Why companies list on the stock exchange

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By now, EasyEquities investors are familiar with the process of buying and selling shares on the JSE. But have you ever stopped to consider why a company would list on the stock exchange in the first place?

“The main reason a company lists on a stock exchange is raise capital to grow the business,” says EasyEquities brand manager Romi Appel. “There is usually a capital target, with a set number of shares available to reach that target.”

When Sygnia listed on the main board of the JSE, for example, its aim was to raise R232.5-million. Sygnia is a multi-manager and investment administration company with more than R140 billion in assets under management and administration. The company needed the capital injection for product and software development and to expand its service offering abroad. The company said it would also consider some small acquisitions and would be allocating some of the cash to its marketing budget.

Ahead of the listing, Sygnia made 31 224 834 shares available at R8.40 per ordinary share as part of a private placement.

A private placement is an offer of shares to select investors at a set price. Investors involved in private placements are usually large banks, mutual funds, insurance companies and pension funds.

A public issue, on the other hand, allows anyone to buy shares on the open market, at market-determined prices. So when you buy shares on the JSE via EasyEquities, you are effectively buying public issue shares.

Demand for Sygnia shares was really high! Subscriptions of 19.8 times the placing size were received – which means that close to 20 applications were made to buy each share that was made available.

“What happens in a case like this is that many investors who apply for shares don’t get any,” says Romi. “And those who do receive shares only get a fraction of what they applied for.”

This creates high demand for the share, which forces the price up.

“Trade on the share was fierce on its first day, with R62m being traded,” Romi recalls. “The good news for those who managed to get shares at R8.40 was that the stock closed at R15.30 – an 82% gain on the day.”

 Sygnia raised more than R262-million through its listing.

Apart from Sygnia, the JSE has seen a number of other listings since the beginning of October, including:

You’ll notice that there’s no “BUY SHARES” link on the MTN Zakhele listing.

“At this time MTN Zakhele shares are not available via the EasyEquities platform because they are sold exclusively to BEE beneficiaries,” says Romi. “We are working on functionality that will allow our investors to buy these shares based on their ID numbers.