Always Be Capital-Market Ready

August 31, 2020

Most companies who raised capital in 2020 were probably not planning to do so. COVID-19 lockdown measures and a subsequent decline in economic activity resulted in companies needing to shore up balance sheets. Overlay this with conservative bank lending practices, also prompted by the uncertainty of the impact of COVID-19 on the banking sector, and companies were left tapping the equity markets.

Around R15 billion has been raised on the JSE up to May this year. The quick succession and frequency of capital raisings may prompt one to conclude that share issuances have increased significantly. On the contrary, over the last five years capital raisings on the JSE have declined. This can potentially be attributed to the dwindling number of companies listed on the JSE, down 40% from 601 in 2001 to only 344 this year, as well as stagnant economic growth and declining business confidence curbing investment.

Despite a strong February, the R15 billion raised from January to May this year is already falling short of the R18 billion to R33 billion raised in the same period over the last five years.

It’s not only companies that have been forced to be agile during the ongoing crisis – the same applies to stock exchange regulators. The advent of issuers needing to access capital markets quickly led to the temporary relaxation of key listing requirements, enabling listed companies to issue shares for cash without holding a shareholders’ meeting. This change was also implemented in the UK and Australia.

What the above has indicated is that companies will do well to always be capital-market ready. Good communications and shareholder engagement are critical at any time, but even more so when raising capital in uncertain times.

To this end, engage consistently with shareholders and remain transparent and accessible. In this engagement, stay focused on the business and the elements of the environment that can be influenced – and communicate that focus clearly. This is key to maintaining and enhancing credibility and will be a crucial differentiator in the competition for capital.

Communicate beyond the crisis. Although the direct and indirect impact of COVID-19 is front and centre, remind investors of the long-term strategy, the company’s competitive advantages and its

unique positioning. Moreover, showcase the opportunities that are arising from the current crisis to position the business for a sustainable future post-COVID-19.

Data-driven information will go a long way in underpinning the company’s investment case. At a time when equity raisings are likely to be commonplace in a weaker-than-usual environment, a compelling investment case is vital.

Ensure your website is up-to-date and robust, easy to navigate and informative in terms of current and historical information. See our tips for building an analyst-friendly website here.

Finally, a crisis is a terrible thing to waste. It inevitably means that you have investors’ attention – regardless of the reason – and so it is an opportunity to tell your story.

The market rewards effective communication, visibility and transparency in the long run. Therefore, companies who choose to relegate investor relations to regulatory compliance may be found wanting at a time when they need investors most.