Mixed reaction to markets` closure

By Iain Scott, ITWeb group consulting editor

Johannesburg, 16 Jan 2004

The JSE`s decision to close down its venture capital (VCM) and development capital (DCM) markets has met with mixed reactions from affected IT companies.

All of the 37 companies on the two boards, 13 of which are technology firms, have been informed of the decision, which JSE president Russell Loubser says is proposed to take effect on 30 July.

"Our reason for closing these markets is simply that they have been a failure and the decision was not taken lightly," he says. "The VCM and DCM have been characterised by low liquidity - the average daily trade on these boards is approximately 100 trades per company per month. The sound companies have also been tainted by some poor performers."

Loubser says the JSE has begun a continuing process of engaging with the affected companies. "Enough time will be given to ensure that these companies can make an informed decision in their best interests."

The companies can either move to the main board or to the alternative exchange, AltX if they meet the listings requirements. They may delist if this makes more sense for the business, says Loubser.

However, he says if a company`s application is not approved, or if it decides not to apply to move its listing to AltX or to the main board, the JSE will consider, among other options, terminating the company`s listing.

AltX is the alternative market set up last year and aimed mainly at offering small and medium growing companies the opportunity to list.

"We have made it clear that we will only be accepting quality listings on AltX. We are not prepared to compromise standards. We have seen that when we are less vigilant, this creates further problems for investors."

Costly

The reaction from IT companies affected by the move has been mixed, with some saying they will apply for an AltX listing and others saying they will have to evaluate their options. Some may seek legal opinion.

Zaptronix, a VCM-listed company, is majority owned by turnaround specialist Gandalf Trust. Although Zaptronix aimed to delist last year, Gandalf`s Jan Nel says the company will apply to move to AltX, "but we won`t try to do that in its current state".

Gandalf`s model has always been to effect reverse listings into poorly performing companies. Among the companies it has listed in the past are Spectrum Shipping (formerly Micrologix) and Zenith. It is also taking ice-cream manufacturer Milkworx to AltX.

Nel says Gandalf supports the AltX concept, although he concedes that it might be costly for some companies.

"We have plans for Zaptronix," he says, adding that the company will be ready for an AltX listing before the VCM`s closure.

Mark Smith, chairman and CEO of VCM company Interconnective Solutions, says his company is "taking a holding position" and evaluating its options.

"Obviously they`re trying to rejuvenate the board, but practically speaking there are several problems," he says.

Smith says the figures Interconnective has been examining indicate that an AltX listing will incur significant additional costs.

He says the legal aspect of the JSE`s decision is a grey area and would require expert legal opinion if a company`s application to transfer to AltX were rejected, since the terms of a VCM listing were met and "then the JSE altered the terms of the contract".

The timing of the decision is also not good for Interconnective. "We have spent a lot of time refocusing our business and there is a lot of opportunity for us now," Smith says. "This comes at a time when it effectively takes our eye off the ball. The timing couldn`t be worse."

He says if the company decides to apply for an AltX listing, it means going through the entire listing process, with its associated costs, all over again.

A director at another company, who did not want to be quoted by name, describes AltX as too expensive and prefers a delisting, although the board is still evaluating the different routes it could take.

However, several of the affected technology companies are already in the process of delisting or liquidation.

Casey Investment Holdings announced last month that it had closed all its divisions and retrenched all staff. Aqua Online is in the process of delisting and control of EC-Hold may go to Eurevest, which would buy out minority shareholders at 20c each. CCI Holdings announced in September that it would not oppose a creditor`s application for the company`s liquidation.