing, the marketing of the offer, the size and terms of the offer, and the timing and pricing of the offer.

• Advise on market conditions and the receptiveness of the market for the company's shares.

• Co-ordinate the listing process.

• With the assistance of the company, the legal advisor, accountant and sponsoring broker, draft the listings documentation.

• Approach the investment community with a view to generating a demand for the company's shares.

• Arrange the placing if the method of listing to be adopted is a private placing.

• Underwriting or arranging for the underwriting of the offer if the method of listing to be adopted is a public offer and the offer is to be underwritten.

Legal advisor

Most companies also appoint a legal advisor. The main responsibilities of the legal advisor are to:

• Assist with the drafting of the listing documentation to ensure that all legal requirements are complied with.

• Draft the necessary agreements if there is an underwriting or a placing.

• Prepare the share option scheme for the company if such a scheme is to be introduced.

Accountant

The JSE requires that a registered accountant and auditor report in the prospectus or pre-listing statement, inter alia, on the profits and the financial position of the company over the previous three years.

Transfer secretaries

Transfer secretaries are responsible for setting up the company's register of members, issuing of share certificates, registration of transfers and execution of company actions such as dividend payments, company circulars, etc. In the case of dematerialization of securities the transfer secretary holds the shareholding in electronic form on behalf of the shareholder (but in his/her name) in its capacity as a Central Securities Depository Participant (CSDP).

The SSA in this regard determines:

"'participant' means a person that holds in custody and administers securities or an interest in securities and that has been accepted...by a central securities depository as a participant in that central securities depository...."

Public relations consultant

Some companies use public relations consultants to assist with the promotion of a positive image for the company prior a listing. This is clearly done in order to ensure a successful listing.

Technical Advisor

Certain companies, such as mining companies, are technical in nature. In these cases, the JSE requires the prospectus or pre-listing statement to contain a competent person's report (i.e. technical advisor's report) on the company and its exploration and/or mining activities.

Time frame for listing

The time frame for a listing normally covers between 9 and 13 weeks, depending on the complexity of the listing and method of listing (assuming that the professional advisors are competent). According to the JSE, the time frame presented in Table 3 is reasonable.

Week

Action

O

Appoint advisors

Meet to consider legal, financial and tax implications and method of listing

Prepare timetable for listing

Commence preparation of accountant's report

Commence drafting of documentation

1-3

Arrange meetings to finalize draft documentation (prospectus / pre-listing statement) Finalize accountant's report

Draft documentation submitted to the JSE for informal comment and Registrar (if a public offer)

5-8

JSE formal approval, and Registrar's approval (if a public offer) obtained

Listing commences if an introduction, or placing or public offer commences

Placing closes

Listing commences if a placing or public offer closes

13

Listing commences if a public offer

Source: jse.co.za

Table 3: Listing time frame

Other steps

The other steps in the process of listing are significant:

Marketing the issue. The pre-listing statement is a form of advertising the issue to the public. However, the main buyers of any issue are the large institutions. Usually the sponsor and corporate advisor, together with the management of the company to be listed, approach them prior to the issue.

Pricing the issue. This is an important part of the process, and this is where the corporate advisor and sponsor also have an important role to play. Part of the advice is to make the offer at a price that is at a discount to the fair price. This will ensure a successful issue, and a rise in the price after listing, and this will imbue the investor with a "warm, fuzzy feeling" toward the share. This has important positive implications for rights issues in the future.

 
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