If you were a major shareholder, founder, chief executive officer or a family board running a JSE-listed company, why would you consider delisting from the exchange? Beyond all the noise and rhetoric, what is the most likely reason that would see you pull the trigger and delist your company?
Following recent announcements by Bell Equipment (BEL) and Sasfin (SFN), along with a slew of other (mostly) small-cap delistings from the JSE over the recent years, this is a pertinent question and one that I think that summed up in a single word: costs.
What it takes to be listed
Ignoring listing fees and the relatively small recurring JSE fees for being listed, what are the real costs of being listed?
This will be different for each listed company, but I'll illustrate some direct and indirect costs. Furthermore, I am going to try to estimate these actual costs by assuming that these exist in the most basic of small caps on the JSE with the smallest possible compliant board (only a CEO, a chief financial officer (CFO), and three non-executives with one being a chair) that has minimal committees set up and only reports twice a year (interim and final results).
This is a simple estimate, and to be honest, I could well be missing a committee or two and some extra directors, an expensive secretary and other tag-along costs ...
Let's call this hypothetical listed company Small Company Ltd ('SmallCo' for short).
What it costs to be listed
Because of the JSE's requirement that main boards be dominated by non-executives, if SmallCo's board has only a CEO and CFO, it should hire at least three non-executives.
These people are not free, and costs will differ widely, but let us assume that each non-executive costs SmallCo R50 000 per quarterly board meeting (SmallCo should have four board meetings a year) and the chair charges an extra R500 000 for his added duties.
The main board, though, should likely establish an audit committee (AuditCo), which furthermore should consist of non-executives and a chair. Let's assume a flat rate of R100 000 per annum for the chair of the AuditCo and R50 000 per annum per non-executive.
Then, we have similar sub-committees set up for the remuneration committee (how much are we paying management?) and the nominations committee (who is management?). But SmallCo cannot be listed on the JSE without a sponsor (or designated advisor if it is on the AltX), which is also not free. These exist to help the board navigate the JSE's listing requirements.
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Let's say SmallCo strikes a deal with its sponsor to help it with this for a retainer of R50 000 per month.
While not unique to being listed, SmallCo does need a financial audit at least once a year. That said, being listed makes this audit higher risk for the auditor (it is a public audit now), and thus, it will involve added costs.
Let's assume the auditors are quite reasonable and SmallCo's business is simple, and thus, it only costs R2 million per annum to audit.
(I am not even going to try to estimate the cost of an internal audit function, but add this into your mental model too!)
If we add all of these direct governance costs up, we arrive at a figure of around R4,5 million per annum that SmallCo is paying for its governance. None of these parties is creating or producing anything, so all of this cost generates zero revenue.
But that is not where it ends ... all of this takes time and uses other, less obvious resources (and, of course, endless lawyers).
How do we estimate this indirect cost?
Well, let me try by doing this: I assume SmallCo's CEO earns R10 million per annum; I assume SmallCo's CFO earns R5 million per annum; and I assume SmallCo's finance department (populated with a couple of chartered accountants) costs R15 million per annum, excluding the CFO's cost. -- Moneyweb.
