JSE branches out into private fundraising, hoping to kill two birds with one stone

The JSE has partnered with UK fintech company Globacap Technology to launch private placement platforms for infrastructure and SME fundraising.

The JSE will also offer digitised and automated registry services through Globacap.

In the process, it is killing two birds with one stone. It is expanding its business offering into the private capital market space and it is embracing digital technology in a way that will enable it to reduce costs and complexity on the labour-intensive back-end administration process.

Public equity markets, such as those serviced by the JSE, the London Stock Exchange and the New York Stock Exchange, have been in decline for years. This has nothing to do with declining levels of entrepreneurial activity and everything to do with cheaper ways of raising capital. 

The JSE and its ilk will be the losers in the long run unless they take steps to address it.

The proposed platform will enable private capital raising for infrastructure finance and SMEs – two sectors that are very much under the spotlight.

“The private equity space has grown significantly while public markets and IPOs are contracting,” says Leila Fourie, CEO of the JSE. “This is an opportunity for the exchange to apply its knowledge and skills from the listed sector to help to transform the private capital market.”

This, she adds, does not mean that the JSE will be competing with the private equity market when it comes to capital raising, but working with the sector in a complementary fashion.

“The private capital market is growing, but it is opaque, slow and inefficient, which adds to the cost of capital,” says Valdene Reddy, director of Capital Markets at the JSE. 

“We will use Globacap’s technology and expertise to progress infrastructure finance and SME private funding. The deal will help stimulate investment into those markets by narrowing the funding gap and supporting job creation and economic growth.”

Globacap, which operates across 50 capital markets globally, has embraced blockchain technology to simplify the flow of private capital by digitising what are complex, slow and very manual processes – in a very secure manner. 

“Our technology has transformed access to, and management of capital for private companies and investors. We help businesses scale and we create liquidity by enabling efficient secondary transferability of private assets. We have changed the way private capital markets operate,” says Alex Green, founder of Globacap.

The move dovetails with the South African government’s renewed focus on infrastructure investment, which President Cyril Ramaphosa hopes will unlock R1-trillion in investment over the next four years.

While some of this will be raised from development banks and other multilateral institutions, a fair portion will also come from the institutional savings market – which may appreciate the transparency of the new platform.

In addition, the JSE hopes the platform will provide a springboard for infrastructure investments on the rest of the continent.

African infrastructure funding requirements are estimated to range from $130-billion to $170-billion per year, but commitments fall short of funding requirements. Thus, facilitating easier access to and greater efficiency of infrastructure investment in Africa will help unlock large economic gains in the region.  

As part of the agreement and the JSE’s own growth strategy, the company will also be investing R82.6-million (£4-million) into Globacap as part of a Series A funding round. This is but a small portion of its R2.6-billion cash pile and is expected to be finalised during the first quarter of 2021.

“The Globacap collaboration and investment is part of our ongoing strategy to sustainably grow and diversify our business,” says Fourie. DM/BM