Following confirmation that the National Treasury was indeed considering private-investment options for Eskom, as well as an indication from African National Congress (ANC) secretary-general Gwede Mantashe that a “Chinese” model could be considered, which would allow for a portion of the power utility’s shares to be listed, Engineering New Online approached the JSE for comment on the rules and processes governing such listings.

Below, JSE Issuer Regulation GM Andre Visser offers insight into the approach that the bourse would adopt should a State-owned company (SoC) such as Eskom approach it for a listing involving only a portion of the shares. However, Visser stresses that his answers are generic, as the exchange doesn’t comment on whether it has been approached about listings applications.

Engineering News: The ANC’s general-secretary has indicated that up to 40% of the shares in Eskom could be listed. Can the JSE rules accommodate the partial listing of an enterprise, or a SoC?
Visser: Without commenting on any particular organisation, this is definitely possible in terms of the Listings Requirements. There are many instances where a particular shareholder wishes to retain control of a company and only make a portion of the shares available for trading. This is achieved by listing all the shares in the company, but only placing or selling part of the share capital. On a practical level, this means that 100% of the shares are freely tradable with the controlling shareholder electing to retain its stake. The Telkom listing in 2003 is an example where government and other key shareholders retained a strategic stake in the company with the balance of the shares being tradable.

Would the JSE be interested in a partial listing of Eskom and what, in the JSE’s view, would be a minimum stake that could be listed?
Absolutely. This is achievable with a full listing of the entire company with only a portion available for trade as explained above. The minimum requirement for a main board listing is a 20% free float or public spread. In respect of a so-called “partial listing”, this is also possible under a separate section of the listing requirements dealing with ‘Asset Backed Securities’.

Could you name companies currently listed on the JSE whose shares are only partially traded?
There are many companies that are only partially traded, but once again it is important to note that those companies have all their share capital listed and it is regarded as a listing of the entire company.

What are the main reasons for such listings?
Full listings where only a portion of the shares are traded whilst a shareholder(s) retain a strategic or controlling stake is done for a variety of reasons, the most obvious being to retain control and influence the direction of the business.

What restrictions would apply to a company that lists only a minority stake?
There is no restriction provided spread is achieved.

How is the valuation of a company affected where only a portion of the shares are made available for trading?
Generally speaking, companies can have a liquidity discount in cases where there is limited stock available for trading and exit purposes. This is generally only applicable in cases where there is very limited or no liquidity.

What rights do holders of traded shares have in the overall company?
What we term ‘ordinary’ shareholders (with standard voting rights) have normal rights in terms of the Listings Requirements and the Companies Act. Amongst these would be rights to vote at shareholders meetings, appointment of directors and a right to vote on substantial changes in the business.

What governance disciplines would apply to a partially-listed SoC?
The JSE’s normal stringent corporate governance requirements would be applicable, i.e. certain mandatory corporate governance requirements such as audit committee, remuneration committee, separation of chair and CEO and then obviously the other King 3 principles.

Could you outline the process that would need to be followed for a partial IPO?
The normal listing and capital raising process would be applicable.

How long do such processes generally take?
The regulatory process in itself is relatively quick (a few months), but the preparatory period can be longer, depending on the readiness of the entity. Preparation can take anything from two months to two years.