The JSE has amended its Listings Requirements in the past few years by introducing alternative methods of raising capital and measures aimed at expediting traditional methods. The JSE is aware that, in times of crisis, listed companies may need to raise capital at short notice. Delays in the raising of capital, particularly those caused by difficulties in obtaining shareholder approval, may present a significant problem for listed companies.
The principal methods of raising capital available to JSE listed companies, including the alternative and traditional methods are:
- Rights and claw-back offers
One of the main benefits of being listed is the ability to raise capital by way of a rights offer. A claw-back offer is a pre-placed rights offer where the rights offered to third party placees (to subscribe for shares in the company) are offered to the company’s shareholders in proportion to their existing shareholdings (enabling such shareholders to claw-back their rights to subscribe for such shares).
Rights and claw-back offer circulars to shareholders are disclosure-based, and rights and clawback offers do not require shareholder approval. The JSE amended its corporate actions timetable in 2014 so that rights and claw-back offers can be undertaken in 21 days (instead of the original 31 days).
- General and specific issues of shares for cash
Listed companies often seek to obtain general authorisation to issue shares for cash at their AGM, in terms of a shareholder resolution that has to be passed by a 75% majority. This general authority allows the company to raise capital quickly and efficiently, but is not without limitations. The company would be prohibited from issuing shares to non-public shareholders or to related parties, the number of shares to be issued must be less than 30% of the shares currently listed, and the maximum discount at which the shares can be issued is 10% of the 30 day weighted average traded price of the company’s shares. In recent years, it has become more difficult to secure the necessary approval for this shareholder resolution.
Listed companies can obtain specific authorisation to issue shares for cash. This has fewer limitations but also requires a shareholders resolution that has to be passed by a 75% majority.
- Non-renounceable rights offers
The JSE introduced this measure in 2017. A non-renounceable rights offer is an offer to shareholders to subscribe for shares in the listed company in proportion to their existing shareholdings, where the rights to subscribe are not renounceable to third parties. Being rights offers, non-renounceable rights offers do not require shareholder approval. The maximum discount at which the shares can be offered is 10% of the 30 day weighted average traded price of the company’s shares. Non-renounceable rights offers can be implemented in 14 days.
- Accelerated specific issues of shares for cash
The JSE introduced this measure in 2014. An accelerated specific issue of shares for cash enables listed companies to raise cash more quickly. A prescribed form requiring reduced disclosure is used, whereby formal approval from the JSE can be obtained within 48 hours from submission. A shareholders resolution (passed by a 75% majority) is still required.
- Waiver of the issue of shares for cash requirements if the conditions in Schedule 11 apply
Listed companies that are experiencing severe financial difficulties may need to dispose of a substantial part of their business or issue shares for cash within a short time frame in order to meet their ongoing working capital requirements or to reduce their liabilities. Where a company is in financial distress and satisfies the conditions set out in Schedule 11 of the Listings Requirements, the JSE has the discretion to waive the requirements for the preparation of a circular and the obtaining of shareholder approval.
In addition to the above methods of raising capital, the JSE continues to review and revise the processes associated with these methods (such as its review and approval of rights offers and other capital raising circulars, and the manner in which shareholder approval for the issue of shares for cash may be obtained). Maintaining a balance between expediting the raising of capital and protecting the interests of shareholders remains key in these deliberations.