By Peet Serfontein and Chantal Marx
There are four ways in which a company can list on the Johannesburg Stock Exchange (JSE):
Why do companies list on the JSE?
There are five main reasons why a company will list on the JSE:
The listing process in depth
The journey from a privately held company to a publicly listed entity is a complex and time-consuming process. Central to this journey is the role of underwriters or book runners , the financial institutions that act as intermediaries between the company and investors. These institutions possess deep expertise in capital markets and possess extensive networks of institutional and retail investors.
Their responsibilities encompass a wide range of activities, including providing strategic advice to the company, conducting due diligence, valuing the business, structuring the listing, and building investor interest. These institutions will typically commission research on the company being listed and sell-side analysts will embark on roadshows (typically for about a week), after which the management teams and underwriters/book runners will embark on a separate roadshow to present the company to potential investors (typically over a two-week period). These presentations provide an opportunity for dialogue and feedback, allowing the underwriters/ book runners to gauge investor sentiment and refine the offer if necessary.
The prospectus or pre-listing statement is then released. This is a comprehensive document providing detailed information about the company being listed. It serves as a primary source of information for most investors and is subject to stringent regulatory scrutiny. The prospectus must disclose material information about the company's business, financial condition, risk factors, and management team.
After the prospectus is released, invited investors will have about 10 ten business days to apply to participate in the listing (in the event of an IPO, private placement, or SPAC listing). After the offer closes, they will be provided an allocation of shares that can either match their application or can be less than their application if the offer receives more interest than what is required by the company (in other words it is oversubscribed).
Once the company lists, its shares will be publicly tradeable on the JSE. The first few days of trading is often characterised by significant price volatility as investors adjust their positions and new market participants enter the scene.
Investor considerations and pitfalls
Investing in new listings is fraught with challenges and requires a disciplined approach. One of the most common pitfalls is succumbing to the hype surrounding a highly-anticipated listing. Media coverage and analyst enthusiasm can create a sense of euphoria, leading investors to overpay for shares. It is essential to conduct thorough due diligence and avoid making investment decisions based on emotion rather than fundamentals.
Another common mistake is focusing solely on short-term gains. New listings are inherently volatile, and stock prices can fluctuate significantly in the early trading days. Investors who succumb to the temptation to sell quickly may miss out on the long-term potential of the company. A patient, long-term perspective is often rewarded.
Economic conditions play a crucial role in shaping the market. Periods of economic expansion and low interest rates tend to be more conducive to listing activity, as companies can access capital more easily and investors have a greater appetite for risk. Conversely, economic downturns and rising interest rates can dampen investor sentiment and lead to a decline in listing activity.
