South Africa: New Cape Town Stock Exchange to target the small caps JSE leaves behind

By Ray Mwareya, Nyasha Bhobo
Posted on Thursday, 16 September 2021 11:23

Cape Town's planned new stock exchange is betting that the Johannesburg bourse has become too big to serve small companies. REUTERS/Siphiwe Sibeko.

South Africa's Cape Town city, which bills itself as Africa's digital hub, is set to have its own stock exchange with simplified listing rules to encourage small companies.

The Cape Town Stock Exchange (CTSE) is poised to launch on October 1 under the leadership of CEO Eugene Booysen. “South Africa and Africa needs to know there’s an alternative to the JSE,” Booysen tells The Africa Report.

The CTSE is a rebranding of the 4 Africa Exchange, (4AX), which will be moving from Johannesburg, the country’s financial hub, to Cape Town. The exchange will be known as the CTSE from 1 October. The 4AX is one of the two operational, licensed stock exchanges in South Africa, with licenses for both equity and debt listings.

Blue Sky

As Africa’s largest bourse, the Johannesburg Stocks Exchange (JSE) is slowly becoming a victim of its own success. Its listing rules are expensive for small and medium caps looking to raise equity. On 18 August, the JSE suffered a high-profile malfunction when, due to a technical glitch, it failed to open equities trading on time.

  • Booysen argues that smaller companies need an alternative. The JSE has “become too big”, and has “lost the ability to service the small to mid-cap companies”, he says.
  • He sees a potential South African debt and equity market cap of  $139bn and says the JSE only targets 15% of that.
  • The new bourse won’t need to compete with the JSE, he says. “It’s the blue-sky remainder we are going for.”

Booysen sees structural problems with stock exchanges across the continent. “I don’t think those indexes on exchanges accurately target the domestic economies. A large portion of companies that sit on those indexes derive their earnings from offshore bases,” and investor funds are “not very specific to local locations.”

Lower costs

The CTSE owns its exchange registry technology, and is privately cloud-hosted, facilitating remote working, says Booysen. The new bourse aims to reduce the burden of red tape, including disclosure, transparency costs, managing shareholders, registry, governance, annual general meetings and e-voting. “All of that can help companies significantly reduce the cost of listing,” says Booysen. “It’s about creating alternative opportunities to raise capital and hopefully reduce the cost of finance.”

Though the CTSE won’t at first host indexes on the platform, its listing rules do make provisions for indexes, exchange-traded funds, and blockchain alternative finance. “We won’t be listing any specific indexes ourselves but we have clients that are busy creating to list in the exchange,” says Booysen.

  • Currently the exchange has eight listed entities, with another listing planned for September 30 and three more equity listings planned before year-end, he says;
  • Cape Town is pitching itself as the digital hub of Africa, so the city needs its own exchange, Booysen says.  “Cape Town now has the opportunity to market itself as a digital hub city with a stock exchange.”
  • The government of the Western Cape Province has been very accommodating in helping the CSTE take off because the city gets to have another high-profile employer.  The CTSE’s “digital-first model” closely aligns with the city’s aims, he says.

African ambitions

The CTSE, which is aiming for companies with capitalisations between R100m and R2bn ($7m to $140m), is open to players beyond Cape Town city.

“I don’t care whether your company is based in Cape Town or Cairo. We are looking at you for a listing. We hope to create an epicenter for investors to look at companies that are coming through. I’d like to see companies based in Kenya, Nigeria, all of them coming to the CTSE as an alternative to the JSE. And not just for equity, that includes debt.”

Bottom line

The new exchange aims to make Cape Town a hub for small-cap African listings.

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