NEW ZEALAND EQUITY CAPITAL MARKETS Trends and Insights Contents

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 Investor participation only markets are showing signs of continues to increase, with new Market performance revival following significant products such as Sharesies “remains strong and changes in 2018 and 2019. These providing avenues for younger 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.

3 2020 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

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 2020 Lauded 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 Bucking the trend of as for Port employees and eligible expand their operations into, “ most recent IPOs, the iwi groups. Importantly, this offer medical cannabis. ASX noted Port did not pursue an structure meant that key local that medical cannabis raises 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.

5 Key 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

Next year, we predict IPOs On the flip side, recession murmurings continue and we In total, 2019 saw two equity IPOs “ there will be more IPO expect some ongoing volatility and nine fund IPOs (including in the IPO market globally activity than 2019, eight Smartshares funds listed). during 2020 – the early market While it is not quite a return to though expect it to be impact of the Coronavirus is a the IPO numbers we saw in 2013 good reminder of the sensitivity of still somewhat subdued and 2014, it is certainly a marked financial markets to unexpected given the low interest improvement from 2018, when global events. rate environment there was no IPO activity. Next year, we predict there will be more In 2019 the Latitude and WeWork and a strong focus by IPO activity than 2019, though IPOs were pulled in Australia and expect it to be still somewhat investors on yield rather the US respectively after listing subdued given the low interest aspirants went public with the than growth stocks.” rate environment and a strong 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 2020 Capital 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 Green bonds have 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. for more novel ways to The CM29 report also suggests 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.”

7 Market performance and composition

Strong performance with new records in sight

Market performance during 2019

10 2019 Index % changes

-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 2020 Migration to the Main Board masks a further decline

NZX Main Board issuers

200

160 35 34 45 36 37 1 1 1 120 3 14

80 132 132 122 117 115

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).

9 From 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.

We predict more take-private “ 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 2020 NZX 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.

11 Shareholder 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 2020 NZ 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.

13 Increasing 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 2020 Alternative 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.

15 Delivering 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.

Our work as a Committee was supported by a huge number of “ 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 2020 OIO 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.

17 Trends 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 2020 Significant 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.

19 Time 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%

Group Infratil Chorus Fonterra Fonterra Auckland Ebos Group Ebos Synlait Milk New ZealandNew Contact EnergyContact Genesis EnergyGenesis Fisher & Paykel Gentrack Group Gentrack Mercury Energy Air New Zealand Zealand New Air Meridian EnergyMeridian Fletcher Building Fletcher Pushpay Holdings Restaurant Brands Brands Restaurant Spark New Zealand Shareholders’ Fund Shareholders’ Oceania HealthcareOceania Kathmandu Holdings Kathmandu International Airport The a2 Milk Company Sky Network Television Healthcare Corporation Healthcare SKYCITY Entertainment Entertainment SKYCITY Vista Group InternationalVista Heartland Group Holdings Summerset Group Holdings Group Summerset % of shares traded on the: NZX ASX

New Zealand Equity Capital Markets TRENDS AND INSIGHTS 20 January 2020 Chapman Tripp’s equity capital markets team

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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

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21 Primary contacts

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Other contacts

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