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This presentation discusses the exemptions granted to Telkom from the PFMA, reasons for providing these exemptions, and the regulatory implications, including the Companies Act and JSE Listing Requirements.
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PRESENTATIONTO THE STANDING COMMITTEE ON PUBLIC ACCOUNTS(SCOPA)22 MARCH 2006
AGENDA • PFMA exemptions • Reasons for providing PFMA exemptions • Other regulatory measures • Companies Act • JSE Listing Requirements • Way forward
ENTITIES EXEMPT FROM PROVISIONS OF THE PFMA • Telkom is listed as a Schedule 2 Public Entity. • Telkom was listed in 200? On the JSE and NYSE. • Compliance with the PFMA would imply non-compliance with JSE and NYSE listing requirements. • Non-compliance would have prevented Telkom from listing on both these exchanges. • In 2001, Telkom was granted certain exemptions from the PFMA & Treasury Regulations in terms of Section 92 of the PFMA.
ENTITIES EXEMPT FROM PROVISIONS OF THE PFMA • Telkom was exempted from certain provisions : 6(2)(e); 6(2)(f); 7(2); 7(4); 49; 50(1)(c ); 51(1)(d); 51(1)(b)(ii); 51(1)(f); 51(1)(g); 52; 54(1);54(2); 54(4); 55; 56; 58; 59; 60; 61; 62; 66(1); 66(3); 66(6); 66(7) ; 68; 76(4); 83 and 86. • Telkom is the only entity that has been granted an exemption from submitting an Annual Report. • Section 92 of the PFMA - the Minister of Finance may exempt any institution to which this Act applies, from any specific provisions of this Act, for a period determined by notice in the Government Gazette.
ENTITIES EXEMPT FROM PROVISIONS OF THE PFMA • The Minister of Communications concurred with the initial exemption granted in 2001. • The exemptions were originally granted for a period of 3 years, and expired in November 2004. • During November 2004,an extension of the exemption was granted for a further period of 3 years, ending on 31 October 2007.
OBJECTIVES OF LISTING REQUIREMENTS • Fair and equal treatment of all shareholders; • Simultaneous release of sensitive information to all shareholders and the public; • Shareholders’ best interests to be promoted by directors; • Best practice corporate governance followed; and • The Insider Trading Act makes it an offence for any person in possession of inside information to disseminate price sensitive information.
THE COMPANIES ACT DISCLOSURE OF PERIODIC FINANCIAL INFORMATION • Section 179: The company has a duty to prepare annual financial statements and to present them at the annual general meeting. • Section 304: Every public company shall send an interim report to every shareholder and debenture holder.
THE COMPANIES ACT MEMBERS RIGHTS • Section 67: A company shall send to every member at his request a copy of its memorandum and of its articles. • Section 252: Any member of a Company that complains of unjust/unfair treatment of the affairs of the Company can apply to the Court for an order under this Section.
JSE LISTING REQUIREMENTS DISCLOSURE OF INFORMATION Para 3.4 : • A company must from time to time, promptly release a public announcement giving details of : • Circumstances or events that have or are likely to have a material effect on its financial results, financial position or cashflow • Any new developments in its sphere of activity that are not public knowledge, that may lead to material movements in its share price Para 3.5 : • Prohibits the release of information in para3.4 to any 3rd party until it has been released publicly.
JSE LISTING REQUIREMENTS DISCLOSURE OF PERIODIC FINANCIAL INFORMATION Para 3.15: • Reporting – Interim reports shall be published and distributed distributed to shareholders after the expiration of the first 6 month period of a financial year, by not later than 3 months after that date. • Interim reports must comply with Statements of GAAP or IFRS Para 3.17: • Non- compliance results in a listing suspension
JSE LISTING REQUIREMENTS DISCLOSURE OF PERIODIC FINANCIAL INFORMATION Para 3.19: • Every issuer shall within six months after the end of each financial year, distribute the annual financial statements for the relevant financial year to all holders of securities • Company must submit 200 copies to the JSE • Publish the financial results in the press Para 3.23: • Non- compliance results in a listing suspension and possible termination of listing
JSE LISTING REQUIREMENTS RIGHTS BETWEEN HOLDERS OF SECURITIES Para 3.27: • A company must ensure that all holders of any class of its securities that are in the same position, receive fair and equal treatment. Para 3.29: • Securities in each class must rank pari passu in respect of all rights i.e. shares are in all respects identical.
JSE LISTING REQUIREMENTS COMMUNICATION WITH HOLDERS OF SECURITIES Para 3.44: • A company must ensure that all the necessary facilities and information are available to enable holders of securities to exercise their rights. • A company must: (a) inform holders of securities of the holding of meetings that they are entitled to attend; (b) enable shareholders to exercise their right to vote, where applicable; and (c) release announcements and distribute circulars in terms of the Listing Requirements.
PUBLIC INTEREST Financial Returns Social Returns Public Good PRIVATE INTERESTS Financial Returns PUBLIC vs PRIVATE INTEREST • Governmentdoes not have outright control of Telkom and is not able to demand social returns • Government can use negative control to pursue its interests
WAY FORWARD • Section 3 of the proposed Amendment Bill to the PFMA, proposes that government business enterprises listed on the JSE be exempted from the PFMA. • The intention of the Bill is to ultimately delist all the government business enterprises upon listing on JSE – Bill has not as yet been enacted.