Business Maverick

Business Maverick

4 Africa Exchange to revive the Cape Town Stock Exchange

This will be the first time since 1906 that the Mother City will have a stock exchange. An exchange in Cape Town was launched in 1901 in response to trading disruptions owing to the Anglo-Boer War.

The work-from-home and virtual meetings era, wrought by the Covid-19 pandemic, has accelerated the “semigration trend”, with an increasing number of upcountry South Africans relocating to the Western Cape to spend lockdowns holed up in their coastal holiday pads.

In recent months, estate agents have reported higher housing sales in coastal and popular inland villages in the Western Cape. The drawcard is that parts of the Western Cape offer a more relaxed and better quality of life in lockdown than being house-bound in the hustle-and-bustle of cities. 

The semigration trend has not only taken hold in households but also in corporates. 4 Africa Exchange (4AX), an alternative stock exchange, plans to relocate from Johannesburg to Cape Town at the end of September 2021 as part of a makeover to its brand and operations.  

4AX will also be renamed Cape Town Stock Exchange as it wants to become the “Nasdaq of Africa”, CEO Eugene Booysen tells Business Maverick

The exchange will be located in the Woodstock Exchange centre. Amazingly, the hotel opposite the centre is called the Stock Exchange Hotel.

This will be the first time since 1906 that the Mother City will have a stock exchange. A stock exchange in Cape Town was launched in 1901 in response to trading disruptions owing to the Anglo-Boer War. But it closed shortly after the war ended. Kimberley and Barberton once had their own stock exchanges.

 4AX’s Booysen wants to revive the idea of having a stock exchange in Cape Town. 

4AX was launched in 2017, along with three other alternative stock exchanges that styled themselves as challengers to the JSE’s more than a century monopoly. Booysen says 4AX struggled to have a distinct brand identity as its name carries an “X” and sounds similar to the names of other exchanges. In South Africa’s alternative stock exchange market, there is  4AX, ZAR X, A2X, and Equity Express Securities Exchange. 

“With everyone fixated on the ‘X’ component in their names, I don’t think the exchanges made any significant endeavours around building a strong brand and marketing proposition,” said Booysen, a Gautenger of 49 years and ex-investment banker at Barclays and Absa.

Chasing growth 

Booysen also looked abroad for inspiration, saying there are at least 18 stock exchanges around the world that are named after a city or country in which they are headquartered. 

The relocation to Cape Town and name change is also part of 4AX’s plan to build scale to its listing platform. Four years after its launch, 4AX has managed to attract seven companies that have a primary listing on its exchange. They are healthcare specialist iHealthcare Group and parent company iHealthcare Group Holdings, agribusiness NWK, PSG-aligned logistics specialist CA Sales, real estate group Heartwood, and life assurer Assupol. The total number of listings tallies seven, if holding company structures like NWK Holdings and iHealthcare Group Holdings are counted.

The market capitalisation of 4AX is nearing R7-billion, making it the third-largest alternative stock exchange. A2X has a market capitalisation of R5-trillion, Equity Express Securities Exchange pulls in R9.4-billion and  R5-billion for ZAR X. 

Booysen says three more listings are in the pipeline between September and November 2021 for 4AX that are worth more than R3-billion.

With the help of investors such as Lebashe Investment Group, which owns 45% of 4AX, Booysen says the alternative exchange has spent the past four years (especially in 2020) investing in technology to enable its platform to handle larger trading volumes. It has added more brokers to its platform, giving it wider exposure to investors and the brokerage industry.

Booysen says the move to Cape Town will bring 4AX closer to technology innovation as the city is known as “Silicon Cape” – a play on Silicon Valley in California – because there is a large concentration of tech start-ups in the city. “The Western Cape is a technology hub that is starting to leapfrog Nigeria and Kenya. We want to tap that into that centre of technology and place ourselves there. We want to be the Nasdaq of Africa.”

Targeting SMMEs

As some start-ups grow from being small to mid-sized, they might seek to list on 4AX to raise capital by issuing equity to fund their growth ambitions.  

4AX is deliberately targeting companies that are valued between R25-million and R2-billion – a range that Booysen believes is underserved by the JSE because of the high fees associated with being listed. These include the actual JSE listing fee, the requirement for companies to have their financial statements audited, publishing financial statements in media (mainly newspapers), and fees relating to the disclosure of company transactions or affairs. Booysen says 4AX doesn’t have such onerous requirements on its platform as 4AX cuts fees associated with being listed by at least a third. 

The R25-million and R2-billion range is also a sweet spot because other alternative exchanges are not focusing on it, he said. “In this range, there are companies that will grow to be a R20-billion company in the next 20 years. They will create the jobs and we need to make sure we need to get them capital so that they can contribute to South Africa’s economic growth.”

Booysen sees a total market or listing opportunity of as much as R2-trillion, of which the JSE and its AltX serve only 15%.

Moving 4AX to Cape Town will bring it closer to the asset management and pension savings industry, which manages R6-trillion. Cape Town is the home of Allan Gray, Coronation Fund Managers, Old Mutual and other large asset management firms. Being closer to such firms will help 4AX attract the retirement savings industry to its platform, says Booysen.

4AX is also planning to list corporate debt instruments on its platform. This will allow already-listed companies to raise debt on 4AX’s platform to fund their operations and growth plans. 

4AX doesn’t only rely on listing fees to generate revenue. It provides registry services and has nine JSE-listed companies as clients, running their virtual AGMs and share registers. Booysen says 4AX is not yet profitable but expects to break even by 2023. DM/BM


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