The JSE Ltd (“JSE”) has announced today that following discussions with a number of shareholders of the Bond Exchange of South Africa Limited (“BESA”), it has made a conditional offer to acquire the entire ordinary share capital of BESA. The purchase consideration is R90 per share, which is a premium of 106% to the NAV, excluding the BESA Guarantee Fund.
The all-cash offer values BESA at R173.22m.
The JSE’s offer would enable BESA shareholders to realise value for the assets of the BESA Guarantee Fund, which they do not own and would not otherwise be able to realise since the Fund is contained in a trust and is consolidated only for accounting purposes.
Nicky Newton-King, Deputy CEO of the JSE, said that the proposed deal is intended to create a world-class, unified multi-product exchange that efficiently provides sophisticated trading, clearing and settlement infrastructure to all its clients.
“We believe integrating BESA and the JSE is in line with bourse consolidation around the world and would improve South Africa’s competitive ability in an increasingly international market for securities trading.
“The combined JSE and BESA team, by working with market participants and keeping an open mind, could expect to be able to harness the best of what we both have to offer. The JSE is confident that together we will come up with the best solution for South Africa and the region to build liquidity, provide effective risk management to reduce counterparty risk, and lower costs for participants,” she said.Newton-King also noted it is hard to have a well-performing modern economy without a good financial system. She said strong capital markets are an essential part of such a financial system, allowing participants to mobilise savings, allocate capital and manage risk. It is therefore very important from a national interest perspective that there are deep and liquid markets in debt and equity products and that -as far as possible - the trading, clearing and settlement of South African financial instruments happens in South Africa in a globally competitive manner. This enables local participants and the local economy to derive the benefits of a vibrant financial market.
“The market is telling us that the South African interest rate market cannot continue with two exchanges and neither offering what participants really want.”
She said the proper pricing of the interest rate spot market will have a knock-on effect on the interest rate derivatives market: interest rate futures and options are dependent on efficient and transparent interest rate spot markets.
The JSE expects the bid to be supported by a large percentage of BESA’s shareholders.
“By integrating BESA and the JSE, the combined group will be able to grow the interest rate market while reducing the costs for users, particularly because of our ability to achieve economies of scale,” said Newton-King. “The JSE has a good track record of sweating our systems for the benefit of our market participants and will apply that to this integration as well.”
The JSE Group has dropped the average pricing significantly for trading in equities and derivatives products despite spending in excess of R1 billion implementing new trading, clearing and settlement technology and growing its post tax profit by 470% during that same period. Over the past several years, the JSE and BESA have had numerous discussions to develop a closer relationship.
“These discussions have not been as fruitful as the JSE had hoped, despite what we believe to be compelling synergies between the JSE and BESA.
“As a result, we have not been able to make any meaningful progress towards forging the affiliation sought by market participants which in the end we hope will convince them to trade, clear and settle SA interest rate products locally, on-exchange, rather than offshore or in the OTC market,” said Newton-King.
She concluded by saying that the JSE believes the combined expertise of BESA and the JSE will provide the market and the exchanges’ respective shareholders with a powerful interest rate market.
Further information is available at www.jse.co.za/besa-deal.jsp
