Pick n Pay got into trouble with South Africa’s big banks. That is what it means when a company needs to “strengthen its balance sheet”. It is why Pick n Pay had to have a hugely discounted rights offer and why the creditor banks earned the maximum possible underwriting fees. The banks forced Pick n Pay to make the offer; they underwrote it and consequently they determined the discount at which the offer was priced.
The banks had taken the driver’s seat. And those same banks are calling the shots on the forced Boxer “IPO”.
Half of the business is to be sold to raise cash for the Pick n Pay mothership to reduce debt. There is nothing inherently wrong with what the banks are doing – they must forcefully protect their depositors’ cash and their shareholders’ capital. It is what they do. Don’t for a moment imagine that Pick n Pay’s board or shareholders have much say at all, despite them being required to approve the Boxer share sale in a general meeting.
What the banks don’t seem to realise is that they are hurting South Africa’s public markets. Not because they are doing the wrong thing as banks – they are not – but because they could be so much more thoughtful stewards of our public markets.
The 2008 Companies Act describes a new listing as an “IPO”, an Initial Public Offering. The Act’s default, and therefore the legislature’s intention, one would think, is that a new listing should be a public offer – it is my reading of the Act, but it is also right there, as clear as day, in the name.
Section 96.1 of the Act sets out certain exemptions from the public offer requirements – when an offer is limited to banks, financial institutions and stockbrokers (as principal or agent), and those individuals who can stump up a minimum of R1-million, for example. If an offer is only made to entities like this, then it need not be advertised, no prospectus is registered, and the pre-listing statement generally goes out on SENS well after the offer is fully subscribed. Perversely, this approach is now the market practice rather than the exception. This kind of new listing offer is hardly an IPO – no matter how often you call it that.
If you are not favoured with an invitation to participate, you usually won’t even know about the listing until it is too late. Only the chosen few, the well connected, the old money, the old school tie, the Stellenbosch mafia, dare I say it, WMC – choose your moniker – will get the tap on the shoulder and the whisper in the ear. What won’t happen is an open advertisement to all, followed by a fair and proportional allocation of shares.
This is financial exclusion in vivid colour. Our money is not all the same.
In the meantime, the JSE is haemorrhaging listings – throughout the economic cycle – and is down by more than half in the past 20 years. Trade volumes and liquidity are down too, especially outside the top 100 companies.
These things are not unrelated. All dynamic, growing public markets have one thing in common – significant levels of direct investor participation in both primary capital raising and secondary trade. Both of which are increasingly rare on the JSE.
The bank advisory teams running the Boxer share sale could do much to strengthen the very market from which they earn their keep. Boxer is a well-known and successful retail brand – direct investors would likely flock to participate in a public offer. A whole new generation of investors would begin to directly participate in our public markets.
It seems our banks would rather look after their cosy relationships with the dominant legacy financial institutions and give exclusive access to the offer to their own already high-net worth clients, rather than take the opportunity to grow participation in South Africa’s struggling public markets.
Read more: The Finance Ghost — the lowdown on Pick n Pay putting Boxer in the ring, and Bidcorp’s bolt-on boost
Read more: After the Bell: Are retail shareholders being ‘rope-a-doped’ in the Boxer listing?
I’m trying to understand why the banks are so resolutely blind and deaf to the good they are choosing not to do. They could achieve the same price, raise the same amount of money and earn the same fees at the cost of perhaps just two weeks on the transaction timetable. They could, for little extra effort, fundamentally strengthen the very market they claim to care about.
If you are a client of one of the banks running the Boxer “IPO” perhaps you should ask them about their exclusionary choices. If you are on the board of the JSE perhaps you could ask your counterparts at the banks. As voters perhaps we should ask a legislator if financial exclusion was the intention of the 2008 Companies Act.
JSE management, sadly, seems to be an idea-free zone when it comes to increasing direct investor participation in primary capital raising, so there is no point in directing any queries there.
Finally, if you are an existing direct investor in Pick n Pay and were hoping for a share of the Boxer offer, don’t bother asking the Pick n Pay board anything at all. The banks clearly have the board well and truly strung over a barrel and know full well that the general meeting vote will be carried by the large financial institutions – who probably already have their VIP invitations to the Boxer party. DM
The Boxer case and how South Africa’s big banks damage the JSE
There is nothing inherently wrong with what the banks are doing with the forced Boxer ‘IPO’, but what they don’t seem to realise is that they are hurting South Africa’s public markets.
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