Training workshop for Designated Advisers of Lusaka Stock Exchange

Training workshop for Designated Advisers of Lusaka

Stock Exchange

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Overview

Role of the DA

Responsibilities

Preparation for listing

Methods of listing

Marketing

Modes of payment

Disciplinary action

Failures & successes

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Role of DA on JSE

Prepares company for listing (with attorneys & accountants)

Company on ALTx 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

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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

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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

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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

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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

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Preparation for listing (1)

Misconception-Client meets DA-Client meets all Listings Requirements -DA prepares presentation to ALTx Committee-DA prepares prospectus-Client lists within 3 months

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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 ALTx Committee-Prospectus prepared-Roadshow & marketing-Client lists after 24 months!

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Preparatory stepsDetermine what has to be done & timetableSanitise: remove personal assetsCorporatise: MOI/agreements/licencesRestructure: create holding co & opco’sBeef up Finance DepartmentAppoint non executive directors to BoardEstablish corporate governanceAdopt appropriate policiesWait for next set of clean audited results

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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

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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

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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 ALTx / LuSE: Directors & DA present Prospectus to Listings

Committee

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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

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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

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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

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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%)

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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

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Amendments to JSE LR JSE LR have been amended with effect from 1 October 2014.

Examples:

Written resolutions allowed for all companies listed on ALTx; no meetings therefore required – only proxies.

All circulars for companies listed on ALTx in summary circular format only.

Incorporation by reference allowed in circulars (full disclosure in prospectuses); could help with CPR’s

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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)

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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

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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

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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

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Contact Details

Marius MeyerTel: 27 11 880 2113 or 082 495 4405Email: marius@exchangesponsors.co.za

Van Zyl SwanepoelTel: 27 11 880 2113 or 082 654 6719Email: vanzyl@exchangesponsors.co.za

Mareo BekkerTel: 27 11 880 2113 or 082 900 3804Email: mareo@exchangesponsors.co.za

Keeley ErmannTel: 27 11 880 2113 or 083 626 6814Email: keeley@exchangesponsors.co.za

Paul PretoriusTel: 27 11 880 2113 or Email: paul@exchangesponsors.co.za

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Contact details:

Address: 44A Boundary Road, Inanda, Johannesburg

Telephone : 011 880 2113

Fax : 011 447 4824

Website : exchangesponsors.co.za

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