The over the counter (OTC) BBBEE shares trading market has gained momentum over the past few years. This market stands to be further boosted by the recent and pending listing of BBBEE shares from high profiled companies like Vodacom, MTN, Imperial and Naspers/Media24. Ujuh.co.za spoke to Etienne Nel, a director of Singular Systems. This is the company behind the Equity Express platform which has mastered this market since launch three years ago.
Q: You have captured a significant portion of the over the counter (OTC) trading market for BBBEE shares. How did you achieve this?
A:As a company Singular Systems, have deep experience in developing software solutions. On a more personal level, I have over 17 years of stock broking experience of which I spent 8 years in dealing with OTC trading. From that perspective, we developed a very robust solution for our first client African Bank (Eyomhlaba and Hlumisa BBBEE schemes). Following on the success of that OTC platform which we launched in June 2011, we managed to secure Multichoice Phuthuma Nathi BBBEE structure which commenced trading 8 December 2011. The rest is history.
Q: What sorts of BBBEE shares trading volumes are you dealing with in your platform?
A: Our platform is very robust. Over the past two and half years we have traded over R1 billion worth of shares in excess of 70 000 deals with not a single failed trade. That statistic is vitally important in a sense that if you operate outside the JSE you need to give investors and stakeholders unquestionable sense of credibility.
If you have no failed trades, which means every single buyer gets their shares and every single seller gets their cash, then that builds massive credibility on the market. By and large that has been our recipe for success.
When we launched Phuthuma Nathi in 2011, we were doing about 300 to 400 deals a day on that stock. The biggest day in Phuthuma Nathi was R180million of normal trading. Our single biggest deal traded stands at R90million.
Q: What role does your BBBEE share trading platform play in the broader scheme of things?
A: When we started three years ago, there was a big education component that came with that launch. Our call centre was fielding many questions. People were asking questions like: What is a share? What is a dividend? Why am I not earning interest on my shares? Why did I not get a dividend?
There was that education component which I think still needs to be done. That is vitally important in the South African landscape because you do need to develop a culture of saving and investment. This platform raises excitement levels because naturally people don’t get excited about earning 4% interest from cash in the bank.
This platform has raised the level of interest in investment from previously disadvantaged individuals. Previously, black shareholders would queue at the Post Office and invest their money in a new BEE listing. Seven years later, the scheme would come to an end and there will be a liquidity event and they will get their money. In the intervening seven years nothing would happen. So, you put your share certificate in your bottom drawer and forgot about them.
What our platform does is to create a level of excitement and interest that was not there before. Now people are interested in finding out: How are Sasol profits looking like? How is Multichoice dividend growth looking? How am I as a shareholder benefiting from this? What is the share price movement like? Those are the sorts of questions we are now starting to get from shareholders?
Q: What works and what doesn’t work in terms of the character of traded companies (you can mention examples with names of companies if needs be)
A: Bigger is better. This is in terms of the number of shares issued and number of shareholders. If you have 100 000 shareholders obviously there is more liquidity as compared to a market where there are 5000 shareholders.
And then obviously valuation is important. Buyers need to perceive value. The good example is the Imperial Ukhamba share (www.ukhambashares.co.za) (which was listed on the 15th of November 2013). If you click on those shares you will see that we are doing an average of 200 to 300 trades a day in the region of R4 million to R5million (value of shares traded per day).
That share (Imperial Ukhamba) is massively active and has about 15500 shareholders. Since listing on the 15th of November, we have seen R54 million worth of shares traded on the Imperial Ukhamba scheme. That is clearly a function of people perceiving value. If people don’t see value they won’t buy.
So, what works on this market is what works elsewhere; shares that offer value, nice big shareholder base and transparency. All these things give credibility to the market.
There are people who have come to us for capital raising. We don’t do capital raising.. We also like dealing with companies that share our values; transparency and good corporate governance.
Q: What in your view is the single biggest challenge facing this market?
A: Unscrupulous operators pose a big challenge because they could damage the reputation of the market. We are very proud of our statistics. We have done 70 000 deals and not a single deal has failed. The biggest challenge we face is, someone comes along and thinks that it is easy to do over the counter trading and the next thing there is a failed trade and shareholders go the media and online social media platforms to complain. Once you get front page headlines saying “OTC market defraud shareholder”, people will lose trust on this market. We are the biggest player in the country and when that sort of thing happens we get painted with the same brush.
Another major challenge comes from the reluctance of corporations to give investors in BBBEE schemes liquidity. This does not make sense to me. Giving BBBEE scheme liquidity is the ultimate empowerment. What difference does it make to the large corporation whether their BBBEE shares are held by A or B investor within the confines of the definition of qualifying black investors? I don’t understand what difference it makes when a black shareholder sells their shares to another black shareholder.
I think many of these companies are missing the point because it is through allowing for liquidity that they can have once empowered always empowered arrangement. I think this is partly informed by the earlier wave of BEE deals where big corporations were after big names. I think those days are over. We really need to look at empowering the man in the street now. And to do this properly, you need create transparent and liquid platforms.
Q: How are the future prospects of the BBBEE share trading market?
A: We are hoping the market will grow. But right now, most of the big deals have matured and many others are closed (un-tradable) deals. Major BBBEE deals like those by Exxaro, Sanlam, Barloworld, etc are done, they are in the money but you can’t trade them.
We are listing the Welkom Yizani (Media24) (https://www.welkomshares.co.za/ ) on Monday (9th of December 2013) and Vodacom early next year (3rd of February 2014). We have not heard about any new large BBBEE deals coming to market.
Q: What do you think went wrong in the launch of the MTN Zakhele trading platform?
A: I don’t think it is appropriate for me to comment on that. Suffice to say there has been some confusion on the market that we operate the MTN Zakhele trading platform which is not the case. We are not at all involved.