A 16-month-old South African exchange said it can be a platform to ease one of the deepest challenges confronting major listed companies since white minority rule ended: increasing black economic empowerment.
ZAR X’s goal is to be the specialized home of investment vehicles intended to spread wealth among black South Africans and help address economic inequalities lingering after the removal of apartheid in 1994.
That objective was boosted in January, when the Public Investment Corp, which manages state workers’ pensions and oversees about $150 billion in assets as Africa’s largest fund manager, bought a 25 percent stake.
“With our shareholding from the PIC, we are looking to get quite a few entities from their holdings,” head of listings Graeme Wellsted said in an interview at Bloomberg’s Johannesburg offices.
A looming landmark is the pending listing of Bayhill Capital Transformational Investment Portfolio, a majority black-owned fund with holdings in Johannesburg Stock Exchange-listed companies acquired at a discount through their empowerment programs.
The conundrum for major South African companies has been to ensure they continue to be recognized as supporting black economic empowerment, known locally as BEE, once disadvantaged groups that received stock sell-on their holdings.
Wellsted said the exchange has an opportunity to provide impetus to BEE efforts by being a platform for long-term listings of empowerment entities set up by companies whose stock trades on the country’s main exchange.
“The listing empowerment vehicle gets a life of its own, with its own board and, although it looks to the share listed on the JSE for value, they can do capital raisings in their own right,” he said.
“It gives the primary listed company the comfort of perpetual empowerment, because as long as it is listed, it will ensure they retain their empowerment credentials.” Trading in the stocks will be restricted to investors that meet the empowerment definitions and requirements.
ZAR X, which started operating in February last year, is among fledgling exchanges seeking to compete with the country’s main bourse, run by JSE Ltd., and has just three active listings.
That underscores the challenge for ZAR X in a market dominated by the giant main exchange, said Wayne McCurrie, a money manager at Ashburton Investments Management Co., a unit of FirstRand Ltd, Africa’s biggest bank by value.
“The listing of black economic vehicles is on the increase – I think it’s a good idea to try specialize in that,” McCurrie said.
“Still, investors will go where there is liquidity, and that remains with the JSE at the moment. Having the PIC on your side as a shareholder is a major advantage, but the PIC itself will still have to transact where there is liquidity.”
ZAR X intends to add as many as three more listings in the next year, including discussions with a short-term insurer, while investment products developed by banks may start trading on ZAR X, Wellsted said.