DealMakers - 2022 Annual (released February 2023)
JSE takes another step towards amending the Listings Requirements
by Madelein van der Walt and Nasrin Kharsany
The JSE recently published two separate consultation documents – Consultation Paper Proposals and Financial Reporting Disclosures – in which it is proposing to make various amendments to its Listings Requirements.
The Consultation Paper Proposals, which we will focus on in this article, will introduce and regulate the listing of companies with dual or weighted voting share structures, amend the current free float requirements, and amend aspects of the current Special Purpose Acquisition Company (SPAC) offering. We expect market participants will give robust input to ensure that these proposals meet the needs of the market.
Madelein van der Walt
The Financial Reporting Disclosures follow from the JSE’s “Cutting Red Tape” project. The proposed amendments rework the financial reporting disclosure provisions in the Listings Requirements to simplify them in general and to remove previous obligations, such as the requirement to publish an abridged report in all instances.
Weighted voting share structures
The JSE proposes allowing a company with a dual or weighted voting share structure to list on the JSE, subject to meeting certain requirements.
The JSE will introduce new definitions, such as a “weighted voting share structure”, which gives certain shareholders voting rights disproportionate to their shareholding. A “weighted voting share” cannot carry more than 20 votes, while an “ordinary voting share” will have one vote. In other respects, a “weighted voting share”, will have the same voting rights as an “ordinary voting share”. The JSE will introduce an “enhanced voting process” in a general meeting, where, in respect of certain matters, votes will be cast on the basis that one weighted voting share is limited to one vote.
Companies with weighted voting share structures that are seeking a listing must adopt certain governance arrangements. Each weighted voting share must be automatically converted into an ordinary voting share if it is sold or transferred. Each weighted voting share must have a sunset provision requiring the share to be automatically converted into an ordinary voting share once 10 years have elapsed from the listing date, although the sunset provision can be extended if holders of ordinary voting shares (but not holders of weighted voting shares) agree to do so at a general meeting. Holders of weighted voting shares must hold at least 10% of the economic interest in the applicant on listing. Holders of ordinary voting shares holding at least 10% of the total voting rights must have the ability to convene a general meeting. The holders of weighted voting shares must undertake not to dispose of or transfer their entire shareholding for 12 months from the listing date.
The memorandum of incorporation of the applicant must also contain these governance arrangements and cap the weighted voting shares.
On certain specified matters, one weighted share carries only one vote: (i) variation of rights attaching to securities; (ii) the appointment and removal of auditors; (iii) the appointment and removal of independent non-executive directors; (iv) the remuneration policy and implementation report tabled at the annual general meeting of the applicant for separate non-binding advisory votes by shareholders; (v) reverse takeover; and (vi) removal of listing.
The JSE may grant a listing to an applicant with a weighted voting share structure if it meets the required admission criteria, but existing listed companies will not be able to issue “high or low voting securities”.
Free float: new listings and free float assessment
Free float refers to the portion of a company’s issued share capital in the hands of public investors - as opposed to connected parties such as associates, directors or shareholders - holding interests of 10% or more, or shareholders holding controlling
Currently, under the Listings Requirements, any holdings of 10% or more of the securities in the issuer do not qualify as free float. Exemptions are available for institutional investors (fund managers and portfolio managers) holding 10% or more of the securities in the issuer to qualify to be part of the free float, but the JSE has recognised that these exemptions are limited and complex. Other exchanges do not exclude holdings of 10% or more from the free float, but do require a minimum number of shareholders to form part of the public spread.
Key features of the JSE’s proposed amendments to the free float threshold and the free float assessment are that an applicant seeking to list on the Main Board must have 10% of each class of equity securities held by the public, representing at least 100 shareholders. For new listings, that would reduce the free float threshold from 20% to 10%, with the introduction of a minimum number of 100 shareholders to form part of the public spread. Securities held by controlling shareholder/s (as defined in the Listings Requirements) will be excluded from the free float. The 10% exclusion, where holdings of 10% or more of the securities in the issuer were not regarded as being held by the public, has been deleted. Thus, holders generally unrelated to the issuer or the board, with securities between 10% and 35%, would still qualify to be part of the free float.
The carve-outs relating to when institutional investors holding 10% or more of the securities in the issuer qualify to form part of the free float have been deleted, given the proposed removal of the 10% exclusion entirely.
The JSE proposes to update the SPAC provisions in the Listings Requirements to align with those international markets where SPACs have flourished, and to make the offering more attractive to investors.
Key features of the JSE’s proposals are to extend the period within which the SPAC must complete the acquisition of viable assets to 36 months from 24 months. It proposes expanding the concept of escrow to include “other custodial arrangements” (to the satisfaction of the JSE), to give SPAC issuers more flexibility.
The JSE also proposes expanding the SPAC admission criteria; in particular, to require the SPAC to provide more detail on the operating industry where it will seek viable assets and more detail on the experience and expertise of its board. The SPAC must afford shareholders who voted against the acquisition of viable assets a redemption right to enable them to redeem their securities and receive a pro-rata portion of the amount held in escrow, provided that the acquisition of viable assets is approved within the prescribed (newly proposed) 36-month period. Also, a SPAC may not adopt a dual or weighted voting share structure on listing. The JSE will also require the SPAC to give more disclosure about its potential acquisition of viable assets in the circular to shareholders.
The market has already indicated broad support for the JSE’s proposals. But they are still at an early stage, and we expect that there will be further refinement before they are finally adopted.
Van der Walt is a Partner and Kharsany a Senior Knowledge Lawyer | Webber Wentzel