The term "sponsor" came about a few years ago and replaced "sponsoring broker". A sponsoring broker was in effect any member firm of the JSE Securities Exchange (JSE) - in other words, a stockbroking firm. They could bring companies to list on the JSE and weren't required formally to have any specialised skills.
That all changed with the move to sponsors, who are no longer required to be members of the JSE. But they do have to exhibit the necessary corporate finance skills associated with providing corporate advice.
As from the beginning of 2004, every company listed on the JSE is required to have a sponsor at all times, not just for corporate "events" such as mergers, acquisitions and equity placings.
Then there's a special type of sponsor, the designated adviser (DA), used in the new small-cap exchange, AltX. DAs have even greater responsibility than sponsors and need to have considerable corporate finance skills.
The main role of the DA is to "competently, professionally and impartially advise the applicant company on all its responsibilities during the application process and its responsibilities to maintain its status once listed".
The DA is the guardian of the listed company's compliance with the JSE listings requirements and other applicable regulations.
A DA must hold regular reviews of the company's actual trading performance and financial condition, to ensure appropriate disclosure of information to investors. At least one of the DAs must attend all company board meetings in an advisory capacity; and all the approved executives of the DAs must attend at least four of the six annual DA forums hosted by AltX.
The large investment and commercial banks dominate the sponsor market.
Multinational investment banks and stockbrokers have the lion's share of the SA giants, which is not surprising. Most stocks that are dual-listed in London and Johannesburg fall into this category. Large mining companies tend to use these investment banks because they offer foreign expertise. They also generally have the best investment research coverage, especially on the large-cap stocks.
The smallest of the multinationals, Cazenove, has an enviable list of sponsorships, including Anglo American, SABMiller, Barloworld, Tiger Brands, Altron, Edcon, ABI, Highveld, City Lodge and Wooltru. Cazenove has been in SA for more than 30 years - much longer than any of its foreign rivals - and has established extensive relationships with many SA companies. That helps to explain its impressive portfolio. "Caz", as it's known in the industry, gained its local stockbroking licence only in 1998. Before that, it had a "listening post" and nurtured its corporate finance relationships.
The multinational investment banks such as Deutsche Bank, HSBC, JP Morgan, Merrill Lynch and UBS have their fair share of the large-cap companies, but the multinational accounting firms are not well represented as sponsors.
Some of the large investment banks reviewed their portfolios a few years ago and unceremoniously booted out many smaller clients that were deemed to be of little value. Examples of smaller companies that got this treatment were Steers (now Famous Brands) and City Lodge. Both were informed of their "change of status" by fax. Famous Brands' sponsor is now local niche sponsor Java Capital, while City Lodge is represented by Cazenove. Other smaller beneficiaries in the small- and medium-cap market were Bridge and LPC Manhattan.
Bridge Capital Services is a relative newcomer but has captured a useful client base. It aims to be the leading consultant and adviser to, and investor in, small to medium growth businesses. Veteran corporate finance specialist Simon Oliver, formerly of Société Générale and Sasfin, is a consultant to Bridge.
Among the SA giants, Absa is a sponsor only to itself. First National doesn't have any notable sponsorships, but that's because its sibling in the FirstRand group, RMB Corporate, is heavily involved in this arena.
Considering its importance in the local commercial banking industry, Standard Bank seems rather underweight on sponsorships. Apart from being sponsor to itself, it has AVI, Oceana, Durban Roodepoort Deep, Assore, Cemenco, Grayprop and Prism in the giants league. With a couple of exceptions, such as AVI and DRD, the rest are hardly household names. Nedbank Corporate doesn't have too many heavyweights in its portfolio either.
