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Definition

This is a stockbroking firm registered with the Johannesburg Securities Exchange (JSE) who is appointed by a company that is wanting to list its securities on the JSE, to act as a liaison between the company and the JSE's listings department. The sponsoring broker will also assist the company to decide at what level it should pitch its shares on the market. In general, unlisted companies are valued at between 3 and 5 times their most recent financial year's annual after tax profits. Once they are listed this can increase to between 10 and 20 times or even more depending on how the company is perceived by the market. New listing are mostly accompanied by an "initial public offer" (IPO) of shares where the company raises capital to expand its business. Once the company has been valued at a reasonable price, then it must decide on how many shares it will issue and at what price. The founders will normally keep a controlling stake and sell between 20% and 50% to the public, including those big institutions that are interested. If the share is over-priced then it will not be well received and it is sensible for it to "leave some value on the table" for investors. The sponsoring broker will advise the company on the many aspects of its listing and potentially find institutions and other investors to take up a large chunk of its shares - probably from among its existing clients.

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