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Training workshop for Designated Advisers of Lusaka Stock Exchange.

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Presentation on theme: "Training workshop for Designated Advisers of Lusaka Stock Exchange."— Presentation transcript:

1 Training workshop for Designated Advisers of Lusaka Stock Exchange

2 2 Overview  Role of the DA  Responsibilities  Preparation for listing  Methods of listing  Marketing  Modes of payment  Disciplinary action  Failures & successes

3 3 Role of DA on JSE  Prepares company for listing (with attorneys & accountants)  Company on ALT x must have DA at all times  DA is company’s liaison /intermediary with JSE  DA attends all Board meetings  DA is observer at all Audit Committee meetings  DA must inform JSE of non-compliance  DA is company’s trusted adviser

4 4 JSE Forum for DAs  This forum was a noble concept promote by the JSE, especially to share and learn from one another.  It however did not work in practice, and was discontinued after a few meetings.  Why? We can only speculate:  DA’s were reluctant to share information  DA’s were not prepared to take up issues with JSE as a consolidated front – preferred to do so individually

5 5 Responsibilities of DAs on JSE/LuSE  Advise issuer of all its responsibilities i.t.o. the JSE LR in a “competent, professional and impartial manner”  DA must immediately inform JSE of non-compliance & when it has “reason to suspect a breach”  Confirm to JSE that applicant is “suitable for listing” & complies with all Listings Requirements  Must brief new board members of their responsibilities  Must brief board of amendments to LR  Must review all financial info prior to publication  Must ensure appropriate disclosure in light of performance of company  Must attend all board and audit com meetings in advisory capacity

6 6 Holding of directors’ shares in trust  50 % of shares in company held by directors must be held in trust by applicant’s auditor or attorneys [LuSE: by the DA]  50% thereof released upon publication of results for remainder of year in which lists plus one year thereafter  Balance released one year thereafter Why? To give comfort to shareholders that directors/founders will not list and run

7 7 Holding of DA’s shares in trust  DA may hold shares in the listed company, but not >20%  DA’s shareholding must be disclosed in prospectus  Subject to same restrictions as shares of directors:  50% of shares in company held by directors must be held in trust by applicant’s auditor or attorneys  50% thereof released upon publication of results for remainder of year in which lists plus one year thereafter  balance released one year thereafter

8 8 Preparation for listing (1) Misconception -Client meets DA -Client meets all Listings Requirements -DA prepares presentation to ALT x Committee -DA prepares prospectus -Client lists within 3 months

9 9 Preparation for listing (2) Reality -Client meets DA -Needs are determined via Business Assessment -If listing: Client does not meet all Listings Requirements -Client has to be prepared/ groomed for listing -Time goes by -Thereafter: presentation to ALT x Committee -Prospectus prepared -Roadshow & marketing -Client lists after 24 months!

10 10 Preparatory steps  Determine what has to be done & timetable  Sanitise: remove personal assets  Corporatise: MOI/agreements/licences  Restructure: create holding co & opco’s  Beef up Finance Department  Appoint non executive directors to Board  Establish corporate governance  Adopt appropriate policies  Wait for next set of clean audited results

11 11 Our requirements for “listability”  Audited track record  Sufficient size  Proper structure  Shares in public hands (free float) >20%  Credible management team  Presentable CEO  Balanced Board with non execs  Corporate governance in place (co sec) WHY? BECAUSE INVESTORS HAVE CHOICES

12 12 Matters for consideration  Convert private company to public company;  Draft and adopt new memo & articles of association complying with LR  Review structure of group  Consider current and new shareholders  Consider adequacy of share capital  Perform indicative valuation and determine issue price

13 13 Matters for consideration  Determine amount to be raised  Board composition  Share incentive scheme  Financials and forecasts  Legal due diligence: contracts, licences, litigation & insurance  Draft detailed business plan for presentation to ALT x /  LuSE: Directors & DA present Prospectus to Listings Committee

14 14 Action list after approval  Revise timetable  Firm up indicative fees & costs  Various submissions to Stock Exchange for approval  Register Prospectus with registrar of Companies  Design cover of prospectus  Plan communication campaign/ employ investor relations expert  Plan marketing & roadshow to investors  Arrange for printing & proofreading  Appoint transfer secretaries

15 15 Methods of listing  Front door: comply with all LR and apply for listing  Back door: approach cash shell (listco without business); let them acquire client in exchange for shares; draft revised listings particulars  Reverse take-over: Listco has business; acquires large target co in exchange for shares; shareholders of target co become controlling shareholders; revised listings particulars

16 16 Marketing the issuer to investors  To whom?  Institutional investors & asset managers  Stockbrokers  How?  Draft investment analysis & report (optional)  Invite parties to presentations (roadshow)  What?  The company, history and prospects  Attractive issue price

17 17 Modes of payment for services  Cash  Shares:  If shares are issued to DA in lieu of fees upon listing, shares must be held in trust for 2 years (5.127)  If shares issued to DA after listing in lieu of fees, regarded as specific issue of shares for cash (5.50) to be approved by shareholders (Ord res 75%)

18 18 Disciplinary action against DAs  Legislation: Financial Services Board, esp insider trading [investigation; judgment; fine]  JSE  contravention of Listings Requirements [stern letter or red carpet treatment]  Investigations Unit [private/public reprimand or fine]  Surveillance Unit [normally escalates to FSB]  Takeover Regulation Panel

19 19 Amendments to JSE LR  JSE LR have been amended with effect from 1 October 2014. Examples:  Written resolutions allowed for all companies listed on ALT x ; no meetings therefore required – only proxies.  All circulars for companies listed on ALT x in summary circular format only.  Incorporation by reference allowed in circulars (full disclosure in prospectuses); could help with CPR’s

20 20 Failures: lessons learnt (1)  Entrepreneurs are by nature over optimistic  Failure to meet forecasts – vital blow to credibility  Institutions are wary of newcomers: on trial for few years  Some CEO’s unable to adapt to listed environment: e.g. governance by non execs; interaction with investors; doing business in the spotlight; approvals by shareholders  Flaws in business model only exposed over time (e.g. micro lenders) i i

21 21 Failures: lessons learnt (2)  Growth requires cash flow  Regulatory environment could be obstacle  Illiquidity affects share value and ability to do deals  Listing inflates egos  Some CEO’s surround them with yes-men  If Financial director is weak or disempowered  If IT systems are unreliable i i

22 22 Failures: lessons learnt (3)  If Audit Committees are mere rubber stamps  Transactions fail for two reasons:  Poor due diligence;  Weak implementation  Taking too much gearing (debt) on board  Reporting not on time  Disrespect for laws, regulations, stock exchange and advisors

23 23 Successes : characteristics  Competent CEO  Quality and independence of board  Stable board with diverse skills  Strong financial management & systems  Institutional investors  Timeous reporting  No negative surprises  Sound business model

24 24 Contact Details Marius Meyer Tel:27 11 880 2113 or 082 495 4405 Email:marius@exchangesponsors.co.za Van Zyl Swanepoel Tel: 27 11 880 2113 or 082 654 6719 Email:vanzyl@exchangesponsors.co.za Mareo Bekker Tel:27 11 880 2113 or 082 900 3804 Email:mareo@exchangesponsors.co.za Keeley Ermann Tel:27 11 880 2113 or 083 626 6814 Email:keeley@exchangesponsors.co.za Paul Pretorius Tel:27 11 880 2113 or Email:paul@exchangesponsors.co.za

25 25 Contact details:  Address: 44A Boundary Road, Inanda, Johannesburg  Telephone : 011 880 2113  Fax : 011 447 4824  Website : exchangesponsors.co.za

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