Overview and History
The Alternative Exchange also referred to as the AltX Index, is a division under the Johannesburg Stock Exchange (JSE) Limited, the official stock exchange of South Africa. The AltX Index is a parallel market that is specifically focused on decent quality small and medium-sized businesses in South Africa that show high growth potential.
This index offers smaller companies in South Africa the ideal opportunity to gain exposure, boosting their chances to be listed on the JSE Main Board, and granting them a clear growth path and access to the capital that they need to grow.
To become eligible for listing on AltX, companies are required to appoint, and retain, the services of a designated advisor, registered in South Africa. This DA will serve a role like that of the current JSE sponsor, but the DA will have inherently different responsibilities.
In addition to this requirement, companies that want to list on AltX must ensure that they implement other quality controls, including director education.
The AltX was launched in 2003 and is considered a “Nursery” for the JSE’s Main Board. AltX replaced the failed venture capital as well as development capital boards which were initially established as sub-sets of the Main JSE board during the 1980s.
AltX encourages entrepreneurship in South Africa and some of the first companies that were listed on AltX in 2004 were Beige Holdings Limited and Insurance Outsourcing Mangers’ Holding Limited.
Some of the top 10 companies that are listed on AltX, in order of their market capitalization include:
- Ninety-One Plc (N91) – 27 706 795 679 ZAR
- Vivo Energy (VVO) – 20 283 739 803 ZAR
- Ninety-One Limited (NY1) – 13 353 980 703 ZAR
- Globe Trade Centre S.A. (GTC) – 9 665 904 550 ZAR
- RCL Foods Limited (RCL) – 9 014 641 200 ZAR
- Stenprop Limited (STP) – 6 426 654 014 ZAR
- Montauk Holdings Ltd (MNK) – 5 381 747 663 ZAR
- Liberty Two Degrees LTD (L2D) – 4 678 483 170 ZAR
- Afrimat Limited (AFT) – 4 441 134 772 ZAR
- Sea Harvest Group Ltd (SHG) – 3 649 243 294 ZAR
Progress on the mission and vision of the AltX
While the AltX Index was initially established to provide small and medium-sized (SMEs) an ideal platform where they could access funding with less strict criteria than what banks would have given, many promises are yet to be fulfilled.
The companies that are currently listed on AltX show a weakened relationship with market capitalization and liquidity. However, companies that are delisted, listed and migrated showed overall minimal liquidity improvement, growth, leverage, sustainability, or profitability.
JSE AltX as a catalyst for the growth of SMEs in South Africa
The AltX offers several different benefits for groups of companies that are listed on the index. The index can serve as a tool that can provide investors with useful insight when they make certain investment decisions.
The AltX also serves as a way for policy-makers in South Africa to offer necessary support to initiatives and high-growth potential SMEs.
SMEs have a common theme that surrounds economic growth and, subsequently, job creation and innovation. Stock exchanges offer consistent trading markets which provide an ideal, liquid platform for growth opportunities as well as high liquidity for investment.
The JSE AltX was developed according to the same model as the United Kingdom’s London Alternative Investment Market, or AIM, which is one of the most successful alternative exchanges in the world.
As with AltX, the listing requirements are far less stringent than that of the main exchange and there is no required minimum number of publically traded shares for the company to be listed, and additionally, a trading record is not required either.
When companies list on the JSE, they are required to have at least 25 million ZAR in share capital, a consistent profit history of three years, and a minimum profit of 15 million ZAR before tax. However, with AltX, companies can list when they have a 2 million ZAR share capital, no profit history, and no pre-tax limits.
In addition to this low entry barrier, the requirements were further eased during the Covid-19 pandemic.
Importance of SMEs to the South African Economy
South Africa suffers from historically high unemployment rates. Many support the notion that by promoting and supporting local SMEs, new employment opportunities can be created.
However, not all SMEs contribute equally to the creation of work or economic growth. The SMEs that feature the highest potential for macroeconomic benefits are the ones that can be listed on a stock exchange.
How to list on the AltX Index
Companies that wish to list their shares on the AltX Index are required to appoint a designated advisor, also commonly known as a DA. This individual will guide the company through the complex listing process. In addition to appointing a DA, companies are also required to attend the directors’ induction program.
The process involved with listing on AltX is as follows:
- The DA is responsible for due diligence in determining the appropriateness as well as the suitability of the company in applying for a listing on AltX.
- The DA must advise the company on all methods of listing. In addition, they must offer guidance on the best approach toward listing.
- The DA must help the company compile an application letter in addition to a business plan. This must be submitted to the Issuer Regulation Division of the JSE.
- Depending on the presentation that the company’s DA and board of directors will make to the AltX Advisory Committee, the company will receive a recommendation that will be addressed to the Issuer Regulation Division.
- If the company’s application has been accepted, the DA will help the company compile the necessary documentation according to the listing requirements of AltX, in addition to any other relevant documentation.
- Once the documentation has been received and it has been verified, the company will be provided with an official approval letter.
- Several factors will determine how long it will take for the listing to be completed, including the complexity of the approach taken to apply. Overall, it can take between eight and 12 weeks for the process to be completed and for the company to be listed.
