JSE launches simplified listings requirements

Apart from structural and cosmetic changes involving a rearrangement and streamlining of the various chapters, the following observations are made in relation to the more substantive changes brought about by the new Listings Requirements in relation to corporate actions and dealmaking:

• The shareholder approval threshold for non-pro rata issuances of shares for cash (by way of a general or specific authority) has been dropped from 75% to an ordinary majority of 50%+1. Of course this does not derogate from the Companies Act requirement of a special resolution (75%) if the share issuance happens to fall within the ambit of section 41 thereof, namely an issuance to related parties (as defined in the Companies Act) or to directors or prescribed officers, subject to the applicable exceptions, or where the 30% rule is triggered.  This arguably is the boldest of the amendments to the Listings Requirements for many years, and will greatly facilitate equity capital raises.  It aligns the Listings Requirements with other top stock exchanges of the world.
• A similar drop from 75% to 50%+1 applies to non-pro rata share buy-backs, whether under a general or specific authority from shareholders. It remains the case that general repurchases must be effected on the market without a prior understanding with the counterparty.  The excitement in relation to specific repurchases (off market) is however short-lived, as they will still be caught by the overarching special resolution (75%) requirement in section 48(8) of the Companies Act which was overhauled last December.  Whilst the new section 48(8) is not a model of clarity, and could be read as requiring a special resolution only where the repurchase is from a director or prescribed officer, the predominant view is a more conservative one namely that a special resolution is required for any off-market, non-pro rata share buy-back regardless of the identity of the counterparty.
• Issuers should also remain alive to the fact that the Companies Act does not contain a similar carve-out for intra-group repurchases as contained in the Listings Requirements (and which was already introduced some time before the Simplification Project). Issuers thus need to consider the inclusion of a Companies Act section 48(8) special resolution in their AGM notices for intra-group share buy-backs (this can in principle be a standing and perpetual authority from shareholders, and need not be renewed annually).
• Also, specific cash issuances (at a discount) and buy-backs (at a premium) involving related parties will no longer require an independent expert's fairness opinion. In fact, the expert's fairness opinion requirement has been removed generally throughout the Listings Requirements, including for related party transactions (disposals, acquisitions and other agreements).  It is considered that the numerous other safeguards provide sufficient protection, such as shareholder approval (which cannot count the related party and its associates), enhanced disclosure of the related party's identity, and the requirement for an independent board to consider the matter.  A mandatory fairness opinion will now feature only in the context of the JSE delisting resolution (which remains at 75% and excludes the votes of the offeror and its associates and/or concert parties).  Outside of the delisting context, a fairness opinion will be voluntary only.  
• Both in respect of specific share issuances and buy-backs, the principle remains that under the Listings Requirements the counterparty (subscriber or seller, as the case may be) and its associates cannot vote, whereas the Companies Act has no such preclusion. The Companies Act therefore maintains the traditional and general position in company law that shareholders, unlike directors, are not bound by fiduciary conflict-of-interest rules and should therefore not be precluded from voting on matters wherein they have an interest – the only exception to this being the sterilization of the "acquiring party's" votes in the context of fundamental transactions.     
• In respect of delistings, express recognition of foreign schemes of arrangement and squeeze-outs has been introduced, although in practice the JSE has for a long time generally accepted foreign schemes and squeeze-outs as being acceptable forms of offers which result in the issuer no longer meeting the spread requirements for a listing – with the effect that an additional JSE delisting resolution was not required. Foreign schemes in fact for the most part still entail court sanction, over and above shareholder approval, and therefore typically provide ample protection to public shareholders.
• Category 1 and 2 transactions now need to be announced "as soon as possible" after terms have been agreed, as opposed to immediately upon signing (as is the current position). Whilst at first blush this may seem to be a slight or semantic change, it goes some way in resolving a problematic mismatch which often rears its head in the context of major disposals: On the one hand, the JSE's current requirement is the immediate announcement of a signed category 1 agreement, even if it is still be subject to a due diligence requirement or the like; on the other hand, the takeover law principle is that one cannot go live with a firm intention announcement (for example, for a section 112 disposal) if there are still conditions precedent which are within the control or subjective assessment of the offeror.

Watch this space for an upcoming presentation by the CDH Corporate and Commercial practice area with regards to the JSE Simplification Project.