Series 1 : Article 2
JSE Aiming at Cutting the Red Tape
Transactions – Ordinary Course of Business Exemption
JSE targets effective and appropriate levels of regulation
As mentioned in the Merchantec Capital Sponsor Team’s first article in the Series “JSE Aiming at Cutting Red Tape” dated 22 June 2021, the JSE is – as set out in its Consultation Paper published in March – looking to make the application of the Listings Requirements easier. The objective is to do away with “red tape” to facilitate a more flexible and fit-for-purpose application whilst supporting an environment to allow JSE listed companies to focus on their business and operations.
With the key focus of the Consultation Paper being “effective and appropriate level of regulation”, the JSE is proposing amendments around, inter alia:
Transactions – Ordinary Course of Business Exemption
Before we consider the proposed amendments, let’s look at the Current Listings Requirements’ provisions
Transactions, principally acquisitions and disposals by JSE listed companies and their subsidiaries, are governed by the provisions of Section 9 of the Listings Requirements. In terms of these provisions, transactions which occur in the ordinary course of business where the percentage ratios of consideration to market capitalisation, or dilution, are equal to or less than 10%, are exempt from the application of Section 9. Related party transactions pursuant to Section 10 are also subject to the ordinary course of business exemption.
What has been proposed?
The JSE has proposed two options: (i) the removal of the 10% limitation when categorising a transaction that falls within the ordinary course of the Issuer’s business; or (ii) increasing the 10% limitation to 30%, in line with the Category 1 transaction threshold requiring shareholder approval.
The JSE has also proposed that ordinary course of business transactions with related parties are announced on SENS. Pertinent details of the transaction would need to be provided, without necessarily including pricing information. Disclosure of the broader nature of the transaction will be required, as well as the processes followed to approve and conclude the transaction. Additionally, the opinion of independent board members that the transaction is in fact in the ordinary course of business and was concluded on an arm’s length basis, will be required.
However…
Issuers should note that the JSE will determine whether it will classify a transaction as being in the ordinary course of business; the Issuer’s board will not be able to make the assessment at their discretion. The board will be required to consider whether the transaction constitutes price sensitive information pursuant to the provisions of the Listings Requirements and may be required to publish an announcement on SENS.
What is the JSE’s rationale for the proposed amendments?
The JSE believes it must be cognisant of an Issuer’s activities in the ordinary course of business, especially when time sensitive and where a third party doesn’t necessarily appreciate or understand the JSE regulations on transactions. The proposals may also afford Issuers more flexibility to pursue transactions in the ordinary course of their businesses.
Would the proposals be beneficial to your company?
The Merchantec Capital Sponsor Team is going to keep unpacking the proposals contained in the Consultation Paper over the course of the next few weeks…
We hope that you will enjoy this series, and look forward to receiving your feedback.
