This publication explores the revival of New Zealand’s equity capital markets (ECM) since the global financial crisis (GFC). We discuss the factors that have contributed to the rebound, including the implications of the first government privatisations in over a decade. We also summarise the likely effects of the new Financial Markets Conduct Act, which will represent a fundamental rewrite of New Zealand’s securities framework.
Chapman Tripp has been involved in almost all of the major ECM developments discussed within this report. We have one of the largest, most highly regarded and truly national ECM teams in New Zealand with a reputation for acting on the country’s most significant and complex IPOs. We represent a mix of issuers, lead managers, underwriters, regulators and Government on their most important business-critical activities.
Bust to boom
2013 was a record year for New Zealand’s equity capital markets with a steady stream of new offerings and rising numbers of both institutional and ‘mum and dad’ investors.
In fact, New Zealand’s share market experienced its strongest year in more than a decade according to NZX Limited, the operator of the New Zealand stock exchange. In the 2013 calendar year, ten new companies listed on the exchange, with the new capital listed worth $7.5b.
NZX’s equity market capitalisation rose from NZ$46.6b in 2008 to NZ$82.2b at the end of 2013, or from 27% of GDP to 37.8%.
This mirrors the global picture, as worldwide equity fundraising in 2013 was up 24% on 2012 figures according to Thomson Reuters year-end data. Companies globally raised 37% more from Initial Public Offerings (IPOs) in 2013 than in the previous year.
NZX chief executive Tim Bennett noted that the recent increase in local activity reflected not only a more positive global environment but, and more importantly, “the impact from a number of structural changes in the market that are not only benefiting NZX, but the economy as a whole”.
The upturn has been driven by a range of factors, including:
- relatively low global interest rates, making the traditionally high yields delivered by New Zealand listed companies more attractive to investors
- a strengthening domestic household savings position since the establishment in July 2007 of the KiwiSaver retirement savings scheme, with funds under management currently exceeding
- the growth of the New Zealand Superannuation Fund, which now has over $25b in assets,
of which $3.7b is currently invested in New Zealand equities
- gradually improving financial markets policy and
a new regulator, and
- the Government’s Mixed Ownership Model (MOM) share offer programme.
The story unfolds
After the post-GFC lows of 2008 and 2009, a new chapter started for New Zealand’s equity capital markets in late 2011 with the listing of retirement village operator Summerset.
Summerset was the largest IPO in New Zealand for more than two years, raising a total of $123.6m. Until that point, private equity firms exiting by way of IPO had been regarded with some caution by New Zealand retail investors. However, the Summerset IPO has been successful for both investors and the seller, Quadrant Private Equity, which retained a significant stake in the business. At the beginning of March 2014, Summerset’s shares traded on the NZX Main Board around
$3.40, a significant increase to the offer price of
Following Summerset in late 2011, auction website Trade Me undertook an eagerly anticipated IPO, raising $365m and listing on the NZX Main Board and the Australian Stock Exchange (ASX).
In 2012, craft beer brewer Moa raised $16m through its IPO, drawing considerable media attention with its innovative, magazine style offer document which included paid advertising – a world first. Then the Fonterra Shareholders’ Fund raised $525m, offering the public a novel way to invest in the New Zealand dairy industry, and was heavily oversubscribed as a result.
Other IPOs in 2013 included Wynyard Group, SLI Systems, Synlait and Airwork Holdings. The Mad Butcher franchise was also reverse listed through Veritas Investments.
And it’s not just IPOs keeping the capital markets active. Many of the country’s largest acquisitions have been funded by equity raisings or comprised major block trades. For example, the EBOS Group’s purchase of Australia’s Symbion for $1.1b was in part financed by a $239m placement and rights offer. Major block trades in 2013 included News Corporation’s sale of its 43.6% stake in Sky Network Television for $815m, Quadrant Private Equity selling down its stake in Summerset for
$97m in March and for $89m in May, and Guinness Peat Group plc. selling out of its 34% stake in Tower for $118m.
In April Hellaby Holdings raised $50m through an institutional placement and share purchase plan (SPP), and in June Metlifecare raised $80m
through its placement and SPP. Abano Healthcare’s SPP closed on 1 October and was heavily oversubscribed.
2013 – a record year
Mighty River Power, the first of the Government’s MOM share offer programme, began trading in May 2013, having raised $1.7b in the IPO.
Meridian Energy, the largest IPO in New Zealand’s history, listed on 29 October and the Genesis Energy IPO is planned to commence in the next the next few months. The Government also sold down 20% of its shareholding in Air New Zealand, and expects the total programme to raise up to $5b.
Z Energy’s July listing was New Zealand’s largest IPO outside the MOM programme in the last decade, raising $840m. The success of the Z Energy IPO, which was significantly oversubscribed, is a clear sign that:
- current equity capital markets activity is not limited to the government sector, and
- New Zealand investors are more than ready to turn to stocks as an outlet for their savings.
Strength through regulation
Since the Capital Market Development Taskforce reported back in 2009, there has been an increased focus on regulatory reform in New Zealand. The Financial Markets Authority (FMA) was established in 2011 to replace the Securities Commission and took on a broader regulatory role.
The FMA is vocal about the need to simplify offer documents for non-expert investors and has issued a guidance note on effective disclosure
which prioritises “clear, concise and effective” offer
documents, a concept borrowed from Australia.
The FMA has also indicated that it would like to see shorter offer documents. However, under current legislation, directors face criminal liability for defective disclosure, even when there has been no intent to mislead or deceive investors. This
has resulted in longer, more detailed, and often combined investment statements and prospectuses as directors seek to ensure that all relevant information has been disclosed.
In August 2013, the Financial Markets Conduct Act, described as a “once in a generation” rewrite of capital markets law, was passed and will come into effect progressively from April 2014.
Investment statements and prospectuses will be replaced by a single offer document – the product disclosure statement (PDS) – with any additional information placed on an online register. Clear, concise and effective disclosure will be the key test under the new regime, reflecting the principles of the FMA’s guidance note.
While there will be a compulsory element of regulated content in the PDS, the existing ‘one- size-fits-all’ disclosure in an investment statement has been jettisoned in favour of specific regimes tailored to the type of product being offered. Where product comparability is important for investors, such as KiwiSaver schemes and managed funds, the format, content and length
of the disclosure documents will be heavily prescribed.
However, for those financial products where issuer and industry information is critical, such as equity IPOs, it is expected that there will be
greater flexibility around length and content, with the primary emphasis on effective presentation of material information.
Mighty River Power breaks new ground
Mighty River Power (MRP) was the first Government privatisation in over a decade and widespread New Zealand public participation was encouraged. The Government set a target of between 85 and 90% New Zealand ownership and offered incentives for the general public or “mum and dad” investors
to participate, helping to renew interest in capital market investment across the country.
The procedures implemented in the MRP IPO have since been replicated in other IPOs. The MRP IPO also highlighted a number of recent equity capital market trends, which are likely to continue, at least until the Financial Markets Conduct Act is fully in force.
In a market first, an exemption was granted which enabled the Crown and MRP to issue a supplementary disclosure document during the offer period if a significant event occurred, instead of re-issuing the offer document as a
whole. When the major New Zealand opposition political parties announced plans for industry reforms, the implementation of which would have a potentially material adverse impact on MRP, the supplementary disclosure process was utilised. The process gave applicants a five day window to withdraw their application and avoided the need to send revised offer documents to the thousands of investors who had already applied.
Z Energy obtained a similar exemption for its IPO, although did not need to utilise it, and Meridian was also granted the same exemption.
Under the Financial Markets Conduct Act, a supplementary disclosure regime will be hard wired into the statute. However, making supplementary disclosure will trigger a one-month withdrawal period. Due to this lengthy withdrawal period, issuers may still seek similar exemptions to MRP,
Z Energy and Meridian for equity IPOs, as a one month withdrawal period will not be practical for most large scale IPOs.
The MRP offer document had to be developed in line with new effective disclosure guidelines published by the FMA. Although not the first
document to be published within these guidelines, the complexity of the IPO was magnified because of the Crown involvement and the high retail participation objective. The offer document used
innovative navigational tools to aid with readability. Z Energy, Synlait and Meridian have since used similar formats and navigational tools in their offer documents.
In a further development, the Government has announced that the Genesis Energy offer will be made in a separate investment statement and prospectus which is designed to enhance clarity and readability for retail investors.
As with a number of other recent listings, MRP was listed on the ASX as well as the NZX Main Board. Although listing on the ASX incurs extra listing fees and expenses and requires further compliance by issuers, it improves access to Australia’s broader pool of capital. The majority of Australian institutional investors require New
Zealand companies to be dual listed for inclusion in their investment portfolios.
Other recent dual listings include the Fonterra Shareholders’ Fund, Trade Me and Z Energy. Summerset did not dual list upon IPO but has since been granted an ASX listing. NZX listed Metlifecare commenced trading on the ASX in October 2013 and EBOS listed in December. We expect other NZX Main Board issuers to consider ASX listing, as ASX has actively been marketing
in New Zealand.
New Zealand issuers are able to use their New Zealand offer document (including financial statements that comply with NZ IFRS, as opposed to AU IFRS) to make an offer in Australia, with only limited additional disclosures. Recent examples
of where the mutual recognition regime has been
used include Fonterra, MRP, Meridian and Z Energy.
Mutual recognition allows issuers to meet demand from Australian institutions without imposing restrictions on those institutions’ ability to freely trade shares post IPO under Australian law.
The mutual recognition regime will need to be amended to reflect the Financial Markets Conduct Act in due course, but the Ministry of Business, Innovation & Employment has indicated that it expects any changes to be consequential only.
The Genesis Energy IPO, expected during the next few months, is the last offer in the MOM programme and will be the last state-owned enterprise floated under the current Government. It is also the final previously announced IPO to come to market.
However, Genesis will be the first MOM programme offer to use a front-end bookbuild process – making
the final price known to potential investors when the offer opens. The use of a back-end bookbuild by the Government in the previous two offers, although preferable to institutional investors, was criticised for subjecting mum and dad investors to the “dark arts” of the bookbuild process.
Although 2014 is unlikely to see a repeat of 2013’s record highs, capital markets activity will continue. Tim Bennett has stated that 2014’s IPOs will present investors with a different profile of offerings. Where 2013 saw a number of mature businesses offering stable performance and steady dividend streams to the public, 2014 is expected
to be dominated by a pipeline of small to mid-sized
businesses that need capital to grow.
Later listings in 2013 perhaps gave an early preview of the kind of companies that will go public in 2014. Early-stage, high-growth potential, technology businesses such as Wynyard and SLI Systems raised capital from the public to fuel international expansion plans. Once the technology has been developed within this type of business, large cash reserves are needed to take it to the world – making them suitable for a public listing.
NZX is expected to launch its equity derivatives market at the end of March 2014 and is also finalising a new growth market to begin trading in 2014.
Chapman Tripp recent ECM highlights
Chapman Tripp has advised on most of New Zealand’s recent capital markets activity, including:
- Mighty River Power on all aspects of its 2013 IPO and NZX and ASX listing, which valued the company at $3.5b. We have acted for the
Instalment Receipts trustee on the Meridian IPO and have been appointed as Treasury’s legal adviser for the Genesis Energy IPO in 2014
- Z Energy on all aspects of its 2013 $840m IPO and NZX and ASX listing.The New Zealand Treasury on all aspects of the Crown’s $365m
partial sell down of its majority stake in Air New Zealand
- Software company Wynyard Group on its 2013
$65m IPO and NZX Main Board listing
- Heartland New Zealand on its 2014 $20m capital raising, by way of a $15m placement and $5m share purchase plan, to partially fund the acquisition of Seniors Money International’s home equity release businesses in New Zealand and Australia from Quadrent Private Equity
- First NZ Capital as underwriter of The New Zealand Refining Company’s $48m institutional and habitual investor share placement, and $5m partial underwrite of its share purchase plan for New Zealand shareholders
- Christchurch-based technology company SLI Systems on its 2013 $27m IPO and NZX Main Board listing
- News Corp on its $800m private placement of 43% of Sky Network TV
- Quadrant Private Equity on selling down its stake in Summerset by $97m in March, $89m in May and $155m in October under three distinct market block-trades
- Airwork Holdings on its 2013 $40m IPO and NZX Main Board Listing
- Craigs Investment Partners as underwriter and lead manager of the 2013 reverse listing of the Mad Butcher, through a $25m offer of shares by NZX Main Board listed Veritas Investments
- The manager of the Fonterra Shareholders’ Fund, and its directors, on its 2012 NZ$525m NZX Main Board and ASX listing
- Moa, on its 2012 $16m IPO and NZX Main Board listing, and
- Summerset on its 2011 $123.6m IPO and NZX Main Board listing and subsequent 2013 ASX listing.