The Botswana Stock Exchange (BSE)’ domestic listed companies’ market capitalization recorded a phenomenal growth of 8.8 percent since beginning of the year (2015) to October 16. The growth translated to P1.5 billion in monetary terms.
As at 16 October 2015, the total market value of BSE listed companies amounted to P419.7 billion comprising P50.3 billion (domestic companies) and P369.4 billion (foreign companies). The growth represents an increase of P1.5 billion in the total market capitalization of the local bourse since 31 December 2014, where it stood at P418.2 billion. Over the period under review (to October 16, 2015), the domestic companies’ market capitalization grew P4.1 billion whereas foreign companies’ market capitalization declined P2.6 billion. This shows that the BSE’ domestic market capitalization registered an increase of 8.8 percent over year-to-date period of 16 October, 2015.
BSE Deputy Chief Executive Officer, Thapelo Tsheole attributed the change in market capitalization three main factors of new listings, de-listings and change in price. He explained that in the year to date, the BSE recorded a single listing compared to three de-listings whose impact had a direct bearing on the quantity of shares listed.
“The impact of the three factors on market capitalization can be analyzed by disaggregating the impact of quantity of shares in issue and the impact of price on market capitalization”, said Tsheole.
Disaggregating the 8.8 percent increase in the domestic companies’ market capitalization, the overall change in prices of listed domestic counters accounted for 7.9 percent of the change in market capitalization whereas the 0.9 percent is accounted for the change in the quantity of shares in issue taking into account the impact of share listings and de-listings.
Granted that market capitalization represents value, the question becomes to whom is the value important? Is this value important to the shareholders, or to the BSE or other stakeholders? Tsheole said the answer is multifaceted and requires first that a distinction be made between a stock exchange, in this case, the BSE and a stock market.
“On the one hand, a stock exchange is a platform where companies issue shares and raise capital and the BSE in this instance provides and regulates that platform. On the other hand a stock market is an aggregation of buyers and sellers of stocks (or shares) listed on a stock exchange, the BSE. The key distinction is that the BSE is a physical location and the stock market is a loose, indefinite network of participants”, explained the bourse’ deputy CEO.
By definition, value creation is crucial to the stock market comprising of shareholders, parties interested in making stock and company acquisitions or takeovers and almost anyone with the potential to become a benefactor in shares wherein the BSE is an intermediary enabling companies to create value. For the BSE to become a prosperous intermediary, it has to attract companies to list and has to market the strategic value of maintaining a listing.
He said companies decide to list because they find strategic value in being listed. Companies list for strategic reasons, much as they de-list for strategic reasons. The BSE is therefore limited in terms of interfering with a company’s strategic decision making but serves a crucial role of enabling companies to unleash their value.
According to the Tsheole, since the beginning of 2015, three companies that de-listed from the BSE are BancABC, African Copper and Discovery Metals. The transition by BancABC from a private company that listed on the bourse was influenced by strategic decisions.
“In the period that that this company (BancABC) has maintained a listing on the BSE, it has managed to raise substantial capital to fund its strategic initiatives and expand extensively into a flagship business with a popular brand. It has subscribed to and promoted practices of good governance which have helped to achieve sustainable business growth. It has become more visible as a public quoted company, even becoming visible to a point of attracting acquirers. Substantial value has been created for shareholders during the period it was listed, and even in the build up to the acquisition. This is testament to the value a company can unleash by being listed. The acquirers saw value in the business and put forth a bid, consequently taking that strategic decision to de-list it, a decisions which the BSE cannot avert. In a similar vein, a de-listing can occur as a strategic response to company-specific experiences in the business environment as was the case with African Copper and Discovery Metals”, explained Tsheole
He added that the same can be said of listed companies on the BSE who have become more visible through a listing and more attractive to a broader base of investors. Since they have accumulated substantial value, they can potentially become acquisition or takeover targets for international companies. This is an occurrence that cannot be averted. The only way takeovers which is the primary cause of de-listing can be discouraged is to broaden the investor base and increase liquidity.
On what the BSE is doing to increase liquidity, Tsheole said they initiate several measures such as an increase in free float. To this end, the revised BSE listing requirements propose that companies maintain a minimum free float of 30 percent, from the present 20 percent.
In an environment where liquidity is high, companies tend to attract abroad spread of shareholders, both local and foreign. Such a heterogeneous spread is important in promoting price discovery and in passing business and strategic resolutions, to an extent that a company is broadly owned by the public involves many shareholders in decision making through resolutions compared to a company whose free float is relatively, where a few controlling shareholders can approve resolutions outright.
Tsheole said since the introduction of the Automated Trading System (ATS) in 2012 liquidity on the bourse has immensely improved. As at 16 October, 2015, the BSE’s liquidity ratio (annualized) amounted to 6.3 percent compared to 4.9 percent at the end of 2014.
The average daily turnover (annualized) amounted to P12.4 million compared to P8.8 million at the end of 2014. This is testament that the ATS is playing a pivotal role of increasing market reach. In the near term, the BSE expects to introduce internet-based trading which is also expected to increase liquidity significantly.
The BSE introduced the concept of market-making, with the listing of Exchange Traded Funds (ETF) in 2010. This has promoted the liquidity in EFTs to increase and price discovery to improve. The BSE expects to extend this concept to equities. Market-making rules have already been approved by the Main Committee of the BSE and have since been referred to NBFIRA for final approval.
The BSE further initiated the introduction of the Serala Over-the-Counter (OTC) Board in 2014 with the objective of providing an alternative to a listing for issuers that may not meet the relevant requirements at present but would desire to be listed at future point in time. The OTC board is expected to act as a bridge between private equity and a listing on the BSE.
The BSE believes that the raft of initiatives being undertaken will motivate an increase in liquidity on the bourse so that more companies can be attracted to list on the BSE to unlock value.
Tsheole encouraged companies to extensively exploit advantages of a listing and internalize the advantages in formulating their own development strategies.