NZX faces investment challenge
A huge backlog of cash from maturing bonds and the Fisher & Paykel takeover is raising noise levels among companies about listing on the sharemarket.
More than $700m from the F&P takeover is being returned to investors, and at least $750m in bonds are due to mature this quarter.
Faced with lower interest rates, investors are turning increasingly to the NZX, whose Top 50 index has risen almost a quarter in the last year. But with only four listings in the past two years, NZX chief executive Tim Bennett says the challenge for the NZX is to generate enough opportunities for investors, before they stash their cash elsewhere.
He says there is always a certain amount of hype surrounding initial public offerings (IPOs) but there is certainly more talk about listings at present and he is confident there will be a stronger pipeline of listings next year.
"I've talked to a lot of companies that are potentially going to list and when I talk to the bankers and the lawyers, they're all pretty busy in preparations for IPOs, whether they're three months away or 12 months away."
This month the exchange experienced a change in fortunes, with the first listing of the year, craft brewer Moa, and a signal from mobile media firm Snakk Media that it plans to list on the NZAX alternative market.
Companies were aware there was a huge amount of money up for reinvestment in New Zealand, and although there were local and global risks to consider, Bennett said the local market was at "a very attractive phase".
At least $750 million in bonds is due to mature this quarter, and much more is thought to be going into KiwiSaver or sitting in term deposits.
Recently Chinese whiteware giant Haier completed a takeover of Kiwi whiteware firm Fisher & Paykel Appliances, moving to compulsory acquisition of remaining shares, after gaining almost 93 per cent earlier in the month. FPA investors are getting about $740m of cash from Haier, although not all of that would come to Kiwi investors.
Bennett said the rumoured oversubscription for Moa and Fonterra's listings, and the quickly snapped-up selldowns of Steel & Tube and Sky TV were further signs of investor appetite.
Fonterra's $500m shareholder fund, due to be listed at the end of the month, would help ease demand.
But more IPOs and the Government's partial SOE listings were "absolutely critical" or investors would go elsewhere.
While doubt still hovers over the part-selldown of Mighty River Power and other state-owned assets, the NZX is focused on attracting mid-sized unlisted companies and small, high-growth businesses to its board.
Bennett said companies with stable growth prospects and enterprise values of about $50m to $100m were particularly sought after.
"That's where I and NZX are spending a lot of time and effort because those companies would obviously make a substantial difference to the market."
Discussions also needed to be held with the NZ Venture Investment Fund (NZVIF) about encouraging its high-growth early-stage companies to list, he said.
Their private equity backgrounds often meant they had several capital-raising options.
"Our job is to convince them that listing is the right thing to do."
Another focus for the NZX next year would be on promoting its dairy derivatives platform in Southeast Asia, Bennett said.
China was a possibility because of Fonterra's presence there, but Southeast Asia was easier because investors did not face the same regulatory hurdles to gain access to futures markets.
REVIEW TO GAUGE VALUE FOR MONEY
The NZX will review its exchange for smaller companies, the NZAX, to ensure it is delivering low costs and adequate research coverage.
The exchange is concerned AX companies are getting scant coverage from brokerages, which can make a company hard to value and, ultimately, deter listings.
NZX chief executive Tim Bennett said he did not blame the brokerages, because the cost of research was now "prohibitive" on firms outside the Top 50 index.
Initial public offerings helped establish a valuation for a business and the AX was not working if it could not deliver that. But Bennett said there were two things to look at: Firstly, who would pay for such research and secondly, what kind of research would be most suitable.
"When you are an investor in a business that's small and fast-growing, what's going to drive that valuation? . . . and therefore the research, is quite different from a Telecom or a Fletcher Building, which operate in multiple market segments and geographies, where valuation is much more difficult."
Bennett said he was open to the NZX contributing towards the research costs, shared perhaps with a research firm.
In some countries the government or an exchange paid for such services, but Bennett said in New Zealand it would most likely be an industry move. "I'm not suggesting the Government should fund this at all."