FACT SHEET: FIRST STUDY ON COMPOSITION OF JSE OWNERSHIP

1. Visual representation of calculations:

A. Calculation of percentage of black ownership using dti methodology

(JSE ownership composition with foreign ownership included)

Method:

In order to compute the level of black ownership as set out by dti generic code methodology:

• Take SA traded equity of the top 100 companies listed on the JSE
• Exclude cross holdings and treasury shares to avoid double counting
• Exclude mandated investments
• Exclude investments held by the state
• Exclude foreign operations % of total capital measured (but direct foreign shareholding included)
• This leaves 44% of the total remaining capital
• Divide total remaining capital by total BEE shareholding (8% as a percentage of total)
• Therefore BEE shareholding as % of total available share capital is  18%

B: Calculation of percentage of black ownership excluding mandated investments and foreign ownership

(JSE ownership composition with foreign ownership excluded )

Method:

In order to calculate levels of black ownership as percentage of capital available for purchase by South Africans:

• Take SA traded equity of the top 100 companies listed on the JSE
• Exclude duplicated capital
• Exclude foreign portfolio flows
• This leaves a total remaining available to South Africans 57%
• Exclude mandated investments as these are not measurable
• Exclude investments held by the state
• Divide total remaining capital by total BEE shareholding (8% as a percentage of total)
• Therefore BEE shareholding as a percentage of total available share capital is 33%

1. Rationale for conducting the research

There has been much debate about black ownership on the JSE and various and quite divergent estimates have been made. The purpose of publishing these findings is to inform and enrich the debate through presenting the facts in an impartial manner.

2. What should be the targets for black ownership on the JSE?

It is not the role of the JSE to determine BEE ownership targets and therefore the JSE takes no view on what ownership targets should be.

The JSE does however, have access to shareholder data through the Strate share registers, and so through this research using those share registers, the JSE hopes to present more accurate figures on BEE ownership on the JSE in order that a properly informed debate can take place in the appropriate forums.

3. Why were the top 100 companies selected?

The top 100 companies listed on the JSE represent 85% of the total market capitalisation of the exchange, as well as a representative cross section of the sectors of our economy. The Top 100 therefore represents an excellent proxy for the market as a whole, when it comes to BEE.

4. Rationale for selection of methodology

The requirements of the Department of Trade and Industry's (dti) Code of Practice were used as the basis for the study as this code is a widely accepted method of determining BEE. It is not the JSE's domain to set BEE criteria and calculation methods. It made the most sense for the JSE to select a methodology that is widely used and understood instead of developing an alternative method of determining BEE.

5. The exclusions and rationale for exclusions

As per the dti Code of Practice the following categories were removed from the calculations of black ownership on the JSE.

Mandated investments - these are excluded as it is not possible to see down to the individual investor level of a mandated investment vehicle in the share register. This fact is recognised by the DTI code of practice which allows for the exclusions of holdings on behalf of pension funds, unit trusts, life office policyholders and various other forms of institutional investment from the measured entities register to a maximum of 40% for the purposes of calculating BEE shareholding.

State and treasury shares - these are excluded as they are owned by the state or the listed entity itself - this is consistent with the provisions of the DTI code

Foreign operations - these are excluded as they are non-South African operations - this is consistent with the provisions of the DTI code

Cross holdings - these are excluded to exclude duplication and double counting 

6. Other exclusions

The following collective investment instruments were also not included in the calculations these are excluded as it is not possible to see down to the individual investor level of a collective investment vehicle in the share register:

SATRIX 40

NEW GOLD ISSUER LTD 

Hoskens Consolidated Investments

7. Description of data

Please note that the data is based on submissions by companies as at the closest available reporting date to 12 March 2010.

8. Challenges faced by research team 

Lack of data. Accurate records of the race of the underlying investor have not been captured in the financial system historically. This is further complicated by the fact that most investors are juristic persons and BEE ownership is measured at natural person level in the dti's BEE Codes. 

Complex regulations. The calculation of economic interest involves complexity surrounding mandated (indirect) ownership, vested versus direct ownership, conventions related to flow through and modified flow through calculations, qualification criteria for trusts and other ownership vehicles, application to local versus foreign operations etc.

Contradictory regulations. For example voluntary transformation charters such as the FSC and other legislation such as the mining charter use an entirely different method of ownership calculation.

Complex group structures, and the lack of traceability of beneficial ownership due to extensive use of nominees and unlisted vehicles of all manner and description, also complicate matters further.

9. Percentage of white ownership of the JSE

If black investors own a third of the share capital available to South African investors on the JSE, the assumption that the remaining two thirds are held by white investors is not necessarily true. 

It is also somewhat easier to determine levels of black shareholding in listed companies. This is due to the fact that companies are obliged to report their BEE shareholding but are not able to report those private retail investors who may also be black as race segmentation is not a requirement when opening a brokerage account. Therefore, it is not possible to say that the remainder of the two thirds is held solely by white investors.

It is not a simple case of separating white from black investors and so the level of white ownership on the JSE would require a similar analysis.

10. Description of black shareholders

The black shareholders would fall into the following categories:  

• BEE equity deals done at listed entity level
• BEE deals done at subsidiary level (sale of assets)

Please note that BEE is measured at Natural person level, by looking through the various structures such as trusts, employee shares schemes, companies and various Special purpose vehicles created for the purposes of BEE ownership transactions.

11. Are there any industries/sectors where black ownership is higher?

Yes, some sectors have higher percentages of black ownership than others. These tend to be sectors that have dependencies on government contracts and have had sector codes or charters in place for some time. Sectors with the highest percentage of black ownership are construction, food, resources and financial services, which are all broadly compliant to the DTI code.

12. Further research planned

Further research will in future be undertaken to further refine these figures.  This research will especially focus on the following:

• Obtaining further understanding of black and white beneficiaries through mandated investment vehicles;
• Better data on black and white retail investor ownership occurring directly through stockbrokers;

13. Education initiatives aimed at growing the number of retail investors

For many years now the exchange has run a number of initiatives to foster improved financial literacy and encourage retail South Africans investors to invest on the JSE. 

• The JSE/Liberty Investment Challenge is an annual ghost trading which has been running for 37 years which aims at educating learners about the workings of the stock market. Teams of learners or university students are given an imaginary sum of R1 000 000.00 to invest in JSE-listed shares. Their performance is then tracked and measured against other teams taking part in the contest. 
• The JSE Week is another annual initiative that reaches out to ordinary South Africans about how to begin investing. This year, the JSE Week travelled the country with expos at key malls in Soweto, Sandton and Cape Town and Durban.
• The JSE's education department is working alongside government to improve financial and investing knowledge amongst learners in Gauteng and Eastern Cape schools. Aimed at Grade 9 and 10 pupils, the initiative has an emphasis on practical financial knowledge including budgeted, saving, managing a bank account and investment principles. Training for teachers, course material including detailed lesson plans are provided by the JSE.
• The JSE also hosts regular investor showcase events at the exchange that are open to the general public.

14. Selection of research house Chandler & Associates  

Trevor Chandler, the principal consultant on this research project is a leading expert on Black Economic Empowerment (BEE), including the Financial Sector Empowerment Charter (FSC), as well as the generic code (Generic code of Practice). Trevor currently represents ASISA on the Financial Sector Charter Council Board.

Trevor also contributed to the development of the generic Generic code BEE ownership provisions through his leadership of a Life Insurance Industry (LOA) task group formed for this purpose. The contribution of this task group to the development of the Generic code was formally recognized by the previous Minister of Trade and Industry.

Trevor is currently a member of the integrated reporting workgroup which is a joint initiative by SAICA, the IOD, the Investment community and other stakeholders to define standards for integrating ESG issues with Financial Reporting to ensure that companies present a comprehensive and balanced view of their performance and impacts on stakeholders.

Trevor is currently CEO of TCA and a Director of Alternative Prosperity Pty Ltd. He has more than years experience in assurance, finance risk management and corporate governance related professions, and until March 2009 was responsible for BBBEE and Sustainability for the Sanlam Group reporting to Board level sustainability and risk committees.

15. Selection of accreditation agency AQRate Verification Services

AQRate Verification Services is a nationally accredited BEE verification agency with SANAS accreditations obtained in all three major business centres in South Africa namely Gauteng, Western Cape and Kwa-Zulu Natal. The organisation consists of 4 private companies with shared ownership, management and verification methodology.

Statement issued by the Johannesburg Stock Exchange, September 1 2010

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