It has been a lean year for the investment banks and financial advisers that, as sponsoring brokers, hold the hands of listed companies as they work through the increasingly complex JSE listing rules. They had to contend with a variety of obstacles to deal-making: regulatory ones, shrinking markets and a lack of appetite for corporate deals.
Most financial advisers will admit their sponsor services are a gateway to more lucrative corporate finance deals. For example, JP Morgan and Cazenove are sponsors to SABMiller and both were involved in the large deal in which US brewer Miller was acquired by SA Breweries last year.
The job of sponsor alone is not much of a money spinner. So a hiatus in corporate finance activity has delivered a double blow to the large sponsors - the core, generally loss-leading activity is not translating into serious advisory or banking work.
New JSE rules have increased the responsibility of sponsoring brokers, now known simply as sponsors, from being a close share dealer to being a complete adviser to a company on its listing. In theory, a sponsor could be held responsible if a listed entity inadvertently fell foul of JSE rules.
But before anyone feels too sorry for these former monarchs of the JSE, let's not forget that they made some reasonable money from delistings last year. Though the fees made from delistings are far smaller than those from new listings or from mergers and acquisitions, the sheer volume of delistings meant that these merchant bankers didn't go hungry.
The mechanical side of the delisting is not the lucrative part. Of far more importance is their role in funding the delisting scheme. Often, a management consortium will make an offer to buy out minorities and then delist. The merchant banker's role here is to organise the funding for such buyouts .
Nedbank Corporate is sponsor to the largest number of listed companies, with 32 under its belt. But apart from Nedbank itself, that collection of clients doesn't include many market-cap heavyweights. It's followed by Investec Corporate Finance (25), RMB Corporate Finance (21), Merrill Lynch (17) and HSBC (16).
The really big listed entities are sponsored to a large extent by the global investment banks and stockbrokers, such as Cazenove, Deutsche Securities, JP Morgan Equities, Merrill Lynch, HSBC and UBS Warburg.
Much of the credit for gaining these sponsorships in the first place must go to the investment research teams in these firms.
Cazenove (brokers to the Queen and SABMiller) has an especially impressive list of sponsoring brokerships. Though the firm obtained its SA trading licence only in 1998, it had been in this country for many years and had established corporate finance relationships with many SA heavyweights in that time.
Merrill Lynch's sponsor list is equally impressive and though part of it undoubtedly relates to its Davis Borkum Hare heritage (such as Aflife, Imperial, Liberty, Liberty International and Liberty Holdings), much more relates to its more recent dealings, such as the London listings of Didata and Old Mutual. Last year, many of Merrill's corporate finance team left for Schroder Salomon Smith Barney. It will be interesting to see whether Merrill Lynch retains all its existing clients after this exodus.
UBS Warburg's sponsorship list is small but select . It is probably the best example of a global firm with a relatively small and dedicated local research team that covers only the larger JSE stocks.
Deutsche Securities seems somewhat incongruous among some of its global rivals when one compares sponsor lists. Implats and Avgold are the only top-40 stocks in its list of sponsorships and yet Deutsche has been rated either first or second in the FM Analyst of the Year awards for many years.
Barnard Jacobs Mellet, the largest local stockbroking firm, also has a small and select list of sponsorships. Included here is Northam, a large platinum producer. BJM employed the top-rated platinum analyst, René Hochreiter, until his departure for BoE (now Nedcor) Securities last year.
