WHO OWNS THE JSE?
What does the Johannesburg Stock Exchange (JSE)
data tell us about our transformation journey in
South Africa’s listed markets, especially with regard
to BEE ownership? It’s important for policymakers
and investors to appreciate the arcane intricacies
of measuring black ownership.
The Johannesburg Stock Exchange (JSE) is in essence a global
platform that operates in the context of the global market. It
thus enables companies operating from virtually anywhere
in the world, to list and trade capital between investors
domiciled in almost any jurisdiction. Think AB InBev, British
American Tobacco, Naspers, SABMiller, Anglo American etc.
All of these extremely large-cap stocks by South African market
standards do most of their business in value terms outside of
SA, more often than not employ most of their staff outside SA,
and are logically also predominantly owned by foreigners.
Despite the above facts, aggregate transformation statistics
across the market are often cited by policymakers and others as indicative of the levels of transformation across the South
African economy. In figures quoted last year by the National
Empowerment Fund, and endorsed by the Presidency, it was
claimed that 3% of the JSE is in black hands. This study did
not take into account various categories of black participation
in the exchange, most notably black membership of pension
funds, often referred to as indirect ownership or ownership
through mandated investment schemes.
In studies published by the JSE, based on research performed
by Alternative Prosperity, the following aggregate statistics
were revealed, using the JSE Top 100 and the Shareholder
Weighted (SWIX) Indices as a basis:
The above statistics, however, only reveal a very small part of
the story that policymakers and investors should take note of.
The first aspect worth considering is the significant foreign
portfolio investment on the exchange. According to our
research, foreigners own approximately 40% of the market
when SWIX is used as a basis. Alternatively, they own in
excess of 60% of the market when the foreign registers of duallisted
multinationals are taken into account.
This is an entirely logical outcome of the fact that many foreign
companies have chosen to list on the JSE to take advantage
of our well-regulated, transparent and relatively liquid market.
In addition, many South African companies have significantly
diversified their operations outside South Africa post 1994.
This expansion, it could be argued, has largely been funded
by foreign shareholders. Stated differently, South Africans only
own 40% to 60% of the market, dependent on which basis
is used for the analysis. This dynamic is in all likelihood very
different in the unlisted part of the economy.
The second dynamic that should be taken note of is that
pension funds are the predominant South African owners of
listed equity. In aggregate, institutional investors, who invest
on behalf of the “man in the street” (principally members of
employer-sponsored pension funds, life insurance policyholders
and unitholders of unit trusts), own around 39% of the SWIX.
Individuals, private investment companies and the like own a
very small percentage of the market in aggregate, other than
in the minority of instances where the founders of the business
still hold a substantial equity stake.
The various BEE consortia are by far the largest category of
private/direct owners. However, the extent to which individual
black shareholders can influence the activities of companies
through these structures, varies between consortia.
It is thus imperative that policymakers actively monitor the
aggregate extent to which previously disadvantaged individuals
are participating in pension funds and the like, as this arguably
represents the only reliable market statistic that can be used as
a proxy for the transformation of asset ownership within the
economically active population as a whole.
The third important dynamic, with respect to policymakers and
investors, is the potential effect of significant BEE exits from
listed companies (principally miners and financials), post the
publication of the above research. Some of these companies
are being actively lobbied to do replacement transactions.
Others may require replacement transactions for commercial or
licensing reasons. Some of these companies (financials) will be
required to increase levels of “below-the-line” empowerment in the form of equity-equivalent financing. In our view, investors
should actively engage with affected investee companies on
a proactive basis – vis-à-vis their respective takes on “where
to from here” regarding BEE ownership. As if to complicate
matters further for investors, the mining, fuel and construction
sectors currently face an uncertain future, vis-à-vis broad-based
black economic empowerment (B-BBEE) regulations pertinent
to their sectors.
Finally, it should also be noted that the above statistics merely
represent averages across the market. Within the average,
there are many listed entities that significantly exceed regulatory
BEE targets, as well as many that fall far short. Most companies
publish BEE statistics in the public domain. Some, curiously,
don’t. Active investors should, in our view, be engaging with
listed entities in the portfolios – to encourage transparency
and comprehensive disclosure of B-BBEE credentials, and
with a view towards interrogating the reputational, legal and
commercial risks that companies with inadequate B-BBEE
credentials may be subject to. In this context, it should also
be borne in mind that regulators are increasingly scrutinising
listed companies operating in all sectors, BEE credentials, and
will shortly be compelling listed entities to report transformation
credentials to the office of the BEE Commissioner.