JSE presents findings on black ownership on the JSE
Johannesburg – Today the Johannesburg Stock Exchange (JSE) released its first findings on the ownership structure of companies listed on the JSE. According to independent studies, black South African investors currently hold 18% of the available share capital in the top 100 companies listed on the exchange. The available capital is calculated according to the requirements set by the Department of Trade and Industry (DTI).
This analysis was inspired by the broader debate that has been going on for some time about black ownership of the JSE, which is seen as a good indicator of South Africa's economic progress and transformation. “There has been much debate about black ownership on the JSE. Various and vastly different numbers have been mentioned. With the JSE's unique access to data sharing, we wanted to enrich the debate by presenting the facts in an unbiased way,” says Russell Laubser, CEO of the JSE.
The JSE commissioned research, the first of its kind in South Africa, with the aim of determining and presenting the exact percentage. The analysis – which took five months to complete – was conducted by independent research house Trevor Chandler & Associates using real shareholder data obtained from the share registers of listed companies. The methodology and results were verified by AQRate verification services. “We believe this is a comprehensive study based on a rigorous and transparent methodology,” says Laubser.
Laubser explains that the top 100 companies of the JSE by market capitalization were taken as the study universe. This represents 85% of the total market capitalization of the exchange.
The methodology chosen for the study has its roots in South African regulation. “It made sense for the JSE to select a methodology that is rooted in law and is widely used, rather than developing an alternative methodology,” says Laubser. The requirements of the DTI Code of Good Practice were used as the basis for the study. These requirements are used to determine BEE ownership levels in companies.
For DTI codes a company's BEE economic interest must be calculated by taking the total share capital and excluding mandatory investments (such as pension funds), state-held investments, treasury shares (which are held by a company) and foreign operations (ie, company-owned operations outside South Africa). Additionally, cross holdings between entities listed in the top 100 were identified and removed where necessary, effectively eliminating duplicate capital on the exchange.
Taking these exclusions into account, the pool of share capital available for investment in each top 100 company is equivalent to 44% of the total market capitalisation. Of this available pool, the study found that 18% is owned by Black shareholders.
|
Total market capitalization of SA traded equities |
100% |
|
Low Cross Holdings and Treasury Shares |
11% |
|
real capital |
89% |
|
Low mandatory investment (38% out of 89%) |
34% |
|
less state had shares |
1% |
|
total capital measured |
54% |
|
Low foreign operations % of total capital measured (19%) |
11% |
|
total available share capital |
44% |
|
|
|
|
Black shareholding 8% ÷ total available share capital |
18% |
Note: Numbers have been rounded off
According to the DTI code, foreign ownership (JSE-listed shares owned by foreign investors) was included in the study. If you take this calculation a step further by removing foreign ownership, which by definition excludes all South Africans, the JSE estimates that 36% of the available share capital is held by black shareholders.
Due to BEE shareholding requirements in companies, it is possible to determine how much ownership black shareholders have in listed companies; However it is more difficult to determine how much share is held by white investors.
“It's important to note that this is a complex matter – it's not a simple matter of separating black investors from white investors,” Laubser says, “We also don't have accurate data on retail investors because race breakdown is not required when opening a brokerage account.” Therefore, it is not correct to say that the balance is held only by white investors.
The percentage certified through the study only includes those individuals who, with current data, are able to be established to be black and excludes black economic interests in essential investments. It is therefore likely that further analysis will indicate more widespread black shareholding of companies listed on the JSE.
“The JSE plays a role in encouraging all South Africans, including black investors, to invest on the exchange. This study indicates that there is a good basis for increasing black ownership in particular,” says Laubser. Over the years the JSE has launched a number of initiatives to improve financial literacy and encourage South Africans to invest on the JSE.
This is the first study of its kind to be owned by the JSE. “While we believe this is a comprehensive study based on a rigorous and transparent methodology, we acknowledge that there is further work to be done to refine these data, which we believe are conservative. “We are open to suggestions from individuals or companies who have relevant data or insights to refine our methodology,” Laubser says.
Laubser says the JSE will conduct further research with the aim of playing a constructive role in moving the ownership debate forward. The focus will be on gaining a better understanding of ownership in mandated investment vehicles and the retail investor sector. This is an important time in South African history when the existing BEE codes have come up for review.
Statement issued by Russell Lobser, CEO of the Johannesburg Stock Exchange, on 1 September 2010
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