NEW ZEALAND EQUITY CAPITAL MARKETS - Trends and insights January 2020 - Chapman Tripp
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January 2020 NEW ZEALAND EQUITY CAPITAL MARKETS Trends and insights
Contents Innovation and change abounds ...................................................................................... 1 2019/2020 equity capital markets snapshot.............................................................. 2 2020 IPO activity to build on Napier Port success .................................................... 4 Key trends for 2020 listing activity ............................................................................... 6 Market performance and composition .......................................................................... 8 From public to private .......................................................................................................10 Shareholder activism and stakeholder engagement ................................................12 Increasing investor participation in public capital markets....................................14 Alternative capital markets platforms..........................................................................15 Delivering a 10-year vision for capital markets...........................................................16 OIO treatment for listed companies..............................................................................17 Trends in capital raisings...................................................................................................18 Time for an ASXit?.............................................................................................................20 Chapman Tripp’s equity capital markets team............................................................21 Large Law Firm of the Year New Zealand Law Awards 2019 Capital Markets Deal of the Year New Zealand Law Awards 2019 New Zealand Deal of the Year New Zealand Law Awards 2019 New Zealand Deal Firm of the Year Australasian Law Awards 2019
Innovation and
change abounds
New Zealand’s equity capital markets revival a work in progress
New Zealand’s equity capital
markets are showing signs of
revival following significant
changes in 2018 and 2019. These
Investor participation only
continues to increase, with new
products such as Sharesies
providing avenues for younger
“ Market performance
remains strong and
somewhat insulated
included the consolidation of investors to tap into the market.
NZX’s boards, changes to fees from overseas volatility,
and rules around on-market New Zealand issuers’ attempts although sensitivity
trading, the new NZX Listing to engage with their investor
Rules and the formation of – universe are also improving – in to global events,
and recommendations from line with more mature markets. such as the emerging
– the industry-led body, Capital There are many benefits of this,
Markets 2029. from protecting issuers against Coronavirus, remains.”
hostile takeovers, to reducing
Despite moderate projections combative-style shareholder
for markers such as initial public activism, which is on the
offering (IPO) activity (from a rise offshore.
very low base – zero in 2018),
market performance remains A sure sign of NZX’s better bill of
strong and somewhat insulated health was found in 2019’s banner
from overseas volatility. 2020 listing, the Napier Port IPO, which
is off to a very good start with we understand received strong
New Zealand market performance Australian institutional investor
continuing to rise to new heights, support in spite of opting not to
although sensitivity to global dual list on the ASX. This indicates
events, such as the emerging a confidence in the NZX not seen
Coronavirus, remains. in previous years.
1
2019/2020 equity capital
markets snapshot
Reflections and predictions for New Zealand’s equity capital markets
2020 Predictions 2019 Reflections
IPO activity • More IPO activity; though still • There were two equity IPOs and
subdued due to the low interest rate nine fund IPOs (including eight
environment and a strong focus on Smartshares funds listed).
yield rather than growth.
• The Napier Port IPO was undoubtedly
• Companies with long-term the highlight of 2019 listings, with
shareholders seeking to access the a number of successful features
NZX as an exit opportunity the most including a priority pool for local
likely IPO candidates. residents and ratepayers.
Market performance • The S&P/NZX 50 will maintain its • New Zealand’s stock exchange yet
and composition relatively strong performance, again outperformed major global
avoiding much of the impact of global indices. The benchmark S&P/NZX 50
market volatility. Gross index rose 30.4% over the year.
• A trend masked by the board • The long-awaited board consolidation
consolidation – the decline of the on 1 July 2019 saw the junior NZX
number of issuers on the Main Board equities boards – the NZAX and the
– will continue in 2020. NXT – consolidated into the NZX
Main Board.
From public to private • Take-private transactions will • NZX was once again a happy hunting
continue as many NZX listed ground for takeovers. Five NZX Main
issuers are trading below NTA per Board issuers were taken private.
security. The year begins with two
significant take-private transactions
in the pipeline – Metlifecare and
Augusta Capital.
Shareholder activism • More companies will engage in • New Zealand issuers’ appreciation
and stakeholder defensive play – including improving of the importance of investor
engagement investor relations – as a result of relations grew, with many improving
increased take-private transactions. their efforts through dedicated
This will bring New Zealand into line investor days and other public
with more mature markets. relations activities.
• New Zealand Oil & Gas provided
a very public example of both the
power of shareholder activism
and the importance of takeover
response strategies.
New Zealand Equity Capital Markets
TRENDS AND INSIGHTS
2 January 2020
2020 Predictions 2019 Reflections
Investor participation • Alternative capital markets • New services such as Sharesies help
platforms and innovative services to drive an increase in the number, but
for smaller investors to participate a reduction in the size, of NZX trades
in public capital markets will on market.
continue to rise in popularity, with
Link’s ShareMeUp service recently
launched and MyCap’s trading
platform planned.
Capital Markets 2029 • Adoption by industry and NZX of • Analysis conducted by the Capital
many of the recommendations Markets 2029 taskforce led to a list
made by the Capital Markets of recommendations in various fields,
2029 initiative. from tax to education to overseas
investment law.
Trends in capital • “Supersized” share purchase plans • A placement accompanied by a
raisings (SPPs) following a placement will “supersized” SPP, where the maximum
continue to be popular, but we participation is higher than the $15,000
will also see Accelerated Rights per shareholder limit provided for
Entitlement Offers (AREOs) and under the Listing Rules emerged as a
rights issues continue. The death of new offer structure used by Precinct
the AREO predicted in Australia will Properties and Kiwi Property Group,
not play out here yet. amongst others.
Visit our website to see members of
Chapman Tripp’s ECM team discuss their
reflections and predictions in our latest video.
32020 IPO activity to build
on Napier Port success
A successful listing paves the way for a stronger year ahead
NZX Main Board IPOs and other listings
25
20
15
10
5
0
2015 2016 2017 2018 2019
Notes to understanding this graph:
• Migrations from NZAX/NXT • Compliance listings • IPOs
Migrations from NZAX/NXT only include Compliance listings or “direct” listings An IPO is where an issuer undertakes
issuers which have transitioned from being include issuers that have become listed a regulated offer of equity securities
listed on the NZAX or NXT to the NZX on the NZX Main Board without raising under a product disclosure statement and
Main Board. new capital. These listings do not include becomes listed on the NZX Main Board at
so called “backdoor” or “reverse” listings, the same time.
• ETFs and other managed funds
where a new business is effectively listed
ETFs and other managed funds primarily
using a shell company that is already on the
includes NZX’s Smartshares funds, as well
NZX Main Board.
as other managed funds that have listed on
the NZX Main Board.
New Zealand Equity Capital Markets
TRENDS AND INSIGHTS
4 January 2020Lauded as a win-win for local government and investors, the Napier Port
IPO was undoubtedly the highlight for New Zealand’s equity capital
markets in 2019.
After a series of public Bucking the trend of most recent In New Zealand, the legislative
consultations the Hawke’s Bay IPOs, the Port did not pursue framework for medical cannabis
Regional Council decided to an ASX dual listing. Despite its was not yet finalised when
partially privatise the Napier NZX only listing, we understand Cannasouth listed (it has been
Port in order to fund the cost of there was still strong Australian recently), causing some market
a significant wharf extension. institutional demand for the offer commentators to question its
The Council raised $234m by – putting paid to the notion that an pricing and timing for listing.
effectively selling 45% of the Port ASX listing is necessary to attract
and retaining a 55% shareholding Australian institutional investor Booster also listed its private land
through the Hawke’s Bay Regional support in a successful IPO. The and property fund in 2019. This
Investment Company. $110m of Port has also had strong after- was the first fund listing since
the proceeds were provided to market performance. Salt’s carbon fund listing that was
the Port for use in developing the not an NZX SmartShares listing.
new wharf, with the remaining 2019 saw another IPO – This follows the amendment of
proceeds retained by the Regional Cannasouth, the medical cannabis the Listing Rules last year to
Council for investment. research company. Medical make it more straightforward
cannabis is a sector that has for managed funds to list, and
Interestingly, the Napier Port attracted a lot of investment its success means we expect
IPO drew on aspects of other interest worldwide. It’s also to see more fund listings in the
offers we have seen over the drawn attention from regulators, year ahead.
past few years, most notably the with ASX noting in 2018 that it
New Zealand King Salmon offer. had seen heightened interest
“
As with King Salmon, the Port IPO from persons wishing to list
featured a priority pool for local entities involved in, or existing
residents and ratepayers, as well listed entities seeking to
ucking the trend of
B
as for Port employees and eligible expand their operations into, most recent IPOs, the
iwi groups. Importantly, this offer medical cannabis. ASX noted
structure meant that key local that medical cannabis raises
Port did not pursue an
stakeholders were prioritised significant legal and public ASX dual listing.”
for allocations in the offer. This policy issues, and that these
structure demonstrates how businesses tend to be at a very
IPOs can be effectively used early stage with no operating
to enhance a company’s social history, meaning that they may not
licence to operate by encouraging be suitable to be publicly listed.
local ownership.
5Key trends for 2020
listing activity
On the whole, as previously predicted, 2019 was a better year than 2018
with some modest IPO activity and more fund listings
“ ext year, we predict
N
there will be more IPO
activity than 2019,
IPOs
In total, 2019 saw two equity IPOs
and nine fund IPOs (including
On the flip side, recession
murmurings continue and we
expect some ongoing volatility
in the IPO market globally
eight Smartshares funds listed).
during 2020 – the early market
though expect it to be While it is not quite a return to
impact of the Coronavirus is a
the IPO numbers we saw in 2013
still somewhat subdued and 2014, it is certainly a marked
good reminder of the sensitivity of
financial markets to unexpected
given the low interest improvement from 2018, when
global events.
there was no IPO activity. Next
rate environment
year, we predict there will be more
and a strong focus by In 2019 the Latitude and WeWork
IPO activity than 2019, though
IPOs were pulled in Australia and
investors on yield rather expect it to be still somewhat
the US respectively after listing
subdued given the low interest
than growth stocks.” rate environment and a strong
aspirants went public with the
offer, but were unable to secure
focus by investors on yield rather
institutional investor support
than growth stocks.
at the valuation sought by the
vendor. This is a very high-profile
The New Zealand IPO market
way to fail.
is primarily driven by vendors
seeking exits, rather than
Given we have less listings, we
companies looking to fund growth.
consider it unlikely this trend will
Given the lack of IPOs over the
percolate down to New Zealand.
last two years, we expect there
But, a contagion effect that causes
are some long term shareholders
nervousness about volatility in IPO
who have been biding their time
markets may lead to some listing
that may see 2020 as the right
aspirants concluding it is not yet a
time to access the NZX as an
good time to list.
exit opportunity. NZX50 market
performance remains strong,
outperforming its global peers,
and in 2019 almost $2 billion
of secondary equity capital
was raised by NZX issuers,
demonstrating no shortage of
investor demand.
New Zealand Equity Capital Markets
TRENDS AND INSIGHTS
6 January 2020Capital Markets 2029 is an industry-led group, sponsored by
the NZX and Financial Markets Authority. On 9 September
2019, it released its much anticipated report that takes a
10-year view and identifies steps that can be taken by the
government, regulators and industry participants to strengthen
New Zealand’s capital markets.
Visit our website to listen to our podcast series providing
further input from Capital Markets 2029 Chair, Martin Stearne,
SOUND COUNSEL
Steering Committee member and Chapman Tripp partner Rachel
Dunne, group member and EY Partner Andrew Taylor, and NZX
General Counsel Hamish Macdonald.
Direct listings ESG products Green bonds have been a feature
of debt capital markets for some
In 2020, we also expect to see 2020 may also see more
time. We believe equity issuers
some direct listings – where a environmental, social and
may look for more novel ways
company lists on a stock exchange governance (ESG) products
to access ESG-focussed funds,
and doesn’t raise new capital at the developed and brought to the
beyond simply improving the
time of its listing. Instead, existing public markets.
underlying ESG performance
shareholders sell down, creating
of their business. There’s also
initial liquidity and realising Five of the Smartshares funds
potential for a New Zealand
some of their investment, with that listed last year were
index for companies that meet
capital subsequently raised as specifically ESG funds. 2019 also
specific ESG criteria, a popular
required. 2019 saw a high profile saw a new ESG debt product
product in offshore markets.
example of this in the US where deployed – an ESG linked loan
“
Slack, a workplace messaging from ANZ to Synlait, where
app bypassed an IPO with the interest rate payable reen bonds have
G
a direct listing. by Synlait is affected by
Synlait’s performance under been a feature of debt
A recommendation made in the Sustainalytics’ ESG Risk Ratings capital markets for
Capital Markets 2029 (CM29) assessment. 2020 has already
report is the greater promotion seen Contact Energy agree a
some time. We think
of alternative pathways to similar sustainability linked loan equity issuers may look
listing, such as direct listings. with Westpac NZ.
The CM29 report also suggests
for more novel ways to
that the requirement to provide access ESG-focussed
prospective financial information funds, beyond simply
should be removed for all listings,
and noted this requirement may be improving the underlying
a particular impediment to direct ESG performance of
listings where no new capital
is sought. their business.”
7Market performance
and composition
Strong performance with new records in sight
Market performance during 2019
35
30
25
2019 Index % changes
20
15
10
5
0
-5
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
S&P/NZX 50 Gross S&P/NZX 50 Capital S&P/ASX 200
S&P 500 FTSE 100
In 2019, the NZX maintained its strong performance, The sustained strong performance of the NZX is
with the market continuing to outperform many other positive for IPO aspirants. However, despite the
international markets. The benchmark S&P/NZX 50 strong performance of the benchmark S&P/NZX
Gross index rose 30.4% over the year. 50 index, there continued to be a number of take
private transactions throughout 2019 at a premium
2020 is off to a strong start, with the S&P/NZX 50 to the market price, showing that perhaps not all
gross index very close to hitting a new milestone – companies are as fully priced as the headline figures
pushing through the 12,000 point mark. may suggest.
Despite general elections in both New Zealand and
the US in 2020, recent history has shown the NZX 50
relatively immune to geopolitical uncertainty. How
New Zealand’s financial markets weather the storm of
Coronavirus will be important.
New Zealand Equity Capital Markets
TRENDS AND INSIGHTS
8 January 2020Migration to the Main Board masks a further decline
NZX Main Board issuers
200
160
35 34 45
36 37
1 1
120 1 14
3
80
132 132
122
117 115
40
0
2015 2016 2017 2018 2019
As at 31 December
Fund issuers Newly migrated issuers Equity issuers
The long-awaited board consolidation on 1 July 2019 Ignoring these forced migrations, the NZX Main
saw all NZX junior equity boards – the NZAX and Board continued its trend since 2016 of a decline in
the NXT – consolidated into the NZX Main Board. the number of equity issuers, with the number of fund
New Zealand now has a single listed equities market. issuers continuing to rise. In 2020, we expect to see
this trend continue with a further minor decrease in
The NZAX and NXT were shut down and all issuers the number of equity issuers, and more funds listed.
migrated to the Main Board. Whether they stay
remains to be seen. Future Mobility Solutions, an
NZAX migrant, quickly delisted to move to the
Unlisted Securities Exchange (USX).
9From public
to private
Barbarians at the gate – de-listings likely to continue
There were a significant number of delistings during And, already announced this year as we go to print is a
2019, for a variety of reasons. Five were take- proposed takeover of Augusta Capital by ASX listed
private transactions: Centuria Capital Group.
• The Mercantile Investment Company was subject We predict more take-private transactions in 2020,
to an off-market takeover by Sandon Capital due to the fact that a number of listed companies are
Investments Limited trading quite significantly below their net tangible
assets (NTA) per security.
• Trade Me Group Limited entered into a scheme
of arrangement with Titan AcquisitionCo
There are a number of active private equity investors
New Zealand Limited
looking to the New Zealand listed market to identify
• Methven entered into a scheme of arrangement targets that are trading at very low multiples and
with GWA making what some might describe as opportunistic
takeover offers.
• Orion was subject to a takeover/compulsory
acquisition by the already majority shareholder,
A 10 year view of IPO activity shows that 21% of all
Grafton Health Holdings, and
IPOs over the last decade are no longer listed due to
• SLI was subject to a takeover by Texas-based take-private transactions. A further 9% of those IPOs
ESW Holdings. are also no longer listed due to insolvency processes.
We also saw CBL Corporation, the owner of credit
insurer CBL Insurance, delist following court-ordered
liquidation, and Future Mobility Solutions move to the
Unlisted Securities Exchange (USX).
Metlifecare announced at the tail end of 2019
that it had entered into a scheme implementation
agreement, under which European investor EQT
proposes to take Metlifecare private. If the conditions
are satisfied, Metlifecare is expected to be delisted in
May this year.
“ e predict more take-private
W
transactions in 2020, due to the fact
that a number of listed companies
are trading quite significantly below
their NTA per security.
New Zealand Equity Capital Markets
TRENDS AND INSIGHTS
10 January 2020NZX Main Board IPOs in the last 10 years – where are they now?
Offer Share Price Offer Share Price
Year Company Price 31/12/2019 Year Company Price 31/12/2019
2010 Taken private – delisted January 2018 2014 $1.60 $5.01
Forms part of Stride Stapled Group $1.70 $0.29
2011 $1.42 $8.90 $2.35 $3.60
Taken private – delisted May 2019 $3.00 $3.16
2012 $1.25 $0.30 Taken private – delisted March 2019
2013 $2.50 $5.05 $1.00 $0.18
$1.50 $5.00 $0.95 $1.92
Taken private – delisted January 2019 2015 Taken private – delisted January 2018
In liquidation – delisted May 2017 In liquidation – delisted November 2019
$2.20 $8.89 $2.80 $3.50
$3.50 $4.40 2016 Taken private – delisted October 2018
Taken private – delisted November 2017 $1.49 $1.82
2014 $1.55 $3.03 $1.12 $2.05
In liquidation – delisted October 2017 2017 $0.79 $1.32
$1.10 $4.95 2019 $0.50 $0.60
$2.40 $3.75 $2.60 $4.16
$1.10 $0.90
Note: excludes listed funds.
11Shareholder activism and
stakeholder engagement
It’s not just about the sausage rolls…
A number of New Zealand listed issuers are upping
It is important for listed issuers to ensure their game in terms of engagement with existing
they are actively engaging with the investor shareholders and potential investors through the
universe. There are important benefits for use of dedicated investor days, better outreach to
issuers in doing this: the analyst community, seeking out better research
coverage and other public relations activities. NZX
• Building a relationship with the full is also playing a part – taking some of its listed
spectrum of investors, from major companies to other markets, such as Singapore in
institutional holders, to small retail 2019, to profile them to offshore investors.
shareholders, may prove useful in
defending against hostile takeovers. There is certainly room for improvement –
New Zealand listed issuers have not previously
• Proactive shareholder engagement may
been as sophisticated in their investor relations
help head off shareholder activism, a key
and industry engagement as those in other more
trend emerging in Australasia.
mature markets.
Shareholder activism – could New Zealand prove more fertile
than Australia?
Shareholder activism directed at listed issuers is The hurdle to lodge a shareholder proposal in
on the rise in Australia and New Zealand. In addition Australia is relatively high – at least 100 shareholders,
to the perennial issues of board composition, share or one or more shareholders holding at least 5% of the
price performance and takeover proposals, which votes, must support the proposal before it needs to
generate activist interest, we are seeing increased be put to shareholders. In contrast, in New Zealand, a
focus by activists on climate change and ESG matters, single shareholder may propose a resolution.
especially in Australia.
In addition, New Zealand law more readily
Australian activist group Market Forces was accommodates non-binding “advisory” resolutions
successful in 2019 in lodging climate change related that seek to put pressure on the company to act in a
resolutions to be heard at shareholder meetings with certain way, rather than compelling the board to do so.
nine large ASX listed issuers, and is already seeking
support to lodge resolutions for three meetings in Given the ease of putting a shareholder proposal
2020. None of the resolutions proposed by Market in New Zealand, and the continued focus on ESG
Forces were successfully passed, but the goal of matters, we may see greater numbers of shareholder
raising awareness and soliciting a public response proposals emerging in 2020. Helpfully, one of the
from the targeted listed companies on their approach changes to the Listing Rules made in 2019 was a
to climate change was certainly achieved. removal of the requirement for NZX to review a
notice of meeting where a shareholder proposal was
received, which may reduce the administrative burden
that this trend would otherwise impose on companies.
New Zealand Equity Capital Markets
TRENDS AND INSIGHTS
12 January 2020NZ Oil & Gas – minority shareholders defeat board endorsed takeover
In 2019, minority shareholders of New Zealand Oil & Gas rejected an offer from the company’s majority
owner, O.G. Oil and Gas, to take over the company. O.G. Oil and Gas requested a special meeting be called
to vote on a resolution to acquire the 30% stake in the company they did not yet hold.
In the lead up to the meeting, the independent directors initially recommended the offer to shareholders
at $0.62 per share. Disgruntled minority shareholders raised concerns with the Takeovers Panel, the
media and other likeminded shareholders, and the offer price was increased to $0.74 per share. Despite
the increase in price, the scheme failed to meet the 75% threshold required to pass, showing the
importance of keeping smaller shareholders on side.
The fallout from the failed scheme saw two shareholder nominated directors seek appointment, as well
as a shareholder proposal for further information to be released in relation to one of the company’s
projects – none of these initiatives were supported by the board, and did not pass, showing there are
some limits to the power of shareholder activism.
New Zealand Shareholders’ Association (NZSA)
The NZSA is a key voice on behalf of retail shareholders. The NZSA publishes a range of resources that
are relevant to shareholder engagement with listed companies, including policy statements on common
actions undertaken by listed companies. In addition, the NZSA distributes voting recommendations to its
members on the resolutions put forward at many listed company annual meetings.
One recent development is the introduction of “standing proxies” – these enable shareholders to appoint
the NZSA as their proxy for all listed company meetings, rather than requiring shareholders to appoint
them as a proxy for each meeting. This reduces the administrative burden involved for retail shareholders
and may allow for them to have more effective representative at meetings.
Given the increased prominence of the NZSA, and the increased voting power it will undoubtedly hold
through standing proxies, it becomes ever more important for listed issuers to be on the right side of the
NZSA. Early engagement with the NZSA on proposed resolutions prior to release of a notice of meeting
may allow concerns to be addressed in private, rather than in a public forum after the materials have
been released.
13Increasing investor participation
in public capital markets
Lower fees and more trades
We have seen some innovative developments in 2019 One of the recommendations in the Capital Markets
to encourage broader participation in public capital 2029 report was to streamline the Anti-Money
markets. New Zealand examples include Sharesies Laundering (AML) process, by removing some of the
and ShareMeUp, which are appealing specifically to administrative duplication that turns new and younger
younger investors. We are picking that this is a trend investors off the capital markets. Through the use
that will continue as market participants look to tap of mobile apps and other technology, services like
into a younger generation and remove unnecessary Sharesies and ShareMeUp are easier to sign up to and
red tape from the investing experience. access than traditional share brokers, but there is still
a lot of AML paperwork that could be minimised.
Services like Sharesies, Hatch and ShareMeUp
enable little-but-often type of investing in a way that In terms of trades on the NZX, we are seeing smaller
is more cost effective than traditional methods of trades but more of them, with an increase of 94.4% in
investing in public capital markets. Issuers sign up the total number of equity trades in 2019, and a decrease
and the services parcel up trades for people buying in average on-market trade size of 37.7%. We think this, in
small holdings of shares in participating companies part, is being driven by these new services and products.
so that the brokerage costs are minimised. Normally,
a minimum amount of brokerage is charged on The percentage of value traded on-market has also
each trade by a retail investor, making small trades continued to rise to 63% in 2019, a 12.3% increase
prohibitively expensive. from the prior year.
ShareMeUp
Sharesies provides access through a mobile ShareMeUp is a micro-investing app to provide
app to selected Smartshares exchange investors access to selected NZX issuers in
traded funds (ETFs) and managed funds from a cost effective way. ShareMeUp launched
Pathfinder, AMP Capital and PIE Funds. in late 2019, and is operated by Link Market
Services, a share registrar operator in New
In 2019, Sharesies also launched a service to Zealand. ShareMeUp is aimed at investors who
allow investors to invest directly in individual wish to invest $50 to $500 on a regular basis.
companies and ETFs on the NZX Main Board.
As part of this, Sharesies became admitted One way in which ShareMeUp has made
as an NZX cash market trading and clearing investing on the NZX more accessible is by
participant, so that it could make these trades offering low fees and encouraging dollar
directly (rather than via another broker). cost averaging through regular investments,
allowing investors to minimise the risk of
One way in which Sharesies has made investing investing into a falling market by smoothing
on the NZX more accessible is by offering out the price paid for their shares. ShareMeUp
fractionalised amounts of investments – this allows users to select the frequency of their
means that investors can buy the exact amount investments (weekly, fortnightly or monthly),
of the investment they are after, rather than and then executes the relevant trades on a
having to buy in multiples of the share price. weekly basis.
New Zealand Equity Capital Markets
TRENDS AND INSIGHTS
14 January 2020Alternative capital
markets platforms
Filling the gap that has been left by NXT and NZAX
Increased investment and trading in private companies is a global trend. Facilitating trading in private companies
can be a precursor to an IPO on more traditional capital markets. Technology has allowed private capital raising
and trading platforms to operate more efficiently than was previously possible, and has reduced the gap in
sophistication between the traditional, mainstream financial markets and alternatives.
These alternative platforms may help fill the gap left by the NXT and NZAX, the junior markets disestablished
by the NZX in 2019, and provide a stepping stone to the NZX Main Board.
Crowdfunding Syndex
• Equity crowdfunding platforms allow issuers • Syndex describes itself as an online exchange
to raise up to $2m from retail investors for proportionally owned assets, such
without a formal disclosure document. as property syndications. Syndex offers
investors the ability to invest in new primary
• Instead, the offer must be made through a
offers for syndicates, and to trade existing
licenced equity crowdfunding platform.
interests they may hold in issues listed
• Certain equity crowdfunding platforms have on Syndex.
started operating secondary markets to allow
• Syndex also offers a range of other
investors to trade their shares and increase
investment opportunities, including private
the liquidity of their investment.
equity type investments and early stage
growth companies.
MyCap Markets Unlisted Securities Exchange
• MyCap Markets is establishing a regulated • The Unlisted Securities Exchange (USX) is a
marketplace to allow for trading in shares that financial product market, intended to provide
are not listed on a traditional stock exchange. a cost-efficient and simple share trading
MyCap Markets will operate on a periodic platform. The total market capitalisation of
trading basis, so that investors can trade USX was approximately $3b as at October 2019.
equity and debt securities through auctions
• As USX is not a licensed financial product
held at least once a year.
market under the Financial Markets Conduct
• By allowing for trades to be conducted on Act 2013, the usual protections in relation
a periodic basis only, the burden on issuers to insider trading, market manipulation,
of complying with continuous disclosure is continuous disclosure and so on do not apply,
lessened, as they need only disclose relevant but issuers and traders remain subject to the
information around the time of each auction, fair dealing regime.
rather than on a continuous basis.
15Delivering a 10-year vision
for capital markets
Recommendations from the Capital Markets 2029 Report
The industry-led initiative Capital Recommendations were made • Establish a centralised process
Markets 2029 – a body formed across a broad spectrum, from tax for AML to remove barriers
to assess how New Zealand’s to education, but were ultimately to entry and simplify signing
capital markets are working interdependent. up to innovative service
and provide recommendations providers, such as Sharesies or
for improvements – released While there is no substitute for ShareMeUp, even further.
its report last year. Growing reading the report in full, some
• Revise the definition of
New Zealand’s Capital Markets of the recommendations that we
wholesale investor to
2029 provides a vision and growth feel have a real chance of making
explore whether greater self
agenda to promote stronger a difference to New Zealand’s
certification can be used. As
capital markets in New Zealand. equity capital markets include:
noted, alternative capital
markets platforms have
Key trends identified in the • Allow KiwiSavers to invest with
continued to expand, and many
report included: multiple providers – this may
of these feature investments
encourage greater investment
which are only available to
• New Zealanders were into niche areas of the market.
wholesale investors.
encouraged to save by
• Simplify disclosure
the implementation of • Consider local government
requirements for regulated
KiwiSaver, however it reform to ensure local councils
offers by reviewing the level
fostered investment in consider all funding options
of information required
lower-growth assets for necessary infrastructure.
within the product disclosure
We believe the Napier Port
• The public market is effective statement as compared to the
IPO has been a win-win
for larger companies, but less offer register. Cutting back
for local government and
so for smaller companies, and the information that must be
investors, so this model should
is still struggling to attract provided to retail investors
be explored to help fund
listings, and would better reflect the way
New Zealand’s significant
that retail fact sheets are
• Private markets are infrastructure needs.
currently being used for IPOs
functioning efficiently but
in New Zealand.
perhaps not serving the
full range of investors or
investment stages.
“ ur work as a Committee was supported by a huge number of
O
participants in New Zealand’s capital markets. The industry
gave freely and frankly their time and views. Achieving the
report’s vision is now in our hands, and I am positive we will
see traction in 2020”
Chapman Tripp partner and equity capital markets expert Rachel Dunne was the only legal
representative on the 10 person Capital Markets 2029 Steering Committee.
New Zealand Equity Capital Markets
TRENDS AND INSIGHTS
16 January 2020OIO treatment for
listed companies
Sanity prevails at last?
A perennial source of frustration • The ownership of listed Thankfully, changes appear to be
for NZX listed companies has been companies tends to be oblique, imminent as part of a wider review
the application of the Overseas due to the widespread use of the OIA. The Government has
Investment Act 2005 (OIA) to NZX of the New Zealand Central announced that it intends to
listed issuers. The OIA currently Securities Depository change the rules that apply to
treats an issuer which has 25% (NZCSD) and other custodians listed issuers. The supporting
or more ownership by “overseas or nominees. Only the materials released so far suggest
persons” as an overseas person, person holding legal title that it will effectively shift the
requiring consent under the OIA to need be registered on the ownership threshold so that a
acquire certain assets or interests share register, with other listed company will be an overseas
in land. relationships generally not person if they are either:
required to be disclosed. There
The three main difficulties faced is also no requirement that a • 50% or more owned by
by NZX listed companies have shareholder disclose to a listed overseas persons; or
been that: company whether or not they
• 25% or more owned by
are an overseas person.
overseas persons who each
• Their ownership is constantly
The combined effect is that it have a 10% or more interest in
changing, as shares can be
simply isn’t practicable for a the issuer.
traded every day on which the
listed issuer to accurately identify
NZX is open for trading. The Government has also indicated
whether it is an overseas person
that greater options will be available
• The definition of overseas on any given day (with a few
to appropriately treat KiwiSaver
person is broad and exceptions, such as where there
and other managed investment
complicated – it captures is a single major shareholder that
schemes that are investing on
investors such as KiwiSaver would by itself make the issuer an
behalf of New Zealanders as
funds investing on behalf of overseas person).
New Zealand persons for the
New Zealanders and makes
purposes of the OIA.
it impossible for listed
companies to tell whether or
not some shareholders are
overseas persons. While the proposed reforms are heading in the right
direction, it will not be a panacea for listed issuers,
as it does not fully address the underlying issues
identified above.
17Trends in capital raisings
Types of capital raising over time by number Types of capital raising over time by dollar amount
100% 100%
80% 80%
60% 60%
40% 40%
20% 20%
0% 0%
2019 2018 2017 2016 2019 2018 2017 2016
Placement SPP Placement + AREO Placement +Rights Issue
Rights issue Placement + Supersized SPP Placement + SPP AREO
A new offer structure rose to Another change in 2019’s new Australian commentary around
prominence in 2019 – a placement Listing Rules is that a shortfall the death of the AREO does not
accompanied by a “supersized” under an SPP cannot be issued to seem to be playing out here –
SPP. Under this structure the an underwriter or other investors AREOs are still a popular option
maximum SPP participation without counting against the for offers as they offer some
is higher than the $15,000 per issuer’s 15% placement capacity. of the benefits of a placement,
shareholder limit provided for As a result SPPs are typically no while still being seen as fairer to
under the Listing Rules. Issuers, longer underwritten. In contrast, all shareholders. Notable AREOs
such as Precinct Properties, for a pro-rata rights issue, the in 2019 included Kathmandu’s
offered SPP participants the shortfall can be issued under $145m raising to partially fund
ability to subscribe for up to a shortfall bookbuild or to an the acquisition of Rip Curl and
$50,000, with the excess above underwriter without using the Tilt Renewable’s $274m raising to
$15,000 per shareholder counting 15% placement capacity. This fund the development of a major
against the issuer’s placement means that where it is necessary wind farm in Australia.
capacity. This structure is to ensure the full amount of
perceived as fairer to retail money is raised, such as to fund an We expect to see more supersized
investors, because with the larger acquisition, issuers have tended SPPs following a placement in
size, more people can take up their to use rights issues, with SPPs 2020, but we also pick AREOs
pro rata entitlement or increase tending to be reserved for money and rights issues will continue,
their shareholding. that will be used for general particularly where issuers are
corporate purposes. raising capital for acquisition
The $15,000 per shareholder SPP purposes. In the face of stiff
limit was not adjusted in 2019’s There have also been changes under criticism from the NZSA, issuers
extensive Listing Rules rewrite, the Listing Rules to streamline have been weary of doing a
although the placement capacity the process for rights issues – the placement alone unless there is a
was decreased from 20% to 15%. timetable has been significantly compelling reason for doing so.
In Australia, the SPP limit was shortened and accelerated offers
recently doubled to $30,000. We are also expressly addressed, rather
believe NZX should follow suit. than through waivers.
New Zealand Equity Capital Markets
TRENDS AND INSIGHTS
18 January 2020Significant variety in capital raising structures in 2019
Rights Offer A pro rata offer made to all eligible shareholders (typically limited
to those in New Zealand and other select jurisdictions), under which
2019 examples include:
each shareholder has the right to subscribe for a number of shares in
• TOWER’s $47.2m rights issue proportion to their existing shareholding.
• thl’s $50m rights issue, Shareholders who do not wish to take up their rights, or who are
combined with a $30m ineligible to do so, may receive some value for their rights by trading
placement them where rights are quoted or through a shortfall bookbuild if the
issuer chooses to conduct one.
There is no limit on the amount that can be raised under a pro rata
rights issue.
The NZSA has been vocal in their view that pro rata rights offers are the
most equitable form of capital raising for all shareholders.
Accelerated Rights Offer As with a rights offer, but money is received from institutional investors
sooner (hence the “acceleration”) and both an institutional and retail
2019 examples include:
bookbuild is conducted to allocate any shortfall, with any net proceeds
• Tilt’s $274m AREO returned to shareholders who do not participate.
• Kathmandu’s $145m AREO AREOs are still seen as fair to all shareholders, but are popular with
issuers that have a large institutional investor presence on their register.
Placement An offer on a non-pro rata basis to one or more selected investors.
2019 examples include: Placements can be completed very quickly with minimal documentation.
• EBOS’ $175m placement An issuer may only issue up to 15% of its shares under a placement,
calculated on a rolling 12 month basis.
• Infratil’s $100m placement,
combined with a $300m AREO
Share Purchase Plan An offer under which each eligible shareholder may subscribe for up to
$15,000 of shares.
2019 examples include:
• Serko’s $5m SPP, combined SPPs are often used in connection with a placement to allow retail
with a $40m placement investors to participate, albeit on a non-pro rata basis.
• New Talisman’s $3.6m SPP
New
Supersized SPP An offer under which each eligible shareholder may subscribe for up to a
certain dollar amount of shares in excess of the $15,000 limit for an SPP
2019 examples include:
(such as $30,000 or $50,000).
• Precinct Properties’ $21.8m
supersized SPP, combined This allows more retail investors to participate in an offer following a
with a $130m placement placement in a way that is more likely to enable them to maintain their
pro rata holding.
• Kiwi Property Group’s $16.6m
supersized SPP, combined To the extent that the amount subscribed by each shareholder is in
with a $180m placement excess of the $15,000 SPP limit, an issuer will need to use its 15%
placement capacity.
19Time for an ASXit?
Dual listing no longer necessary to drum up
institutional investor interest
The traditional wisdom has always been that an ASX the funded class action environment in Australia that
listing opens an issuer up to a broader universe of has been strongly directed towards listed issuers. In
potential institutional investors, or just potential investors addition, a dual-listed issuer may be open to breach
generally. This has been cited as particularly relevant of Australian law, which adds additional compliance
for Australian institutional investors who are restricted obligations that can be complex.
in investment mandates from investing in issuers that
are not ASX listed. That wisdom has been challenged by ASX listing fees are also significant and much higher
the Napier Port IPO, which received strong Australian than NZX fees for equivalent sized issuers even
institutional support without an ASX listing. where trading activity remains concentrated on the
NZX. The graph below demonstrates that for many
Other advantages of an ASX listing can include of New Zealand’s largest dual listed companies, NZX
greater profile in Australian financial media, who remains the more liquid exchange by a significant
naturally tend to follow ASX listed companies more margin, making it harder to demonstrate the value of
closely, and making it easier for Australian based staff an ASX listing to stakeholders.
to trade in shares in Australian dollars and through
ASX sharebrokers with whom they may have an It needs to be a case by case assessment, but
existing relationship. the boards of some of the larger NZX/ASX listed
companies could challenge, when speaking with
However, NZX listed issuers are experiencing the investors, whether an ASX listing is still necessary.
effects of some major disadvantages to a dual listing. Without it, they can save costs, access better
A developing trend is the availability and cost of D&O insurance on better terms and better pricing, and
insurance. Where insurance is available, premiums are avoid a level of complexity and potential compliance
significantly higher for dual-listed companies due to risk within the business.
Trading venue for dual-listed S&P/NZX 50 companies during 2019
100%
80%
60%
40%
20%
0%
Auckland
International Airport
Air New Zealand
The a2 Milk Company
Contact Energy
Chorus
Ebos Group
Fletcher Building
Fisher & Paykel
Healthcare Corporation
Fonterra
Shareholders’ Fund
Genesis Energy
Gentrack Group
Heartland Group Holdings
Infratil
Kathmandu Holdings
Mercury Energy
Meridian Energy
Oceania Healthcare
Pushpay Holdings
Restaurant Brands
New Zealand
SKYCITY Entertainment
Group
Sky Network Television
Synlait Milk
Spark New Zealand
Summerset Group Holdings
Vista Group International
% of shares traded on the: NZX ASX
New Zealand Equity Capital Markets
TRENDS AND INSIGHTS
20 January 2020Chapman Tripp’s equity
capital markets team
New Zealand’s most highly regarded equity capital markets legal team
Our market-leading equity capital markets team has a Our experience ranges across all aspects of equity
reputation for acting on the country’s most significant capital raisings including pre-offer structuring,
and complex deals, as well as most of New Zealand’s IPOs, secondary capital raisings, and institutional
recent initial public offerings (IPOs) and NZX Main placements and block trades.
Board listings. Our unrivalled track record means
that we are best placed to help clients avoid the risks Our deep relationships with issuers, lead managers,
and obstacles with any capital markets transaction – underwriters, regulators and government agencies
such as choosing the wrong offer structure or a due allow us to advise on all securities and capital markets
diligence process that is not fit for purpose. matters – from capital raising to regulation and
market supervision.
Unrivalled expertise
We advised on We have advised on
75% of all equity 2/3 of the IPOs and
capital raisings NZX Main Board listings
by NZX listed companies in 2019 over the last 10 years
We are the only law firm
to be represented on the 10 person strong Capital
Markets 2029 Steering Committee – an industry Capital Markets Deal
body formed by NZX and FMA and tasked with
creating a 10 year vision for New Zealand’s equity of the Year
capital markets. – New Zealand Law Awards 2019
21Primary contacts
RACHEL DUNNE – PARTNER ROGER WALLIS – PARTNER
T: +64 9 357 9626 M: +64 27 553 4924 T: +64 9 357 9077 M: +64 27 478 3192
E: rachel.dunne@chapmantripp.com E: roger.wallis@chapmantripp.com
Other contacts
FIONA BENNETT – PARTNER JOSH BLACKMORE – PARTNER PIP ENGLAND – PARTNER
T: +64 3 353 0341 M: +64 27 209 5871 T: +64 4 498 4904 M: +64 21 828 814 T: +64 9 357 9069 M: +64 27 434 8854
E: fiona.bennett@chapmantripp.com E: josh.blackmore@chapmantripp.com E: pip.england@chapmantripp.com
BRADLEY KIDD – PARTNER NICK LETHAM – PARTNER JOSHUA PRINGLE – PARTNER
T: +64 4 498 6356 M: +64 27 224 1271 T: +64 3 353 0024 M: +64 27 204 7323 T: +64 9 358 9831 M: +64 27 504 6572
E: bradley.kidd@chapmantripp.com E: nick.letham@chapmantripp.com E: joshua.pringle@chapmantripp.com
GEOF SHIRTCLIFFE – PARTNER JOHN STROWGER – PARTNER TIM TUBMAN – PARTNER
T: +64 4 498 6322 M: +64 27 481 1699 T: +64 9 357 9081 M: +64 27 478 1854 T: +64 9 357 9076 M: +64 27 344 2178
E: geof.shirtcliffe@chapmantripp.com E: john.strowger@chapmantripp.com E: tim.tubman@chapmantripp.com
Chapman Tripp is New Zealand’s leading full-service commercial Our thanks to Philip Ascroft, Kate Roberts-Gray, Eleanor Burkin
and Georgia Moore for contributing to this report.
law firm, with offices in Auckland, Wellington and Christchurch.
Our lawyers are recognised leaders in corporate and commercial, Every effort has been made to ensure accuracy in this publication.
However, the items are necessarily generalised and readers are
mergers and acquisitions, capital markets, banking and finance, urged to seek specific advice on particular matters and not rely
restructuring and insolvency, litigation and dispute resolution, solely on this publication.
employment, government and public law, intellectual property, © 2020 Chapman Tripp
telecommunications, real estate and construction, energy and
natural resources, and tax law.
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