Series 1: Article 5

JSE Aiming at Cutting the Red Tape

Rights Offers, Directors & Closed Periods

In our fifth article entitled “Rights Offers, Directors & Closed Periods”, the Merchantec Capital Sponsor Team continues the Series “JSE Aiming at Cutting Red Tape”.

With the key focus of the JSE’s March 2021 Consultation Paper being “effective and appropriate level of regulation”, as it seeks to do away with unnecessary “red tape” the JSE is proposing amendments around, inter alia, “Rights Offers, Directors & Closed Periods”.

Before we consider the proposed amendments, let’s look at the Current Listings Requirements’ provisions

A rights offer – which is an effective capital raising mechanism in terms of which all shareholders are treated equally and which does not require prior shareholder approval – is an offer by an Issuer to existing shareholders to subscribe for further securities in proportion to their existing holdings, usually at a discount to the market price, by means of the issue of:

  • a renounceable right that is traded as either “fully paid” or “nil paid” for a period in advance of payment for the securities falling due; or
  • a non-renounceable right (no renounceable right is traded).

In terms of paragraph 3.67 of the Listings Requirements, directors, the company secretary and prescribed officers must not be given clearance to deal in an Issuer’s securities during a prohibited period, being:

  • a financial closed period, which commences from a quarter-, interim-, or year-end and ends upon publication of the relevant financial results;
  • a cautionary closed period, being the period during which an Issuer is trading under a cautionary announcement; and
  • any period in which there exists any matter which constitutes price sensitive information in relation to the Issuer’s securities (irrespective of whether the aforementioned persons have knowledge of such matter).

Background to the proposed change 

Where a rights offer runs into or opens in a closed period, directors, the company secretary and prescribed officers who hold shares in an Issuer (“excluded parties”), cannot make any elections in respect of their rights offer entitlements.

Typically, to avoid being excluded from participating in the rights offer due to the Listings Requirements’ prohibited period provisions, excluded parties will make their elections in respect of their entitlements known in the rights offer circular prior to the Issuer entering into a closed period, where possible. However, as pricing and final terms of the rights offer may not be available / known prior to the commencement of a closed period, this isn’t always possible.

What has been proposed?

The JSE is proposing to remove the current limitation which prevents excluded parties from following their entitlements pursuant to a rights offer during a closed period. Effectively, such parties will be afforded the ability to participate in a rights offer during a closed period by:

  • exercising undertakings or elections to take up entitlements under a rights offer, including excess applications; and
  • taking up entitlements under a rights offer.

What is the JSE’s rationale for the proposed amendment?

As excluded parties are often considered to be natural contributors of cash, preventing their participation in a rights offer could negatively impact the Issuer’s ability to raise cash. The proposed amendment will contribute to more successful capital raisings by Issuers and align the Listings Requirements with international practice.

Would the proposal be beneficial to your company?


The Merchantec Capital Sponsor Team will soon complete this Series in which we’ve been unpacking the proposals contained in the Consultation Paper.

We hope that you are enjoying this series, and look forward to receiving your feedback.