Royal Bafokeng Platinum Joins JSE Delistings Rush

Royal Bafokeng Platinum (RBPlat) has become the latest company to be delisted from the Johannesburg Stock Exchange (JSE). South Africa has already seen 14 delistings this year, with more expected to follow. After a protracted battle with Northam, which withdrew from the bidding war last month, Impala Platinum (Implats) is set to acquire 100% of RBPlat.

The suspension of RBPlat shares will take place on Wednesday, August 2nd, and the official delisting will take place in September. The trend of delistings has been on the rise, with 14 equity securities delisting from the JSE and other South African stock exchanges between January and June 2023. Several other companies, including Liberty Two Degrees (L2D), Steinhoff, Advanced Health, Indluplace Properties, and Premier Fishing, are also in the process of delisting, bringing the total number of companies leaving the JSE this year to 20.

This year’s delisting rate is on track to match or exceed the 27 delistings recorded in 2022. Notably, Steinhoff shareholders recently voted to dissolve the company and delist it from the JSE, effectively ending one of the country’s most egregious corporate scandals. Similarly, the real estate investment trust (REIT) L2D has been delisted by Liberty Group. Advanced Health and Premier Fishing are also on the verge of being delisted.

Interestingly, the number of new JSE listings has been significantly lower this year, with only two companies – Copper 360 and Premier Group – joining the exchange. Copper 360 is a promising copper mining and processing company based in the Northern Cape, while Premier Group, a 200-year-old company, returned to the JSE after an 18-year absence due to restructuring and the involvement of private equity firm Brait.

According to AmaranthCX’s Paul Miller, 13 more companies are currently in financial distress, with their securities suspended from trading, a common precursor to delisting. Mantengu Mining is an exception, as its shares were suspended in 2016, but the suspension was lifted in August 2022.

In the case of RBPlat, the delisting is the result of an asset merger rather than a capital exit. Implats now owns 98.73% of RBPlat and intends to acquire all outstanding shares under Section 124 (1) of the Companies Act, converting RBPlat into a wholly-owned subsidiary.

The increasing number of delistings raises concerns about the JSE’s global market cap being distorted by the inclusion of the full market capitalization of foreign secondary-listed companies such as British American Tobacco, BHP, and Glencore. While these companies are included in the JSE market capitalization, South Africa contributes very little to their global operations. Such firms account for more than 60% of the JSE’s total market capitalization.

Miller emphasises the need for the National Treasury to take action to address the declining number of listed companies. The JSE has made efforts to attract new listings, but once the ongoing overhaul of the listings rules is completed, there may be little else it can do because its requirements and costs are not significantly different from those of other markets. The National Treasury may consider interventions such as tax-incentivized listed ‘flow-through’ shares to encourage mineral exploration, as well as equalising tax treatment for direct investment in personal share portfolios versus institutional investment in pension funds and collective investment schemes.

The current tax rules favour institutional investors over retail investors, which may contribute to the trend of delistings. One potential solution is to allow direct share portfolios to be included in tax-free savings accounts in order to encourage greater participation in the public market by non-institutional investors.

Without a policy change to encourage a more diverse pool of investors, the trend of delistings and a decrease in the number of listed companies may continue, stifling the growth of the JSE’s smaller end and overall market diversity.