In the past articles, we have strongly advocated for companies to consider raising capital on the BSE in order to pursue growth opportunities.
Doing so can be achieved by issuing shares in the company, in exchange receiving the capital and subsequently listing on the BSE. Before a company can be admitted to list on the BSE, it must meet certain initial conditions and standards or “listing requirements” and also, once listed, maintain certain standards and comply with certain listings obligations.
These requirements are both financial and non-financial. Commonly, the listings requirements of any stock exchange tend to vary for any available platform in which a company can list. This platform is called a “board”.
Companies listing on the BSE are categorisedas either domestic or foreign companies, to reflect their place of incorporation. Within these respective categories, there is the domestic main board and the domestic venture capital board, and also their foreign equals.
For purposes of this discussion we shall focus on the domestic main board and the domestic venture capital board. As their names suggest, these two boards cater for different companies based on their stage of development or life cycle.
A company that hasbeen in operation for several years, and therefore has financial track record is best positioned to consider listing on the main board. The baseline requirement on the main board is that a company should have been making profits for the most recent three years ahead of listing.
A company that has just been conceptualised, does not even have products and services on the market, or has been in existence for years and has therefore passed this stage of establishing its market, but requires capital to grow the business further can consider listing on the venture capital board. The venture capital board has less stringent requirements in comparison to the main board and the most important one is that a company is not required to have been making profits. As such, it is very attractive to startups and small companies with fewer investors.
In the history of the BSE, it is delightful to note that most companies have utilised the venture capital board as a springboard and ultimately graduated to the main board. Turnstarlisted first on the venture capital board in 2002 and graduated to the main board in 2005.Afinitas, which listed in 2015, is still on the venture capital board.
Afinitas is a good example of a company that listed on the venture capital board without any assets or business operations, except a dream and a vision illustrated in a business plan. It was a pure startup. This is the one strongest appeal about the venture capital board which most Botswana companies can exploit. I
n most cases, alternative capital raising platforms would not readily fund a startup as it is considered risky. However, on the stock market there are various investors that have the willingness and ability to fund startups primarily because they believe the perceived risk is well compensated for by the returns from the projects that the company intends to undertake and the company will grow overtime.
Conventionally, the graduation from the venture capital board to the main board comes as a result of improvement in many conditions that qualifies the company to list on the main board, such as the increased number of shareholders and the establishment of profit history.
This graduation in turn enables the company to access better terms and conditions of capital it sounds out the ambitions to grow further and demonstrates the commitment to create value for shareholders. As you would note, the main board and the venture capital boards of the BSE house companies at different stages of their life cycles.
Therefore, the requirements and levels of scrutiny on each board will be different. Some of the minimum listing requirements for the two boards are briefly outlined below.
Minimum number of shares
-Main Board: 1,000,000 shares
-Venture Capital Board: 1,000,000 shares
Minimum number of shares offered to the public
-Main Board: 20percent of total shares in issue (will increase to 25percent effective June 2016)
-Venture Capital Board: 5percent of total shares in issue (will increase to 10percent effective June 2016)
Offering share price
-Main Board: at least P1.00 per share
-Venture Capital Board: at least P0.50 per share
Prior proof of financial performance
-Main Board: sound financial performance in the past three years with the last year’s profit before tax being at least P1,000,000
-Venture Capital Board: no historic financials required but sound modus operandi and business plan with forecast performance required.
The foregoing is evidence that the conditions on the venture capital board are less strict compared to those on the main board. The owners of the start-up companies are allowed to maintain more control over their company, having to give up at least 5percent to the public as well as not being required to have a proven history of existence.
The expectation is that companies that first list on the venture capital board will use the platform to grow and ultimately graduate to the main board of the BSE. The journey of listing a company on the BSE is pivotal to a company’s growth. Companies that satisfy the above requirements can proceed to apply for listing on the BSE. However, they don’t have to go about the journey on their own.
They do so through a Sponsoring Broker whose duty is to ‘hand-hold’ the applicant throughout the application process, and act as an agent between the applicant and the BSE to ensure that the applicant understands and satisfies the listing requirements, and advising the applicant on all matters leading to the IPO and the listing.
The applicant will be exposed to an ecosystem of experts and professional advisors that facilitate the process of listing and these include Legal Advisors, Corporate Finance Advisors, Accountants and Auditors.The BSE will host its Inaugural Listings Conference on 10th March 2016 at the GICC under the theme “Opening the BSE to the Business Community – Creating Value through Listing”.
The Conference features a presentation and a panel discussion on BSE Listings Requirements and the Role of Professional Advisors in a Listing.