In the past four years, the number of companies listed on the JSE has fallen from just under 670 to around 460.
The pace of delistings in the past two years has been particularly fast. Last year 79 companies delisted. Only a few, such as BoE, NIB and Investment Solutions, had reasonable market capitalisations but a few other well-known names also bit the dust. These included Dunlop, HL&H, Malbak and Midas.
During the first quarter of 2003, 11 companies had already delisted: Arcay, Crux, Forza, Edata, FBC Fidelity, Homechoice, IFANet, Laser, Ninian & Lester, Streamworks and Tradek.
The outlook for the remainder of 2003 is not good, especially if weak market conditions prevail. Only two listings have occurred in the first quarter of 2003: Telkom and John Daniel Holdings.
Apart from the primary objective of raising new capital, companies list to provide a medium of exchange for acquisitions and the granting of share options. Under present market conditions, none of these factors confers any special advantage on a company. Delisting also removes a company from the scrutiny of shareholders. Thus, unless market conditions improve significantly, a further reduction in the number of listed companies seems probable.
Maybe the best way to view the decline in share numbers on the JSE recently is as a purge. Seen this way, it's probably a healthy thing.
But the exchange is beginning to look rather anaemic. And there are other ramifications. As the penny stocks disappear, the chances for small punters to do well from a small investment evaporates.
One of the reasons often cited for companies delisting is the cost of remaining listed. The JSE goes to great lengths to highlight the fact that the direct costs of maintaining a listing are relatively low. It's the indirect costs that make the difference.
Listed companies tend to have at least one person who acts as spokesman for media and investor relations inquiries. This can be an expensive exercise, especially if the person is a full-time staff member. Even when a staff member has this responsibility, it is common to employ the services of an outsourced media and investor relations firm as well. These indirect costs soon add up and a small-cap stock may end up with indirect costs exceeding R1m/year.
Though public unlisted companies are required to publish annual reports, they are not required to publish results in daily newspapers, nor is there much pressure to produce glossy reports. They also tend to have a much smaller shareholder base, which makes the cost of informing it lower than for a listed entity.
And it's not just the cost of maintaining a listing that's tempting companies to delist. It is becoming much more difficult for many companies to comply with new corporate governance standards.
But the main reason for delisting surely must be the inescapable fact that many of these companies are just so cheap that it's a great time to buy out the minorities and delist.
The long-awaited small companies board on the JSE should be in action soon. The JSE has deliberately taken its time with this one to ensure that it doesn't appear to be the "poor relation" of the main board. This may slow down the exodus of companies from the exchange.
