Futuregrowth Attacks JSE Over $204 Billion Bond Market Rules

(Bloomberg) -- Futuregrowth Asset Management Ltd. accused JSE Ltd. of reneging on agreements to improve investor protection in South Africa’s 3.08 trillion rand ($204 billion) bond market.

Futuregrowth, which manages about 194 billion rand of investments, said the JSE scrapped agreements made in October to boost investors’ ability to negotiate the terms and conditions of loan documentation transparently with lenders, and a requirement that borrowers, not investors, pay for legal advice. This put the bourse out of step with other jurisdictions, the fixed-income unit of Old Mutual Ltd. said.

“Their exclusion violates every principle of sound lending,” Olga Constantatos, Futuregrowth’s head of credit, said in a note to clients on Wednesday. It “enables issuers to divide and conquer by not allowing the investors to properly negotiate in the interest of the individual and pension-fund investors we represent,” she said.

South Africa’s capital markets have been roiled by malfeasance at both state-owned companies and those owned by private investors in recent years, heightening demands for better protection for investors. The JSE, which also runs Africa’s biggest stock exchange, has been in talks with debt investors to improve regulation.

“The JSE does not make any commitments to implementing any proposals received from issuers and investors,” the exchange owner said in a response to questions. “These two recommendations fall outside the JSE’s ambit of regulatory powers and this has been confirmed by the JSE’s internal and external legal counsel.”

--With assistance from Colleen Goko.

To contact the reporter on this story: Antony Sguazzin in Johannesburg at asguazzin@bloomberg.net

To contact the editors responsible for this story: John McCorry at jmccorry@bloomberg.net, Hilton Shone, Andre Janse van Vuuren

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