Capital Thursday, May 19, 2016 Section D Markets NZ stock market in tip-top shape

sthe benchmark S&P/ “In the next year or two, we expect NZX50 share index heads NZX boss Tim Bennett doesn't believe the sharemarket is over- to see agood mix of New Zealand towards yet another record businesses come to the market in the A high, NZX chief executive valued; he says it is poised for further growth, as Jamie Gray reports mid-sized businesses —inthe range Tim Bennett says the market is in of $300 million to $700 million,” great shape. Bennett says. The index built on an already As the sharemarket enters another strong 2014 to end last year with a year of very strong gains, analysts 13 per cent gain. fear it is looking overvalued from a Concerns about an economic price-earnings perspective but slowdown in China led to convul- Bennett is dismissive. sions in domestic and world markets “It’s all relative,” Bennett says. “New in February, but investors seem to Zealand is an attractive market. We have put their worries behind them have got avery strong economy. We for now. have got businesses that are paying “The sharemarket is in great relatively high yields and with agood shape,” Bennett says. ``We have seen, mix of companies to invest in.'' over anumber of years, avery strong The common complaint from fund performance in the index. We are also managers is that not enough IPOs seeing alot more interest in the initial have come to the market to meet public offer (IPO) pipeline this year investor demand. Bennett does not than last year.” expect to see the number of new Globally, 2015 was aslow year for share issues racing away anytime IPOs. In the United States it was the soon. slowest year since 2009 and New “By and large, we have seen some Zealand felt the impact of that. quality companies list in New Zea- Bennett and investment bankers land, and investors who have had a pointed to the successful listing of diversified portfolio have done very Tegel as an important milestone for well out of that, so we are very the market. “In alot of ways, it (Tegel) pleased with what has happened in was abellwether and we hope that the market over the last few years,” it will open the IPO window over the he says. next couple of quarters,” he says. After the partial privatisations of The NZX has seen an increase of the big power generators —Meridian, debt issuance on the local market. Mighty River Power and Genesis — “Trading activity in the debt market Bennett says big listings in the years is up 60 per cent, year on year, so ahead would be few and far between. there is obvious investor demand But in terms of future trends, he there as well,” says Bennett. expects to see some of the foreign- He says the NZX launched more Tim Bennett says we have astrong economy and an attractive market. Picture /Michael Craig owned local businesses start to come exchange traded funds (ETFs) last back to the market. year and the NZX now has 23. Interest pipeline develop. “While we don’t sellers’ side they are wanting to raise seeing some private equity investors And Bennett expects to see more in those products continued to be think that we will have aspectacular capital to grow their businesses, looking to realise their investments.'' of the medium-sized privately held strong. year like we did in 2013/14 —when which is good for the economy. “The caveat to all that is that we companies —inthe $300 million to Bennett says demand for initial the mixed ownership models listed “We are also seeing foreign in- still live in avolatile world, with two $500 million bracket —coming to the public offers from investors is clearly —clearly there are alot of investors vestors looking to divest their New IPOs pulled last year because of mar- evident and we are starting to see the who are seeking IPOs and so from a Zealand assets and of course we are ket volatility. continued on D4 Turningdistance into anadvantage

Leading investment banker Scott St Youhave got afew world is staring down the barrel with “You have got afew champions John is upbeat about the prospects demographic changes and ageing who are growing their businesses for the New Zealand economy and champions whoare populations, we are striding into a from New Zealand,” he adds. “The markets saying the “tyranny of dis- very low interest rates environment obvious listed examples are Xero and tance” has turned into an advantage. growingtheir businesses ...that is going to create challenges. Fisher and Paykel Healthcare. “New Zealand continues to be a “Add to that the interesting pros- “Auckland Airport and Air New wonderful place to be and live,” says from NewZealand. pect of disruption in its various forms, Zealand are also seeing the benefit of St John who is managing director of Ithink it argues for active manage- the investment they have made in NZ First Capital. “I think the rest of Scott St John ment —not so much in the sense of route development.” the world continues to wish it had our trying to pick winners —but more St John says the continued re- problems. Ithink immigration and importantly in terms of avoiding structuring by global investment tourism opportunities will continue potholes. The returns one has derived banks is also creating more opportun- to grow faster than most people think, in the past will, in my view, not ities for homegrown talent. for longer than most people think. necessarily be apredictor of the “We are continuing to hire talent “The tyranny of distance has now returns one will receive in the future ... this is abig advertisement for turned into an advantage and in an projections of three million tourists “We have alot to offer ...peace and from various assets or asset classes.” locally based deep-rooted resource infrastructural sense Ihope we are coming to New Zealand each year. lack of crowds being two relatively St John says meaningful trans- on the ground,” he laughs. bold enough and aspirational enough “You don’t need to travel too far to attractive elements.” actions are proposed or executed — Though there continues to be to capture that opportunity.” see what those numbers could mean.” St John underscores his upbeat pointing to the proposed NZME/ some “fly in fly out activity” from He supports the Government’s an- Italy has close to 50 million visitors outlook with some caution: “In that Fairfax NZ merger and Sky City’s service providers, he says, locally nouncement that it intends to invest each year, with Venice attracting last six months there has been alift capital-raising “in the last week or so based support will provide astronger in tourism infrastructure to underpin more than 30 million tourists alone. of activity, but at atime when the alone”. resourcing model. —Fran O’Sullivan D2 nzherald.co.nz | The New Zealand Herald | Thursday, May 19, 2016 Capital Markets Doing the right thing Inside by the customer

he International Monetary No longer Wild Fund (IMF) is making two After the finance company debacle, New Zealand securities visits to New Zealand this The benefits of amore robust T year —the first in August to regulation has concentrated on enlivening the capital markets and regulatory regime have become assess the banking and insurance clearer, says Rob Everett —D8 sectors and the second in November building renewed customer confidence, writes Jim McElwain to check out our securities regulation. The visits are part of the IMF’s Financial Sector Assessment Pro- gramme. This process was last undertaken in 2003, well before the Global Fin- ancial Crisis transformed the world’s regulatory landscape. The IMF will be looking at inter- national best practice. New Zealand was offered a“two paths” moment Soaring angels when we sat down to write the Financial Markets Conduct Act Angel investment is playing an (FMCA), hard on the heels of our own important role in growing the version of the GFC —the finance economy —D10 company debacle. We could have gone the way of the North, writing thousands(or, in the case of America,literally millions) of pages of heavily prescriptive regu- latory code, overseen by an alphabet soup of regulatory agencies. INFINZ Fellow and Chair of our Advocacy Committee, Ross Pennington, notes that we have opted for anew approach, based on enliv- ening the capital markets and The futures of dairy attracting confident participation in them. This new law is principles- New contracts away to lessen the based and the guiding principle is volatility in milk prices —D14 conduct (translated basically as doing the right thing, especially by your customers). The sort of novelty adopted in our Infinz executive director Jim McElwain with Maree Webster (left) and Lady Deborah Chambers at the 2015 Infinz Awards. approach to securities regulation isn’t particularly new in New Zealand. We against the extent to which they have have lent against the tide in estab- assisted in achieving the client’s lishing central bank independence; It’s about doing the objectives and contributed to de- Crown fiscal transparency; the velopment of the capital markets and world’s only traded interbank bench- rightthing. the wider economy. mark; listed debt and equity issues off To assist the market in establishing terms sheets; Open Bank Resolution; Sir John Anderson better practice in conduct and cul- the New Zealand Debt Management ture, INFINZ has partnered with the Room at the inn? Office and New Zealand Local Gov- Financial Markets Authority and the ernment Funding Agency; and CFA Society (an association of invest- Tourism growth means BZ is filling up macro-prudential restrictionsto ment professionals) to hold an after- fast, writes Anne Gibson —D18-20 quieten asset bubbles while keeping And leadership is crucial. Liam how does this balance bear out in noon seminar on June 28 —see policy rates low. This is all part of an added: “We expect boards and direc- sales and advice practices? www.infinz.com. approach which is focused on tors of financial service providers, In asubmission prepared by Even greater focus on improving Capital Markets 2016 preventing harm, rather than pursu- both big and small, to set astrong INFINZ Fellow Sue Brown, INFINZ has customer outcomes should improve ing miscreants after the event. tone-at-the-top —toensure that cus- advocated in the context of the re- confidence in the markets and mean So what does good conduct and tomer outcomesare central to organ- view of the Financial Advisers Act abetter performing economy all Executive Editor: Fran O’Sullivan culture look like? isational strategy, culture and con- that there should be aclear separa- round. As INFINZ Fellow Sir John Writers: Liam Dann (Herald Business Editor-at-large), Bill Bennett,Anne Liam Mason, Director of Regula- duct.” tion between those providing Anderson would say: “It’s about doing Gibson, Jamie Gray, Tim McCready, Tina tion with the Financial Markets Auth- This probably starts with product personalised financial advice versus the right thing.” Morrison, Graham Skellern and Jonathan ority told last year’s INFINZ Confer- design, then disclosure, and is the those who are in asales function. This ● Jim McElwain is Executive Director Underhill. ence: “For financial services firms, customer fully informed?Then mar- approach would provide greater clar- of the Institute of Finance Professionals Subeditor: Isobel Marriner embedding astrong culture that puts keting, includingconsidering who the ity and therefore confidence to the NZ Inc (INFINZ). Graphics: Isobel Marriner Advertising: Neil Cording, Nathan Laing customer interests at the heart of the product or service is not suitable for. consumer. ● Financial Markets Authority chief and Nancy Dudley. business is crucial to ensuring con- Service providers will need to con- INFINZ is focused on raising stand- executive Rob Everett is the keynote nzherald.co.nz duct that benefits both the business sider how sales incentives are bal- ards in the industry, with finalists in speaker at tonight’s INFINZ Awards in and consumers.” anced with customer outcomes, and tonight’s INFINZ Awards judged Auckland. See D8 D3 Capital Markets Abull run to be proud of

hat kind of amazing probably won’t be and when the you investment could The market is in goodshape after years of hard work by those throw in the wild card of the Chinese outperform the economy it seems highly plausible W property market in this running, regulating andoperatinginit. LiamDann reports that we will at least see arepeat of country? The NZX-50 as it turns out. January’s turmoil in the next 12 Both the sharemarket and the months. property market have been on a Investors in the New Zealand stellar bull run since the Global market will be relying on some strong Financial Crisis-inspired lows in 2009. Auckland median house underlying value in New Zealand There are no prizes for guessing companies. That will underpin our which one has dominated the media prices have soared 92 market if and when Wall Street headlines and public debate. But on per cent accordingto decides its time to take atumble. agross index basis the NZX-50 has The good news is that the market outperformed even Auckland’s super REINZ figures. is still dominated by companies with hot property market since 2009. Meanwhile the NZX-50 is solid operating earnings and good Both markets bottomed out after dividend returns. the crash at the start of March 2009. up 185 per cent (as at last During the financial crisis the NZX- Since then Auckland median 50 fell 44 per cent from the peak to house prices have soared 92 per cent Friday’s close). the trough. The S&P-500 dropped 57 according to REINZ figures. That’s an incredible per cent. Meanwhile the NZX-50 is up 185 per There are few hot stocks which are cent (as at last Friday’s close). result by any measure soaring on strong growth stories. That’s an incredible result by any but particularly when There’s Xero of course, and Orion measure but particularly when you Health (up 48 per cent since January consider the tax advantage that you consider the tax one) and Comvita (up nearly 200 per property investment has enjoyed for advantage that property cent in 12 months) also fits that bill. most of this period. That’s not such abad thing for a It would be nice to lay the credit investment has enjoyed market that otherwise risks looking for that run firmly on the for most of this period. alittle boring. But when volatility performance of local corporates. returns we can be sure the power There have been some excellent companies will keep generating and performances—F&P Healthcare, Air the planes will keep landing. Unlike New Zealand, the rise of Xero and the 1987, the local market is not loaded Spark turnaround spring to mind. with speculative stocks. It is well- But clearly there are big economic expensive and cash less valuable.” like stocks and property are running eventually. Wall Street stocks may balanced and weighted towards solid forces at work as well. Then there are the demographics red hot all over the world. well be overvalued versus real sustainable businesses. The GFC ushered in aperiod of of the baby boom in the West and Of course that begs the question: earnings and the imminent rise of US That it is in good shape is no ultra-low interest rates and somehow China’s growth story in the East are we due for acrash? interest rates could bring them back accident after years of hard work by the emergency settings have become which mean we have ahistorically After an ominous and potential down to earth. those involved in running, regulating the new normal. unprecedented mountain of savings bearish start to the year it looked like Hopefully the seemingly endless and operating in it. For all the fair As Warren Buffett emphasised at looking for ahome at atime of the correction might be upon us. signals from the Federal Reserve and winds of the global economy, the his Berkshire Hathaway annual historicallyunprecedented low There are no shortage of pessi- aslow pace of rate rises should local bull run of the past seven years meeting last month: “The low interest interest rates. mists in the United States ready to ensure an orderly correction when it is something the industry should be environment makes businesses more It is hardly surprising that assets predict the next crash. They’ll be right comes. But history suggests it proud of. D4 nzherald.co.nz | The New Zealand Herald | Thursday, May 19, 2016 Capital Markets NZ stock Performing well market in tip-top Herald: How are you seeing the Fran O’Sullivan sat down at UBS New New Zealand economic environment and the Zealand for aroundtable with Nicholas shape international factors which are affecting the market outlook? Ross, Andrew Fredericks and David Lane. Nicholas Ross: The New Zealand continued from D1 environment is very strong and we are still seeing good growth. We have Andrew Fredericks: The OIO has was ahuge rally in March and alot market as away of raising money in all been surprised by the near-term been an impediment to investment. of institutions were underweight. So, order to grow their businesses. impact of the downturn in the dairy It is slow and it is uncertain, if you avery difficult year for them so far. Some market commentators have sector. That has been counter- contrast it to the Foreign Investment But if the market is doing its job criticised the NZX for the slow start balanced by very strong growth in Review Board (FIRB) where there is properly new opportunities will arise of its new NXT market but Bennett services and tourism. We have this adefined timeframe for making deci- be it Tegel or listed media situations. says he is happy with progress so far. very strong Government and fiscal sions. It is actually very difficult for Confidence is coming back in —we’ve “The market was designed for position which can underwrite strong firms making investments into NZ to seen arange of block trades and the smaller high growth corporations and growth, in Auckland in particular, as get equity and bank financing for an deal pipeline open up alittle bit in we are pleased with the way that it the Christchurch rebuild tapers off. uncertain period. the last four weeks. Nicholas Ross has developed. When you look at what is out there, Nicholas Ross: We have been in a Country Head, New Zealand “In the next quarter or two we will it is astonishing how the NZ economy period of unprecedented volatility see amuch closer relationship is performing so well when we have and alot of market participants are between NXT and the crowd funded amixed picture in Australia, which Youdon’t need to not used to that environment. Same companies, but all that takes time to is very heavily dependent on with clients having their fund develop.” resources and the financial services be arocket scientist managers say we are down 10 per Bennett says new markets always sector. cent or up 5per cent. The volatility take time to evolve. to see thatwe drives the more conservative end of As an example, the exchange’s Herald: The IMF has warned about town to companies with good dairy derivatives operation started the potential for the Brexit vote to screenverywell governance and track records. They negatively impact on capital don’t want that volatility but good New Zealandisan markets. That’s well known. But Nicholas Ross multiples. what about other international attractivemarket. We have factors like the impact of aTrump Herald: The underlying demand Herald: Just summing up, New got avery strongeconomy. presidency? for good assets and well-run Zealand capital markets are We have businessesthat Nicholas Ross: It is really interesting. companies is still very evident clearly in agood space. But what We put out apiece of research when you talk to investors. Why has surprised you? are paying relativelyhigh recently which said the presidential is NZ attractive? David Lane: Housing consents at a yields and with agood mix election has no significant impact on Nicholas Ross: Ithink New Zealand sustained peak of over 30,000 per capital markets. It went back 50 years. clearly has emerged as aseparate year. If you had asked me if that was Andrew Fredericks of companies to investin. Andrew Fredericks: Same with the asset class from Australia and avery areasonable assumption by Fletcher Executive Director, Investment Australian election. But elections do good place to invest. Certainly some Building five years ago —Iwould have Banking affect the timetables for capital of the infrastructure opportunities said “no”. six years ago and only started to gain market activity. Given the number of here keep alens very much on us. Andrew Fredericks: If you go back traction in the fourth and fifth years. political events this year, it makes the If we look at some of the M&A activity two years ago there was amassive “Talk to us in six to 12 months time timetable challenging. there is certainly alot of interest from concern that the fall from the peak and we will start to see some real David Lane: My view is if we get international investors. You don’t of the Christchurch rebuild would progress there (in the NXT),” he says. through the UK Brexit, we could have need to be arocket scientist to see impact on the NZ economy. But that The derivatives side of NZX’s oper- asecond half of the year that is that we screen very well. that has been filled by infrastructure, ation is relatively small —represent- extremely active. On China —While Andrew Fredericks: Additionally, tourism and net migration. ing about $1 million in revenue —but everyone has atheory on why it was private equity firms have gone Nicholas Ross: You don’t have to be Bennett says it forms an important going to fall apart, the facts are this through aperiod of divestment and an investment banker to make this part of the overall equation for capital year it has massively out-performed are now raising funds and starting to comment —just walk around Auck- markets. expectations. look for investments. We’ve had the land City. You can’t drive anywhere “All of these systems are part of an Diligent takeover and the Nuplex in Auckland because it is blocked. ecosystem that we need to build, so Herald: Staying with China, it has scheme of arrangement. With alower The Convention Centre build. Scott you need to add pieces to that been aconcern but you are exchange rate, USD investors are also Pritchard’s Precinct build at the ecosystem to really make the capital optimistic. Why? looking more favourably at Australia Downtown Centre —there is so much markets work.” Nicholas Ross: We are still extremely and and NZ. going on in Auckland and that is He credits the Government’s par- well placed for growth in the region before some of the major projects. tial asset sales programme for despite the concerns in China. The Herald: There has been alot of David Lane rekindling investor interest in the Five Year Plan has just come out and volatility however on markets — Herald: Concerns for the future? Executive Director, Head of Equities sharemarket, which for many had the Government has targeted 6.5 per what is driving that? Nicholas Ross: Negative interest New Zealand been anogozone since the travails cent growth for the next five years. David Lane: The general view was rates are drawing investors to invest of the 1987 sharemarket crash. There is still aphenomenal pool of the NZ market got quite over-valued in positive yield countries. But the low “Clearly it brought back alot of demand for New Zealand product (for institutional investors) and they rates will start biting into the “man in investor participation,” he says. and they will continue to be large found it hard and reduced their the street” and the fiscal position of “It put the sharemarket back on the exporters of capital. weightings. But then in came another Governments. When your retired map for alot of investors who had Herald: But there are some wave of overseas buying, whether it mum and dad can’t generate enough been reluctant to invest since 1987, wrinkles aren’t there when it was indexed-based buying or from their savings then that will need and at agood yield,” Bennett says. comes to foreign investment In thematically buying on yield and the to be subsidised somehow. In addition, it put New Zealand New Zealand —particularly with relative attractiveness of New ● Fran O’Sullivan is Head of Business back on the map for global investors the Overseas Investment Office? Zealand as aplace to invest. There for NZME and raised the country’s profile. Company alliances the way of the future

More companies are planning to form precedented collaboration and re- Key mergers and acquisitions their research and development pro- alliances to create value from under- lationship opportunities involve cus- findings from the barometer cesses. utilised assets and to speed up tomers, suppliers —and competitors. The sectors with the highest appe- growth. Executives are also increasingly % tite to acquire were: oil and gas, and The latest EY Global Capital Con- looking to alliances to help respond 50 consumer products and retail 59 per fidence Barometer found that 40 per to digital transformation. cent; power and utilities 58 per cent; cent of executives surveyed planned Companies are often outsourcing of respondents expect to actively pursue diversified industrial products 55 per to enter alliances with other com- innovation and traditional services to acquisitions in the next 12 months cent and life sciences 51 per cent. panies, even competitors, to take ad- more nimble and agile service provi- % The top investment destinations vantage of the expertise and reach of ders to stay ahead of this digital 74 were the United States, United King- others. revolution. dom, India, China and Germany. These alliances join mergers and Pip McCrostie, EY’s global vice are considering cross-border investments The report found that in spite of acquisitions as engines of growth. chair of Transaction Advisory % tough market conditions in global The alliances are usually more Services, says executives now find 37 equities, commodities and curren- informal and less permanent than themselves planning for multiple pos- cies, there were no signs yet of sys- joint ventures —each company sible futures. expect distressed asset sales to become temic shocks in capital markets or maintains its autonomy with aview Mergers and acquisitions remains more prominent in deal making impending asset bubbles. to creating ashared opportunity, astrong option to accelerate strategic The volatility in the commodity such as entering anew market or plans. At the same time, alliances are and the appetite for and currency markets and political developing amore effective process. becoming more attractive as com- instability in the Middle East, Korean The EY report says relationships panies seek new sources of revenue US$1-5b Peninsula and South China Sea were between companies are becoming and earnings while looking to man- considered very serious but have not more fluid and complex as business age costs and risk. Increasingly, com- deals has increased five times altered medium- to long-term capital models are reinvented. These un- panies are taking this option to bolster allocation strategies. D5 Capital Markets Keepingthe score on the capital markets front

Do we havethe foundationsinplace to ensure New Zealand’s capitalmarket can perform, asks Tim Bennett

new regulatory environ- the growing depth of our listed com- ment and awave of new panies, and the quality of our market listings, kick-started by the infrastructure and regulation. A Government’s share offer Tens of thousands of New Zea- programme and growing KiwiSaver landers became share owners for the funds, were heralded as the catalyst first time through the listings of for the revitalisation of New Zealand’s Mighty River Power, Meridian Energy sharemarket. and Genesis Energy, and we continue Three years after Mighty River to see 1000 or more new brokerage Power’s NZX listing, and five years accounts being opened each month. since the Financial Markets Authority But there are still practical barriers was established, it’s afitting time to to direct retail investment in the assess how effective this programme equity market, including the rela- of change has been and what tively high cost of providing advice challenges lie ahead. and research, which limits access by The headline statistics are impress- smaller investors to the equity mar- ive: over the past three years the S&P/ ket. NZX 50 Index is up 48 per cent, and Changes to the Financial Advisor equity market capitalisation to Gross regime, currently under review, will Domestic Product ratio, akey indi- be important to ensure that all types cator of market health, has risen from of New Zealand investors have access 35 per cent to 47 per cent. to appropriate financial advice, and However, these numbers, especi- ultimately abroader range of invest- ally viewed against the backdrop of ment options. New Zealand’s strong economic per- formance, don’t necessarily give a Infrastructure and clear picture of the underlying health Regulation of the capital market ecosystem. The much-needed overhaul of New Is the sharemarket considered a Zealand’s legislative and regulatory viable source of capital for busi- framework, following the global fin- nesses? Is there abroad base of ancial crisis, has helped to restore investors and intermediaries willing trust in New Zealand’s public markets. to support them? Are we getting As the frontline regulator of the regulation right? public market, NZX has made asub- In other words, do we have the stantial investment in our regulatory foundations in place to ensure, re- and operational infrastructure, in- gardless of economic and market cluding arobust technology platform cycles, that New Zealand’s capital and appropriate governance struc- market can perform its core function tures, to ensure we operate fair, of supplying growth capital to busi- orderly and transparent markets. nesses and connecting everyday As investing becomes increasingly New Zealand investors to those in- global, we need to be conscious that vestment options? financial failures offshore have as The demand for much potential to erode this hard- capital —Issuers earned investor trust, as do events in Since the beginning of 2013, prior to New Zealand. Mighty River Power’s listing, 34 com- panies have listed on NZX, raising Keep the focus almost $7 billion in capital. Excluding The resurgence of appetite for raising the gentailers, almost athird of capital capital through public listings, agrow- raised has been used to grow those ing domestic investor base, and an businesses. effective regulatory environment, all In the past year, we have seen a point to the New Zealand market resurgence in debt listings and Market statistics boutique fund managers that are par- ecosystem being in good health. issuances on NZX, with 27 new debt ticularly important to support smaller Last night’s INFINZ Awards cele- listings representing more than $9.27 companies coming to the public brated the achievements of the billion. Apr-13 Apr-16 %Change markets. people and firms at the heart of that Some terrific businesses have S&P/NZX 50 4614 6821 48% Yet despite this growth, the full ecosystem: businesses, bankers, graduated to the S&P/NZX 50 Index Equity Value Traded 2,900 3,900 34% benefit of the KiwiSaver funds inflow brokers, researchers and advisors. including the a2 Milk Company, ($m) is yet to be seen in our equity market. It is afantastic industry we work Comvita, Heartland Bank, Precinct Equity Market Cap / 34.6% 47.4% 37% New Zealand Treasury analysis in. But although the overall Properties and Xero —all of which GDP published last year found that across ecosystem is in good health, we need have taken advantage of being listed Debt Market Cap / 6.6% 8.5% 29% the market, KiwiSaver portfolios were to be very conscious of the import- to cost-effectively raise capital to GDP overly conservative, reducing poten- ance of maintaining avibrant local grow their businesses through S&P/NZX 50 Div 4.7% 4.6% -0.4% tial future retirement incomes. It industry. The biggest challenge for secondary offerings. 12-Month Yield found only asmall portion of our future is how NZX and the New More private companies and their KiwiSaver funds are invested in the Zealand market differentiates itself in shareholders are now considering New Zealand equity market. amuch broader and deeper Trans- NZX as aviable option for raising New issues Part of this is aCatch-22 problem: Tasman capital market. capital or selling astake in their managers see amarket that has a NZX has an obvious leadership business, which was less common limited supply of attractive invest- role to play here, to continue to three years ago. Last 3Years ment options. On the other hand, develop and protect our capital mar- Crowdfunding is also becoming a New Listings 34 some potential listed companies see ket ecosystem. viable option for capital raising, with Capital Raised ($m) 6,973 managers as overly cautious. This includes ensuring private 35 smaller businesses so far using that Experience offshore suggests that companies see the public market as market to raise $25 million. this will change over time as the aoption for raising capital; supporting For businesses at the next stage of Investors number and diversity of fund mana- advisors and smaller fund managers development, NZX’s NXT market gers grows, and as KiwiSaver who bring those companies to mar- offers aplatform for future capital balances grow, investors will seek a ket; and ensuring that distribution growth, along with apipeline of com- Mar-13 Mar-16 %Change broader range of investment options. and advisory networks are in place panies that will grow to NZX Main KiwiSaver FuM ($B) 16.56 33.42 102% The past three years has seen a to allow all New Zealanders to invest Board size. Fund Managers>$1B 14 19 36% resurgence of global interest in our in great New Zealand businesses. And there are promising signs that $0.5B -$1B 3433% market, with offshore ownership now We can’t lose focus —weneed to stronger linkages will develop in the Offshore Ownership 35% 46.3% 32% at 46.3 per cent. continue to work together to main- next few years between This is in part due to the relative tain this hard-earned momentum and crowdfunding and NXT. attractiveness of the New Zealand preserve our capital market on behalf to $33.4 billion in the three years to $1 billion in FuM and four (up from sharemarket. of all New Zealanders. Supply side —Investors 31 March 2016. There are now 19 (up three) with between $500 million and But it is also clear that New Zealand Growth in KiwiSaver funds under from 14 three years ago) fund mana- $1 billion. is now firmly back on the global ● Tim Bennett is the chief executive management (FuM) is up 102 per cent gers in New Zealand with more than It is these kinds of smaller, investment map, which recognises officer of the NZX D6 nzherald.co.nz | The New Zealand Herald | Thursday, May 19, 2016 Capital Markets Mum anddad investors missing out

participants should not unnecessarily Blacking outanalysts’ research at thetime restrict other joint lead managers from making their research available of an IPO is asorepointfor aleadingshare to retail investors and/or their ad- viser,” the authority said in its note. broker, writes Graham Skellern The authority is aware that the current market practice for promoting an IPO has led to an imbalance in the nvestors would be better served banks have followed the policy of They are not getting the information available to institutions if they had access to published their overseas owners.” and retail investors. research reports at the time of Paviour-Smith says any potential expertise of the analysts, Though certain institutional clients I an initial public offer (IPO). conflict of interest for the analyst can and Ithink there is a of joint lead managers have access to In nearly all of the IPOs coming be managed and “I would hope that valuable research, retail investors and onto the New Zealand sharemarket, the blackout practice gradually disap- better way of managing their advisers often have limited analysts’ research reports of the par- pears from our landscape”. the information in the access to quality contextual informa- ticipating broking firms are blacked He says analysts are not involved tion to help with investment and out for 30 to 40 days up to and after in organising the IPO, and their view- marketplace. trading decisions. the time of listing. point can be of help to the vendors, So how do retail investors get The lead managers of the IPOs advisers, fund managers and in- Neil Paviour-Smith around the blackouts and become have set this rule in accordance with vestors all at the same time. more confident about investing? the global practice of their parent “If you manage your processes and Paviour-Smith says: “They need to investment banks —aprotocol that put in strong conflict procedures speak to an Authorised Financial Ad- grew out of the United States. around Chinese walls, and the ana- viser; they should try and not listen The blackout is asore point for Neil lyst’s research is transparent, then I to the ‘noise’ and follow the herd Paviour-Smith, managing director of don’t know why it needs to be blacked we have turned down being involved framework for those offering securi- mentality; they need to form their Forsyth Barr and adirector of NZX. out.” in an IPO —for avariety of reasons, ties in New Zealand, including new, own view and feel comfortable with “The role of an advisor is important It’s almost aCatch-22. not just the blackout.” more flexible rules for advertisements the investment; they need to under- and the blackout is not helpful or an Broking firms such as Forsyth Barr The Financial Markets Authority and other promotional activities. stand the risks and rewards such as ideal development in the market to invariably get involved in the syndi- (FMA) had earlier put out anote The Authority said the broad FMC investing in acompany for awhile assist investors confronted by alot of cate arranging the IPO and by doing saying: “While New Zealand firms Act obligations on fair dealing and rather than selling it for again on the information at the time of offer. this need to agree to the manager’s often follow global practices and im- new advertising regime encouraged first day; and if something is too good “Companies looking to complete protocol on research. pose black-out periods restricting re- fair, efficient and transparent pro- to be true then maybe it is and if IPOs do produce comprehensive in- “We have debated the point search publication immediately be- motion of financial products. there’s any nagging doubt, then come formation for investors but it’s also strongly,” says Paviour-Smith, “and if fore and after an IPO, there are no This gives those in the industry an to terms with that.” important that they receive clear and we don’t get involved then our clients requirements under the FMA Act (or opportunity to re-examine how and Paviour-Smith says the book builds concise messages,” he says. will have less access to the IPO. It is NZX rules or other New Zealand law) when they share information such as for an IPO have been good for the “They are not getting the expertise adifficult decision to make. to restrict the publication of research research reports. sharemarket. of the analysts, and Ithink there is a “(On some occasions) we have of acompany making an IPO. “We strongly encourage partici- “You no longer see the price better way of managing the informa- been able to get asoftening to the hard “In fact, research may be published pants to make research reports avail- extortions of extraordinary bargains tion in the marketplace. We want edge of the rule where we have come by participants at any stage during an able to retail investors and/or their and massive premiums on day one more listings in New Zealand and up with atwo page summary facts IPO. Research reports may also be advisers, although we recognise that The book build finds the (market) blackouts are apoor development. sheet —and that’s got us to aplace shared with retail investors, as well as this is adecision for each business to level for the IPO and if the share price “Research blackouts are something where, on balance, it’s okay to be institutional investors.” make. sustains that level, then investors we’ve seen in offshore jurisdictions involved with the IPO. The Financial Markets Conduct Act “When multiple joint lead mana- have agood experience and hopefully and they have evolved here as the “But there have been times when 2013 (FMC Act) put in place anew gers are involved in an offer, stay invested in that business.”

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Westpac NewZealandLimited. 2 1 1 3 1 N J D7 Capital Markets Increasedproductivityis thenameofthe game

over $5 to just break even. But the Dairy farmers, capital is out there, and investors are aware demand for dairy products facingvolatile from the growing middle-classes of Asia will underpin the profitability of prices, must take dairy for decades to come. For investors, venturing off the advantage of beaten path and buying in at the low point of the price cycle has its advan- advances in tages. The entry price can be lower, they will buy better, and income genetics,forages statements will show which busi- nesses are worth investing in at cur- and labour-saving rent income levels. Investment in dairy is nothing technologies, writes new, but until recently investors were often invited to “participate” in dairy, Mark Hiddleston to “share the commodity story” with the promise of attractive returns from growing primary commodity de- inter is traditionally a mand and consequent capital growth. time for dairy farmers to Today, the expectations of in- make sure their farms vestors to our top-performing farms W are in good order and should be no different to the top can meet the demands that will be performing companies on the NZX — put upon them in spring. companies operating in mature This year, they’ll need to look not markets attract investment by de- just at their assets but also their whole monstrating an ability to outperform business, and this is more urgent and their competitors. challenging than it has been for many To see the leading edge, the annual years. Dairy Business of the Year competi- The world has changed. The global tion —ofwhich ANZ is asupporter supply of dairy products —much of —features farmers who combine all it from competitors who have upped the attributes of high performance, their game —isgrowing faster than which is on-farm management, pas- demand. ture productivity and new techno- It seems likely that low prices will logy to drive down the cost of pro- be around for some time, and pro- duction. ducers that succeed in this environ- In the 2014-15 season, the top busi- ment will be those with the lowest nesses achieved $3.13/KgMs cost of cost of production. production, including depreciation This is not just about cost-cutting, and owner’s labour. although this has its place. It’s arace Many farmers are reducing costs, where the winners will be those with often faster than predicted.ANZ cus- the most efficient businesses. tomer forecasts indicate 10 per cent On the farm, this means clear of farmers have aplan to operate at direction and disciplined manage- this cost level. ment, building on New Zealand’s As more join them, this will restore strengths in pasture management, New Zealand dairy’s ability to com- and taking full advantage of advances pete on cost and provide an oppor- in genetics, forages and labour-saving tunity for investor returns around the technologies. desired level, provided investorscan This may require cash. At atime be confident management is in place when many farms are already run- to perform at this level. ning operating losses and reducing For farmers, counter-cyclical in- high marginal cost production, vestment in dairy not only brings in farmers face the prospect of debt- working capital at atime when they servicing and costs being spread over need it most, but it also helps stabilise less production. the sector as awhole by running In New Zealand farmers are far counter to the peaks and troughs. from markets and sell down the value Equity partnerships, in which in- chain. As aresult they are more vestment funds —sometimes pooled, exposed to market volatility, and sometimes from single entities or often rely on banks to fund them investors are brought into the busi- through cyclical lows, confident in ness —have proven to be among the speedy recovery. most resilient when prices are low or Amore volatile environment the business faces other adverse requires better risk management. conditions. While the best strategy is alow cost ● The expectation of an increase The change from “participation” to structure and an ability to respond to Theexpectationsof in dairy pay-out over time “performance” in agri-investment is a varying market conditions, ● The ability of afarm to adapt fundamental shift towards making derivatives can increase the investors to ourtop- to alower cost structure and still more agri-businesses attractive and predictability of product prices, and perform accessible to capital. moving debt from the predominant performing farms ● An opportunity to buy quality At ANZ amajor focus for our agri- floating rates to fixed reduces that land in good locations and with qual- business team is creating “investable variable. should be no different ity improvements in this more con- businesses.” That means helping Another alternativeisseeking new to the topperforming strained environment. owners address and improve areas equity investment. Attracting investment is seldom a such as productivity, governance and Investing in dairy farming at the companies on the NZX means of restructuring balance management of these businesses. bottom of the price cycle has its own sheets. In fact, highly indebted Through our networks and challenges and opportunities. Fore- —companies operating farmers often question why they sponsorships such as Dairy Business most, it requires investors to look past would consider taking in new equity of the Year, we have identified top the headlines to asector with great in mature markets when their own equity has been performing dairy businesses and — long-term prospects and —insome eroded by losses, asset values are through our partnership with Minis- cases —adequate short and medium- attract investment by down and interest rates are low. try for Primary Industries and our term returns too. demonstrating an Others see selling assets and leas- own research —have showcased It’s generally accepted that ing them back as alow-risk way to them and their strategies for success investments in dairy business return ability to outperform strengthen the balance sheet while to the industry. about 3to7per cent but top- still retaining control of the business. The overall goal is to enhance performing operations have their competitors. Currently, investors are looking at returns through consistent achieved returns in the high single the implications of amilk price of improvements in productivity driven figures and even low double figures. Mark Hiddleston about $3.90, and $4.50-$4.75 in 2016-17 by research, innovation and good To generate asimilar return in the with no certainty about when prices management. current environment, investors are may improve in an environment ● Mark Hiddleston is Managing considering three key issues: where many farms need amilk price Director Commercial &Agri for ANZ D8 nzherald.co.nz | The New Zealand Herald | Thursday, May 19, 2016 Capital Markets

No longer the Wild West

eare often asked culture —that’s the job of leadership. whether the regulations NZ hasjoined the internationalgame in funds managementand We don’t look at, or judge, your W we are implementing values statements or your wellness will make adifference. licensing financialservicesfirms, says Rob Everett programmes.Welook at things like Are we regulating for its own sake, who gets promoted, who gets paid and imposing process and cost with and for what, and what happens to no benefit? And we have clear signs that con- that confidence across awider demo- people to invest their hard-earned complaints and incident reports. We At asystem level, the benefits of fidence is there, and building. graphic and build deeper, more money. Longer term success depends judge and respond to you on the basis having amore robust regulatory But what about signals from New sustainable market growth where on us being an effective conduct of how all that translates into out- regime have become clearer. Arecent Zealandersthat there are benefits to more of the populationwould be regulator. Conduct is literally what comes for your customers. example is that New Zealand was able the new Financial Markets Conduct willing to put their money. the Financial Markets Conduct Act Achieving fair, efficient and trans- to sign the Asia Region Funds Pass- world? KiwiSaver is introducing people to says on the tin. parent financial markets is not aone- port because our securities regulation The Financial Markets Authority’s saving for retirement and managed If firms are, and crucially can show off challenge. We see signs of pro- regime is increasingly seen as being investor confidence survey forms funds but this has yet to translate into they are, putting customers’ interests gress, but we certainly haven’t on an equal footing with global stand- part of our annual performance more engaged attitudes towards in- at the centre of their business, then cracked it and we’re very conscious ards. measures.This year’s survey pro- vestment. they have already grasped what good we won’t if we don’t work with the Ihad the privilege of signing that duced interesting results as people conduct means to us. And what the financial services industry. document and took pride in the were asked for the first time whether We will notbea risks of poor conduct are: Bad cus- Abig part of that is encouraging recognition it represented for how far they had confidence in the effective- tomer outcomes and lots of attention the industry’s more effective and New Zealand has come. Just as Itake ness of the regulation. destinationfor from the regulator. efficient participation in our markets pride in New Zealand being avalued Overall, across the 1000 people It’s impossible to implement con- through innovative forms of capital contributor at the International Or- surveyed, this new score was reason- international capital duct regulation without focusing on raising; shorter and clearer disclosure ganisation of Securities Commissions able at 60 per cent, but the scores culture and we highlighted that in our documents; and apragmatic ap- (IOSCO). among investors were higher. For if thereisno first Strategic Risk Outlook late in 2014. proach to using tools such as The work we’ve done has given us people with managed funds and Governance and culture were sig- exemptions from the rules to avoid aticket to the international game in shares, 80 per cent and 75 per cent confidenceinour nalled as primary contributors to help unnecessary cost and burden. terms of funds management; and in respectively were confident in the deliver better outcomes for cus- Ibelieve the mandate we have terms of contributing as equals to effectiveness of regulation. markets tomers. When poorly constructed, been given, and the way we im- improving global standards for licens- Confidence in the markets them- they are primary drivers of risk to our plement it, is starting to make a ing, supervision, monitoring —and selves fell for the first time since the markets. positive difference to the way New taking enforcement action against — survey started —from 60 per cent to The full benefits of the FMC Act Globally, there is much discussion Zealand financial services are consid- financial services firms. 56 per cent, reflecting the turmoil in will not be truly felt by either the about whether it’s practical or pos- ered globally and locally. That we no longer look like the global markets over the last year. industry or consumers for afew more sible to turn culture into aspecific It’s important for all of us that our securities wild west to the rest of the However, these levels of confid- years, and that simply reflects the fact obligation, or duty, rather than markets are recognised abroad as a world is critical if we wish —asthe ence in regulation are early signs that we are completing the build phase of allowing firms to organically foster place worth doing business; and by government’s business growth even when the markets are unsettled, this new conduct regime. But the their own culture. New Zealanders as aplace they are agenda makes clear that we do —to it’s possible to differentiate between benefits seen already show that the To us the reality is simple. Culture confident can help them to get ahead be adestination for international the systems and controls within the FMC regime is not regulation for its drives what actually happens at the financially and in which they will be capital. regulatory framework and sentiment own sake. businesses and individuals we regu- fairly and honestly treated. That doesn’t come if there is no reacting to market volatility. The purpose of the regulation is to late, which is why it’s important. But ● Rob Everett is Chief Executive, confidence in our markets. There is still away to go to broaden build better markets and services for aregulator has no role in prescribing Financial Markets Authority D9 Capital Markets IPOsinshort supply despiteboost

quity markets here and of demand —but we just can’t see a around the world have been lot of companies lining up with alot strong, driven in no small NewZealandisanattractiveplace for capital, which of scale,” he says. E part by interest rates that in “I don’t think that we will see many many countries are close to zero. is fuellingthe market, but there are few initial public more IPOs this year, but Idothink That has meant investors have we will see asurprising number of been piling into sharemarkets in offers on the horizon, reports Jamie Gray mergers and acquisitions,” Gibson search of yield and New Zealand, with says. its high proportion of dividend- “We are going through aslight paying stocks, has been singled out markets and our price-earnings ratios merger and acquisition wave at the by investors for special attention. and multiples look high. However, moment, which Ithink will continue The surprising thing has been the you need to back out of that equation through into the end of this year.” length of time central banks have the unique characteristic of the New Gibson says dairy prices were the clung on to their highly accommodat- Zealand market —the fact that such potential overhang, especially given ive monetary policies, which has ahigh proportion of our market is in the impact they might have on the meant sharemarkets have tended to the (high dividend-paying) power banking sector if conditions remain carry on stronger for longer, says generator/retailers, with some tech- depressed. David Gibson, co-head of Deutsche nology as well,” Gibson says. “If you Corporate activity levels continue Craig’s. “We get the jitters every now back those out, we still look strong.” to rise with the recent ZEnergy/ and then, as we did in February over New Zealand is an attractive place Caltex deal being acase in point. worries about China,” he says. for capital at the moment because of Gibson says private equity firms “Since then, we have had avery the stable political backdrop. have been very active and are flush strong rally and global markets have Companies are performing well with cash, supportedbycheap remained strong.” and the official cash rate —at2.25 per funding from the debt markets. Gibson concedes the market, from cent —still has room to move on the In the “hot” sectors —health aprice earnings (p/e) perspective, downside;many other countries do supplements and honey —high looks pricey. He says that on the face not have the same luxury. multiples are being paid. of it, the market looks expensive at Gibson says there has been strong The media sector is attracting alot an average p/e multiple of 20 times support for New Zealand stories. of interest given the big changes —which is 35 per cent above the Those companies involved in high- taking place at NZME, Fairfax and 20-year average of 14.8 times. value agriculture with exposure to MediaWorks. However, the premium to histori- China —such as Comvita and A2 Milk Honey producer Comvita has found a“sweet spot” in the market. Gibson says the collapse of cal price earnings has recently been —have enjoyed asweet spot in the electronics retailer Dick Smith — skewed due to the emergence of high market. which was brought to the market by p/e tech companies and the high Food remains astrong theme for private equity —has made investors concentration of the so called investors, as evidenced by the suc- Idon’t think that we will see many cautious about private equity funds “gentailers” —Meridian, Genesis and cess of the Tegel float. “Hopefully in seeking to exit retail businesses. Mighty River Power. the next five years alot of other more IPOs this year, but Idothink In the domesticcredit markets for “We are not expecting amajor New companies —food stories with an that we will see asurprising number the year-to-date, aggregate maturities Zealand-specific market correction, Asian focus —will emerge,” Gibson of bonds have been less than total especially given where interest rates says. “To our minds there is ashortage of mergers and acquisitions. new offers, creating the first sig- are,” Gibson says. of supply emerging for these quality nificant positive new issuance in “New Zealand companies’ earnings businesses. David Gibson about four years. performance has been solid. We are “We expect IPO levels to remain Gibson says there is a“reasonable one of the strongest-performing relatively light —not through alack pipeline” of new debt issues ahead.

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Successrequiresfocus.Our focusison helping youachieve your business goals. At Simpson Grierson, we deliverdecisive advicethathelpsbusinesses succeed. www.simpsongrierson.com D10 nzherald.co.nz | The New Zealand Herald | Thursday, May 19, 2016 Capital Markets Angel investments soar

strongly believe in investing in ‘more The angel productive’ assets to provide inter- esting and high-value jobs for the investmentmarket future,” he says. “Angel investment is adriven en- in New Zealand is vironment and it’s energising to work with the founders. maturing and “Plus, it’s agreat way to build a network of interesting, like-minded playingan people.” New Zealand can now point to importantrole in global success stories —most notably Xero, TradeMe, and Orion Health, growing the which provides confidence that world-leading companies can be de- economy, reports veloped from New Zealand. Chris Twiss, Investment Director Tim McCready at the New Zealand Venture Invest- We arenow seeing ment Fund, says New Zealand is increasingly on the radar for inter- he latest Young Company angel-backed national investors looking for oppor- Finance Index, compiled by tunities. the New Zealand Venture companies “We are now seeing angel-backed T Investment Fund, shows companies successfully raising capi- that angel networks and funds last successfully raising tal from overseas investors —includ- year invested arecord $61.2 million ing venture capital firms, angel into 94 New Zealand companies capitalfrom groups and equity crowdfunding,” he across 132 deals. says. Software and services received 39 overseas investors. “Offshore investment brings capi- per cent of the amount invested, tal and access to networks and followed by pharmaceuticals/life Chris Twiss, New Zealand Venture markets, and widens the shareholder sciences (15 per cent), technology Investment Fund base.” hardware and equipment (11 per There are now eight cent), and food and beverage (8 per that would otherwise be unavailable. crowdfunding operators licensed by cent). Angel investors typically invest the Financial Markets Authority in More than two-thirds of the invest- from adesire to help the country, the New Zealand. Alongside angel fund ment last year were follow-on invest- industry or an innovation they are investment, four of those crowd ment, indicating amaturing of the passionate about —and hope that at funders –Snowball Effect, PledgeMe, market and demonstrating that angel least one will turn out to be the Equitise and CrowdCube —raised investment has become an import- blockbuster that makes good on their $14.9 million of retail investment for ant component in the patchwork of investments. 27 companies. the New Zealand capital markets. “After Iarrived in New Zealand I “Crowdfunding platforms demon- Angel investment often fills the wanted to do something that would strate the efficiencies that techno- gap in early-stage company develop- help the country grow long-term,’’ logy can bring to what has histori- ment before venture capital kicks in. says Chris Sattler, lead investor with cally been aclunky and time con- In addition to funds, angel investors the ICE Angels and now active with suming business, corralling multiple can provide advice, introductions the Flying Kiwi Angels. individuals into asingle early-stage and access to networks and markets “Property is one asset class but I company investment,” says Twiss. “In addition, the crowdfunding platforms in their own right have opened up this form of investment Giving start-ups an early boost to entirely new audiences.” Since the Young Company Finance Index began measuring ac- The Icehouse and ICE Angels have recently launched initial funding, and the second was the challenge that 90 Seconds, acloud video production platform. The tivity in 2006, $414.7 million has been a$10 million fund which they plan to invest in 25 comes with raising alarge funding round. fund is expected to announce their fourth investment invested into young companies by start-ups over the next three years. “Both of these areas we thought could do with soon. angel groups. The Tuhua fund was established last November, some energising through an investment from the “In addition to active board members and Although the average deal size last with cornerstone investors being former local fund,” says Hamilton. “We are also able to be advisors, investees will have access to board year was $464,000 —down slightly Microsoft executive Ross Peat, Japan’s internet opportunistic on great deals out there that require observers who are charged with unloading on 2014 —the total amount of angel pioneer Tim Williams, former PwC partner Richard quicker decisions when others are leading the administrative tasks off the founders, mining our investment captured by the index in Burns, software entrepreneur Dennis Row, The investment. We wanted the fund to power up our networks for talent, and enabling data-based 2015 represents a9per cent increase Icehouse CEO Andy Hamilton and ICE Angels chief angels to do more deals, do more investment and decision making by leveraging insights from our 97 on the previous record in 2014, and Robbie Paul. The Warehouse founder Stephen Tindall influence more growth.” investments,” says Robbie Paul. “The start-ups will is certainly ajump from the $21.4 has since joined and is now the biggest investor with The fund plans to invest up to $1 million per start- also have access to The Icehouse space in Parnell million invested back in 2006. $250,000. up, and has so far made three investments — and its team”. Although the index demonstrates Although The Icehouse and ICE Angels have an Avertana, which extracts high value chemicals from “The Fund will really speed up the path to market that angel investment is growing, it active platform for start-ups and angel investment, industrial waste; Nyriad, which develops software to for these start-ups and it will unleash the network is important to note that it only they identified acouple of issues in the market. The rapidly compresses and stream data; and aco- of investors that have come on board with the Fund,” measures investment made through first was how hard it is for start-ups to raise their investment with Sequoia Singapore and Sky TV in adds Hamilton. angel networks and funds. The index reports that 76 per cent

Graphics /NZVenture Investment Fund D11 Capital Markets to record levels of deals last year were syndicated ber of globally-competitive busi- across angel groups. nesses New Zealand so desperately These networks help shortcut the needs. Investment figures have investment process, by linking start- doubled in the eight years since 2007, ups with investors and providing but New Zealand only invests around access to deals, shared research and $13 per capita through angel invest- pooled investment capital. ment. Compare this to the United Rowan Simpson, who was the States, where some estimates of angel third employee at Trade Me and is investment are north of US$70 per now aseasoned advisor and investor capita. through his family Hoku Group, says There is alot more to do to develop the flipside of these groups is that and broaden the investor base in New they can dilute the impact an angel Zealand, particularly outside the can have in acompany. main centres. In our “If you have invested in 50 early- “New Zealand needs to be one stage companies, then the money, unified market for both starting and experience and much more importantly, the at- funding young technology and inno- the best tention you can give to each one is vation companies,” says Twiss. unlikely to make any material differ- “The relatively recent formation of ventures ence,” he says. new angel investment networks in choose their “Risk is essentially broken down Canterbury, Taranaki and Southland into smaller and smaller chunks, with is astep in the right direction.” investors no significant individual investors, But the most important driver to and therefore no one with any real take angel investing to the next gear carefully — skin in the game. will come from the demonstration of because they “As activity by individuals and investment success. those outside formal networks isn’t “Active angel portfolio manage- can. recorded, an important question is: ment and the development of tools Rowan Simpson, What portion of the market does the and expertise to improve investment Hoku index capture? returns —both the number of exits “In our experience the best and the quantum returned —for angel ventures choose their investors care- backed companies is definitely top of fully —because they can,” says mind now for the industry,” says Simpson. “By just including those Twiss. ventures Hoku Group are invested in While angels understand that their directly that raised further capital last investments are particularly high risk, year, the numbers would increase it is without doubt essential to see significantly.” financial returns for the ongoing Regardless of the number, it would health and development of the angel be fair to say that significantly more market —and ultimately of course, capital is needed to create the num- the New Zealand start-up sector.

STRONG INVESTMENT DECISIONS BUILTONTRUST

www.firstnzcapital.co.nz | 0800805 584 ADisclosureStatement is availableonrequest,freeofcharge. *First NZ Capitalisnot aregisteredbank. D12 nzherald.co.nz | The New Zealand Herald | Thursday, May 19, 2016 Capital Markets Aussie silence on tax credits worrying

Trans-Tasman capital market. It Despite acut to the Australian discourages the free flow of capital between both markets and limits company tax rate, New Zealand investment opportunities in both markets. is still in asound competitive However, it is not surprising that the Australian Government has not space, writes Alex Malley moved to progress the issue. It has previously been reviewed by both countries’ Productivity Comm- or New Zealanders, two Australia might underwhelm, it issions, which concluded that, things would have stood out sends afurther signal to markets that though it would be beneficial for the in the Australian Govern- the long-term trend in company tax freer flow of capital between the two F ment’s Budget, handed down rates is down. This is important as earlier in the month by first time we are all engaged in aglobal com- Thereisnothing in the Treasurer Scott Morrison. petition for investment and the jobs With the Kiwi company tax rate that accompany that investment. AustralianBudget at 28 per cent, acut to the rate in Another element of tax competi- indicatingthat NZ’s Australia from 30 per cent to 25 per tiveness concerns multi-nationals proposal for the mutual cent might, at first blush, appear to and the issue of Base Erosion and be something of athreat to New Profit Sharing (BEPS). Morrison’s recognition of imputation Zealand competitiveness in terms of Budget outlined anumber of “integ- credits has gained traction. attracting investment and talent. rity” measures to ensure compliance However, when you consider with Australian tax laws. Treasurer Morrison is proposing Initiatives to improve public trust nations, Australian Government phasing this in over 10 years, the in the tax system are welcome but revenues would be the net loser. initiative becomes somewhat less it’s important to acknowledge that In atime when the Australian concerning. competitiveness —including tax Government is clearly focused on New Zealand is set to retain its competitiveness —isthe name of the budget repair, it is unlikely this issue competitive edge for the foreseeable game for many jurisdictions. will gain favour in the short to me- future. Finance Minister Bill English Bolting new sets of regulation on dium term. Key has been pragmatic has been upfront in ruling out tax to an existing body of laws can about Australia’s capacity to afford cuts in his Budget later this month, obscure the need to address more such amove, noting: “If Australia is citing “continuing tight fiscal fundamental assumptions, and Aus- Australian Treasurer Scott Morrison arrives at Parliament in Canberra to not able to move now to mutual conditions” and an emphasis on ad- tralia and Morrison need to address read the Budget. Picture /Getty recognition, we seek at least an in- ditional debt repayments. the underlying problem, not just the principle decision to implement When he does move, which he has symptom. land perspective, there is nothing in nition of imputation credits would be mutual recognition when fiscal cir- flagged he will do when the fiscal English and Prime Minister John the Australian Budget indicating that the “next leap forward in Trans- cumstances permit.” situation improves, it’s asafe wager Key have rightly hitched their wagon New Zealand’s proposal for the Tasman integration.” With Australia now in election that it won’t just be apromise to to the multi-lateral efforts led by the mutual recognition of imputation Mutual recognition —the ability campaign mode counting down to a implement cuts some time over the OECD and G20 to tackle BEPS at a credits has gained any traction. for aNew Zealand investor to claim July 2poll, the issue will need to be next decade, not least because in 10 global level, and incremental pro- As Key pointed out in his sub- an imputation credit on an invest- pursued with whoever forms the years’ time other sovereign nations’ gress is being achieved. This process mission to the Australian Govern- ment in an Australian company and next Australian government. tax rates will also have moved. needs to be supported by all nations. ment’s now abandoned white paper vice versa —isone of the most ● Alex Malley is Chief Executive of Though Morrison’s plan for cuts in Disappointingly from aNew Zea- tax reform process, the mutual recog- significant barriers to aseamless CPA Australia HowdoIget solutionsthathelp my business grow?

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ew Zealand’s listed debt market tells agood story at New Zealand’s debt market is experiencingthe perfectstorm in terms of interest rates, the moment —the average N bond yield is more than 200 investor appetite andissuers’preference, writes JonathanUnderhill basis points below the bond’s coupon rate, according to NZX data. There’s just one problem: most They join amarket whose value record lows and down from 4.75 per Mum and Dad savers have no idea has climbed about 66 per cent in the cent in early 2014. what that means. past year to stand at $20.9 billion at Both Chorus and Wellington Air- In plain language, NZDX bonds on the end of April. port say they’d tap the NZDX market average are becoming more valuable. The debt market went through one again, assuming conditions were For an investment that started life as of its biggest ever growth spurts last broadly the same. The airport’s afixed interest opportunitypaying November, when the Local Govern- Harrington says it has debt maturing better than the bank, that makes them ment Funding Agency (LGFA) listed next year and “may look to prefund particularly attractive. Six years ago, six bonds, or about $5.56 billion of some of that.” the average yield and coupon (the debt that it had sold on behalf of local Chorus was saddled with bank fixed interest rate on abond) were authorities. debt when it was split off from Tele- just 30 basis points apart. There were 3218 trades in total on com (now Spark) in 2011. Its debt Bonds are currently in asweet the NZDX market last month, up 34 diversification plans were thwarted spot. Investors are hungry for yield per cent from April 2015. by “regulatory surprises” when the and willing to look at fixed-income The value of trading jumped 61 per regulator began looking at prices it securities that offer more than bank cent to $174 million, which is still a could charge for access to its copper deposits with less risk than stocks. miniscule 0.8 per cent of the debt network. That created too much un- On the sell side, things are sweet market’s value. For comparison, NZX certainty to successfully promote a too. The new Financial Markets Con- sharemarket trading last month was bond sale, Carroll says. duct Act makes it easier for $3.9 billion, or 3.3 per cent of the $117 At December 31 last year it had corporates to issue bonds, allowing billion market capitalisation for listed senior debt of about $1.8 billion, of them to make offers on the strength companies. which $1.08 billion was in bank facili- of atwo-page term sheet rather than That partly reflects the tendency ties and $667 million in European afull prospectus, provided they’ve of debt investors to hold to maturity medium-term notes. By then, though, sold bonds previously or are already —the so-called“bottom drawer” in- it also had the certainty of afinal listed with the NZX. vestment strategy —because they’re pricing determination for its network Telecommunications network typically looking for income rather from the Commerce Commission. operator Chorus raised $400 million than speculativecapital gains. Hello bond market. this month selling May 2021 bonds But NZX head of markets Mark “Our preference ultimately is to not that pay 4.12 per cent annual interest. Peterson says trading and liquidity have much bank debt at all,” he said, It used the funds to repay most of the are increasingasthe market although asecond issue of NZDX- $450 million it had drawn against a broadens and issuers take advantage listed bonds was unlikely to be as bank facility that matures in July, of ease with which they can tap large as the initial $400 million sale. reducing its interest costs in the pro- programmes again and again, with Retail investors should talk to a cess. only ashort-form term sheet. financial adviser before diving into For Chorus chief financial officer The Financial Markets Conduct the market unless they have agood Andrew Carroll there are other Act is “a wonderful piece of legislation level of sophistication and under- attractions —the bonds offer ease of that’s been welcomed incrediblyby standing, Peterson says. execution, more flexibility than bank the market and seen as areal im- Insurance Australia Group (IAG) facilities with their covenant provement to efficiency,” Peterson this month launched the most com- requirements, lower costs and the says. plex debt offer so far in 2016, with an ability to issue longer-dated debt that “It sets us apart from other markets offer of up to $350 million of un- matches Chorus’s long-term assets. —Australia, in particular, where you secured subordinated convertible “When we speak to the brokers need afull prospectus. notes, notionally maturing in June they say retail investors are getting Investors are hungry for yield and willing to look at fixed-income securities “Conditions right now are aperfect 2043 —27years away. such terrible returns from the banks that offer more than bank deposits with less risk than stocks. storm –the right point in the interest They will pay afixed interest rate at the moment. They’re looking for rate cycle, strong investor appetite for their first six years then switch to these types of investments,” Carroll unlikely to woo Mums and Dads who they’ve been the most price- and the preference of issuers looking afloating rate tied to the three-month says. The 2021 bond issue was “well can get abetter 3.53 per cent on term competitive option for corporates.” for diversity in their debt,” he says. bank bill rate. oversubscribed”. deposit. They are more likely to He says there is “a strong appetite Added to that, issuers say ex- IAG has the option to repay them It’s “scratch me, I’m dreaming” time appeal to institutional fund managers from retail investors —the facts of ecution risk has risen in offshore early and investors can elect to have for well-rated issuers, given the pro- who need investments across awide retail bonds is they are tradable and markets such as Europe, where talk them converted to ordinary shares longed period of low interest rates. In spectrum of risk. But retail investors you get acoupon for the term. In a of the Brexit, or British exit from the after nine years, if the notes are still March, Auckland Council raised $250 may have been tempted by Welling- portfolio of risks you might have European Union, is ratting bond in- outstanding. million selling four-year bonds at a ton International Airport’s $75 million some of them.” vestors. IAG even warns amateur investors coupon of 3.04 per cent, arecord low of May 2023 bonds sold this month Record low borrowing costs have “The pipeline still looks strong — off, saying the notes “are complex for the city, and below the 4.41 per at an interest rate of 4.25 per cent and lured many corporates to the listed we’ll probably see more listed financial products and are not suit- cent rate on its existing December with an investment grade BBB+ rating. bond market this year, including instruments coming through,” he said. able for many investors. 2018 bonds. “Retail bonds are quite cost- Genesis Energy,Meridian Energy, Corporate bonds are typically “If you do not fully understand However, the latest sale by the competitiveatthe moment,” says the Spark New Zealand, Auckland Inter- priced at amargin over the compar- how they work or the risks associated council, whose credit rating is only airport company’s chief financial national Airport and Fonterra Co- able swap rate. Five-year swaps are with them, you should not invest in one notch behind the country’s, is officer Martin Harrington. “Recently operative Group. currently around 2.35 per cent, near them.” Newinvestor groupsspice up privateequitymarket

The emergence of new investor was driven by number of of high value buy-out and groups such as iwi and community higher average in- mid-market divestments, primarily trusts will introduce additional liquid- vestment value — Pacific Equity Partner’s sell-down of ity into the private equity sector, says $16.7 million in 2015 Griffins Food to URC (Philippines). the latest EY survey. to $12.8 million the Notable deals last year included the But there is some concern about year before —des- purchase of Manuka Health by Pacific limited interest in additional venture pite alower number Equity Partners; Tembusu Partners’ capital fund raising from both domes- of transactions. investment in CricHQ; Pencarrow’s tic and international investors. There were 17 trans- investment in Icebreaker; Allegro Pri- Overall, the New Zealand Private actions last year vate Equity’s acquisition of Carpet Equity and Venture Capital Monitor compared with 19 in Court; and Archer Capital’s acquisition 2016 says the market remains positive 2014. of the Aspire2 Group. In September —with some caution. “As for the Colin McKinnon The total invest- Pacific Equity Partners agreed terms invested companies, the current low ment value last year to acquire Academic College Group, interest rate environment will support was $346.6 million, with the number but will settle in 2016. companies seeking leverage to grow, of deals increasing from 81 to 86 —the Archer Capital completed its pur- while low dairy prices and shortage highest since 2006 —and the average chase of NZ Pharmaceuticals from of skilled and experienced staff will deal value rising from $3.7 million to Direct Capital and others in early 2016. continue to hinder some players.” $4 million. The monitor says this reinforces the The monitor says crowdfunding The venture capital investment theme of strong activity level from gained huge momentum in 2015, rais- increased from $55.8 million to $62.5 overseas funds in 2015, but delayed ing over NZ$12 million for 20 com- million, driven by the increase in the completions through the Overseas panies in the 12 months after the “it will be interesting to see how the since the monitor began. number of deals —69last year Investment Office process into 2016. Financial Markets Authority’s authori- trend develops in 2016”. “Concurrently, the continued compared with 62 in 2014. On the short term outlook (next six sation in 2014. Colin McKinnon, executive direc- strong return of cash to investors The total divestment value in 2015 months) for the private equity and Venture capital funds, initially tor of the New Zealand Venture Capi- provides positive stimulus to future fell sharply to $147.8m from $620.3 venture capital market, respondents thought to be rivals to crowdfunding, tal Association (which commissioned fund raising,” he says. million in 2014. in the survey were relatively optim- raised capital on the funding the 13th annual survey) says the mid- Mid-market investment activity The divestment activity last year istic, reflecting the New Zealand econ- platforms themselves (Punakaiki market investment activity increased increased to $284.1 million in 2015 was dominated by mid-market trans- omy’s resilience despite the struggles Fund and Powerhouse Ventures) and 17 per cent to record the highest level from $243.5 million in 2014. The rise actions, while 2014 featured asmall in the dairy sector. D14 nzherald.co.nz | The New Zealand Herald | Thursday, May 19, 2016 Capital Markets

Farmers can look into thefuture

nMidwest America,the Chicago hundreds of years in other areas Mercantile Exchange has be- The NZX is alaunching new dairy futures and options contracts as around the world. Without being criti- come the hub for global wheat cal, it’s really an uninformed com- I trading, while Malaysia’s claim away to lessen the volatility in milk prices, writes Tina Morrison ment and you need to really have to fame in the commodities market more information about how these is palm oil. markets grow and develop, and we For New Zealand, widespread con- need to support their development version to dairy farming from sheep rather than making comments such has seen milk overtake meat and Milk price contracts to launch this month as that,” she says. wool as the largest commodity export Education on risk management for and set the country on the path to dairy farmers is ahot topic for the becoming aglobal hub for the dairy The milk price futures contracts will and the launch of milk price futures in the US or Europe, who have access NZX at the moment as it prepares to market. be launched on May 27, the NZX and options contracts is no exception. to awide range of risk management launch anew futures and options Though New Zealand isn’t the larg- announced late last week. We will continue to focus our efforts tools.” market for milk this month which it est producerofmilk in the world, our An announcement of the related on growing market participation and Once the futures and options plans to promote at the upcoming small domestic market means the milk price options contracts will be trading activity, and educating contracts are available for trading on Fieldays. country exports about 95 per cent of made in June. interested parties on the benefits of NZX’s dairy derivatives market, all NZX sees it as offering the its production,making Fonterra Co- These contracts are designed to commodity risk management tools. users of these contracts will be country’s farmers away to lessen the operative Group the world’s biggest address growing demand from “As expected with new derivatives required to trade through an NZX volatility of milk prices, putting them exporter of dairy products. producers and purchasers of milk products, we expect that liquidity in Derivatives Participant (a broker). on amore even footing with farmers The country’s step-up in milk pro- products wishing to manage risk the market will build slowly at first,’’ Derivatives contracts carry risk in other countries who benefit from duction has coincided with unprece- relating to price fluctuations, said he said. and operate differently to fixed price similar schemes. dented volatility in prices as govern- NZX. For example, both contracts can “With 95 per cent of their product schemes offered by milk processors. The market could also be used by ments rein in interventionist policies help New Zealand dairy farmers sold overseas, New Zealand dairy NZX encouraged parties wanting to milk processors to enable them to and allow dairy productstotrade mitigate the financial risks associated farmers are highly exposed to the enter into these contracts to seek offer afixed-price contract to farmers, more freely. with avariable milk price. global dairy market. advice from an authorised financial or by banks to launch aswaps con- Global whole milk powder com- NZX Head of Markets Mark “The new futures and options adviser as to whether derivatives tract. modity prices didn’t change by more Peterson said: “We are committed to contracts will help to level the playing contracts are appropriate for their “High levels of volatility are than 10 per cent in any month in the building markets for the long term, field with their overseas counterparts individual circumstances. unsustainable when you managing a two decades prior to 2007. But since business, whether you are abuyer or then, it’s changed by more than 10 per aseller, so you need some way of cent amonth on 22 occasions. Volatility and uncertainty drives when it will reach the point of being Jaggard notes that the NZX futures managing that volatility to create The emergence of New Zealand as demand for risk management tools considered the global benchmark for market is unusual globally in that certainty,” Jaggard says. abase for aphysical market for dairy which, for dairy, is spurring the de- dairy derivatives, given the catalyst there is atransparent underlying The push by NZX has been encour- products, increased volatility in velopmentofaderivatives market for higher volumes could be unpre- physical market every two weeks, aged by the Government, which pricing and an uptick in global trade offering futures and options. dictable events such as adrought or which isn’t the case for other com- wants to see the development of new led by emerging market demand for NZX launched its Global Dairy apolitical event. modity futures such as cocoa, coffee, financial products as part of its protein has all helped lay the found- Derivatives Market in October 2010, In recent times, analystshave been sugar, grain or oil where the futures reforms of financial markets. ations for adairy derivatives market following the establishmentof caught out when the fortnightly is the only indicator of price senti- “Price volatility in the dairy sector in New Zealand. Fonterra’s online auction platform GlobalDairyTrade (GDT) hasn’t fol- ment. has obviously been akey issue for “The dairy market globally is GlobalDairyTrade in July 2008, lowed the futures market, although Criticism of the futures market has the dairy industry and the broader undergoing atransition that many which trades in physical dairy pro- Jaggard says the gap hasn’t been that also come from outside financial economy in recent times,” says Com- other commodities including agricul- ducts. large and current dairy market markets, with New Zealand First merce Minister Paul Goldsmith. tural commodities have gone The derivatives market started conditions are unusual. leader Winston Peters likening the “Managing volatility assists through, “says Kathryn Jaggard, head with whole milk powder futures and “You have afutures market which GDT auction system to “a glorified farmers and others in the industry of derivatives at financial markets has since added skim milk powder, is reflecting the underlying, and in the TAB”, saying he believes New Zealand with their business plans. The Gov- operator NZX. “Dairy is slightly late in anhydrousmilk fat and butter underlying right now there’s not a needs to establish aphysical com- ernment welcomes NZX responding this evolution.” futures, and whole milk powder huge consensus around where price modities exchange rather than a to this issue by developing the dairy Jaggard joined NZX in 2008 and options. is going,” she says. derivatives market. futures product, and expects product has almost two decades’ experience The NZX is trading about 1000 During the global financial crisis, “We are allowing others to skim the innovation to continue in this sector.” in global derivatives. dairy derivative contracts across its between October 2008 and October cream, locking our farmers into being This could see the development of She describes “an explosion in platform aday, and on track to 2009, the GDT average winning price takers rather than price acentre of expertise in New Zealand exports and global trade where you reaching the 3000 to 5000 lots aday, whole milk powder price was below makers,” Peters said in his usual for awider range of agriculture com- have emerging economies who are which would see it hit aglobal liquid- the average US$3050 for 371 days. In catchy turn of phrase. modities that the country is dominant now wealthier and they are seeking ity benchmark. comparison, in recent times, the price While Jaggard says she’s glad that in, such as forestry, meat or wool. in this case reliable and quality Jaggard says volume traded on the has been below US$3050for about Peters is talking about risk manage- “The ambition is to meet the de- sources of protein and food, your Kiwi bourse is ahead of its dairy rivals 420 days. ment because it’s an important topic mand where it sits,” Jaggard says. levels of government intervention overseas and growing at afaster pace “No market can accurately predict for dairy farmers to discuss, she says “At the moment, what we are fo- are coming down and the manage- than other commodity markets for exactly what’s going to happen. The we need to have “informed and sens- cused on is really building these dairy ment of risk is moving from the milling wheat and palm oil were at futures are just reflecting that the ible conversations” about tools to tools but absolutely there is the op- responsibility of government to the same period of their evolution. market is struggling to find consen- manage risk. portunity to expand beyond those markets.” However, it’s difficult to predict sus.” “These markets have existed for into other commodities.” D15 Capital Markets Aussiesprefer NZ investment

vate equity firm invested in Rodd and After astellar 2015, the acquisitions and Gunn. In comparison there was only one sizeable Chinese deal and one mergers market here remains confident with aJapanese investor. While United States investors are even though the deal flow has been slow strong in the technology field, they have abroad interest in New Zealand so far this year, reports Bill Bennett business. That’s not the case with Chinese investors. Hawes says they are focused on hough merger and acqui- with global volumes up 37 per cent, the primary sector and in many cases sition activity this year had aflow-through effect into the it is narrower still with dairy being the might not reach the highs New Zealand market. main interest. T seen in 2015, Simpson Pollard says the global capitalisa- Another niche market of interest Grierson partner Michael Pollard re- tion market is coming off last year’s to Chinese investors are honey- mains positive about the market. high. With national regulators still related assets, especially those in “We are starting to see asteady trying to inject life into their econom- manuka honey. deal flow. Last year was astandout, ies, there was ahuge wave of activity Hawes says “despite the talk of a yet this year’s deal flow is still reason- and that had aknock-on effect in New slowdown in China, we are not seeing able. Unless there’s some kind of Zealand. Michael Pollard James Hawes any let up in Chinese interest in New adverse event, I’d expect to see a He says overseas business confid- Zealand assets. Chinese investors are solid, busy year in 2016,” he says. ence remains strong, but is less so In fact, Australian funds find New It’s not only Australian money becoming more Western in their out- The year got off to aslow start, but than last year. Zealand agood place for their money making its way to New Zealand. It’s look. then so did 2015. That’s not unusual Another Simpson Grierson part- when things are not going too well long been true that asignificant pro- “In the past most of the money in New Zealand where there is a ner, James Hawes, says the mood is at home. portion of local merger and acqui- involved an element of Chinese state pronounced break in deal activity reminiscent of the period immedi- “We’re aware that towards the end sition transactions involve aforeign backing, and those investors would during the summer months. ately after the global financial crisis. of last year Australian funds were buyer, but Pollard says almost all of look at local businesses from adif- Pollard says: “A lot of the deal value He says “while the deal flow is more active in New Zealand than they last year’s deals were to overseas ferent perspective to others. came on during the middle and to- slow, the market confidence is high. were in Australia. They like to be able investors. “Now they are more used to deal- wards the end of last year. There was There is lots of money still around of to buy into amature business in New He says Japanese investors remain ing in our part of the world and there’s not much activity in the first quarter the equity side, both private and Zealand. interested in New Zealand. They are less complexity in the deals.” of 2016. Most of the deals talked about public.” “They find it easier and less ex- still active here. Many, maybe most, One barrier to deals in the past has have been hanging around for awhile Australian funds have New Zea- pensive to buy atop company with of the tech-heavy New Zealand com- been the time taken by the Overseas —like Paymark and Tegel. land in their sights. Hawes says “to astrong competitive position here. panies go to American buyers. Investment Office) to deal with “There has been ashift in the some extent we are insulated from They are still astrong source of our “There is alot of United States applications to acquire sensitive land market. There were 12 initial public the negative sentimentinAustralia. deal flow,” Hawes says. capital floating around and while the or assets. offers in 2014, only three last year and news tends to focus on other Pollard says even non-strategic just one so far this year, although While the deal flow is slow, the market confidence is countries, United States are heavy land applications could take months some are still in the market —they investors in New Zealand farmland to get approval. are getting away slowly and we are high. There is lots of money still around of the equity and agriculture.” “There isn’t the capacity to handle seeing the same pattern across the side, both private and public. Pollard says last year United the big deals. It tends to slow things Tasman in Australia.” States-based Accel Partners invested down and it makes it harder to get Deals nudged the $9 billion mark James Hawes $133 million in Xero. Equifax acquired overseas investment in New Zealand. in New Zealand in 2015, and mergers Veda, the credit reporting company. However, we hear the agency is and acquisitions around the world, Winona Capital, aChicago-based pri- recruiting people which could help.”

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echnology is redefining the transferred on amargin call and the provision of financial Theuse of FinTechsoftwaretoimprove the blockchain would perform the re- services —itiscutting out cord keeping, auditing and custodial T the middle man and provid- operations of financial services is the functions, resulting in efficiencies ing customers with quicker, direct and cost savings for the contracting and more convenient financial talk of the town, writes GeoffWard-Marshall parties. services at lower costs. Technology and regulation will FinTech is the use of software to need to evolve at the same pace to increase efficiency in the provision make it easier for both small and of financial services, and is ahot topic large firms to launch new ideas and at the moment. FinTech is where Originally developed as the tech- action being recorded as a“block” ment without the need for an inter- innovate in financial services. finance and technology collide to nology that underpins Bitcoin, it has that is added to acontinuously grow- mediary and has the real potential The Uber approach of acting first disrupt the traditional banking and the potential to streamline capital ing chain. to automate the clearing and settle- and dealing with regulation as an financial services model. markets transactions and reduce It is apermanent record and its ment process. afterthought won’t work in the capi- The Financial Markets Conduct counterparty risk associated with the security comes through the contin- It could remove inefficiencies that tal markets. FinTech innovators will Act 2013 has the purposes of promot- monitoring or enforcing contractual ual replication of the chain in the result from the current need for need to consider regulatory impacts ing innovation and flexibility in fin- obligations. network and its decentralised nature. counterparties and systems to at avery early stage. ancial markets and promoting and It can also be used to develop a undertake clearing, settlement and Foreign regulators are facilitating facilitating the development of fair FinTechiswhere “smart contract“. The terms of atra- reconciliation processes. innovation through aregulatory and efficient markets. ditional contract are coded and Clearing and settlement disrup- “sandbox”. This is asafe space for So far, the FinTech innovation in financeand uploaded to the blockchain, resulting tion is already happening. At the end testing innovative products and busi- New Zealand has been focused at the in adecentralised smart contract that of last year, Nasdaq announced that ness models without immediately front end. Crowdfunding platforms technologycollide is not reliant on third parties for it was using its Nasdaq Linq techno- incurring all the normal regulatory and peer-to-peer lending services as record keeping or enforcement. logy to successfully complete consequences. well as the looming robo-advice to disruptthe Contractual clauses automatically blockchain-based share sales. The UK’s Financial Conduct Auth- revolution in the financial advisory execute when pre-programmed This was described as the begin- ority has recently opened its sand- sector are examples of FinTech inno- traditionalbanking conditions are satisfied, resulting in ning of aprocess that could revolu- box and Australian Securities vation focused on front-end the removal of ambiguity as to the tionise the core of capital markets Investments Commission will be inefficiencies. andfinancial agreed terms and any disagreement infrastructure systems and that consulting on its proposed sandbox The major FinTech disruption to regarding external dependencies. would have profound implications later this year. capital markets, however, won’t be at servicesmodel. The opportunities for our capital for settlement and outdated admin- The UK regulator has also recently the front-end. markets to leverage an immediate, istration functions. Closer to home, signed co-operation agreements with We expect that disruption will secure, permanent and unchange- ASX recently paid A$14.9 million for both Singapore and Australia to fa- come through the use of distributed It can be described as adigitally able record of transactions and trans- a5per cent stake in astart-up cilitate referrals of FinTech busi- ledger technology to remove distributed, decentralised, unchange- fers of value without the need for focused on developing distributed nesses between those jurisdictions. inefficiencies in back office functions able ledger for verifying and intermediaries are vast. ledgers. The Financial Markets Conduct that currently facilitate transactions recording transactions. These include: ● Smart contracts Act is already hard-coded to encour- on the markets. Using this technology, parties can ● Clearing and settlement Financial transactions are an obvious age innovation and efficiency in our The use of distributed ledger tech- securely send, receive and record The incumbent settlement and reg- use of asmart contract. Asmart financial markets. FinTech nology (blockchain) is currently front value or information through apeer- istration systems can take several derivatives contract could be pre- innovators should take heart that of mind for major banking institu- to-peer network of computers with- days to settle trades. Both NZX and programmed with all contractual New Zealand’s regulatory approach tions and investment exchanges out the need for athird party inter- ASX currently operate on arecently terms except for price, which could to FinTech will have to be one of around the world. Venture capital mediary. reduced T+2 settlement cycle for be determined algorithmically from encouragement and facilitation. and institutional funding for It is ameans of transferring value cash trades. market data fed into the contract. ● Geoff Ward-Marshall is aSenior blockchain innovation is flooding in. and holding records with each trans- Blockchain allows real time settle- Margin could be automatically Associate at DLA Piper

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Mike Taylor says the key to success is to pick up growth companies when they are trading at adiscount. Taking apiece of the pie

MikeTaylor finds untapped gold in smalland medium companies, as BillBennett reports

magine you are at ahouse and learning about management partly down to mathematics. If 10 per auction. If the room is full, it’s teams. This is as much about knowing cent of the fund is invested in asingle I likely the bids will realise all the which managers to avoid as to finding company that doubles in size during value in the property. On the the star performers to follow. ayear, the fund is up 10 per cent. In other hand, if there are only one or The goal is to find abusiness that every year there is always one stock two bidders, the owner will be more is either growing rapidly or is about in any market showing stellar growth. ready to accept adeal. to start growing. Taylor says: “Often Searching for small cap stocks with That is the principle behind Pie that means finding one in an industry potential means there’s ahigher Funds founder Mike Taylor’s ap- with plenty of tail wind. We also look chance of capturing that winner. proach to investment. He seeks for blue sky opportunities, that is, a At the same time, there are com- overlooked small and medium com- business that’s scalable. It needs to panies that grow quickly from $100 panies with growth potential, then have ambition to roll out fast expan- million to $1 billion. It’s much harder unlocks the value. sion. to go from $1 billion to $10 billion. Taylor says; “There are about 2500 “We want to see aclean balance Taylor says his approach gives Pie listed companies in Australia and sheet. We don’t like to see alot of debt. Funds access to high-growth com- New Zealand. Fund managers Ideally asmall business has no debt, panies: “It’s amatter of experience. typically focus on the top 200 in we don’t want to invest in something We look for the right kind of com- Australia and, maybe, the top 50 in that could end up being owned by panies where there’s future growth New Zealand. The others are not abank.” that has not yet been recognised by followed as closely. It means many Over the years Taylor has met the market.”. of the small and medium listed com- 1000 company management teams. Buying at the right time helps boost panies are not efficiently priced. Pie Funds team at the Warren Buffett investor AGM. From left Sekhar Often this means focusing on the returns. Taylor says the key is to pick Stockbrokers are not producing Paruchuri, Mike Taylor, Chris Wright, Brenden Hall and Herald Business founder or CEO. He says you need up growth companies when they are research on these companies and Editor-at-large Liam Dann someone who has the charisma and trading at adiscount. Early this year analysts are not watching them. energy needed to drive the growth. fears of aUSrecession saw stock “There’s no point in finding small to 10 years you might come out with portfolio approach. They include up They need to be good at sales without prices fall to alow, small caps fell firms that will stay small for ever. acouple of per cent more than you’d to 15 individual stocks. He says the being aspruiker. Communication further than most, they tend to be We’re looking for companies that will earn from aterm deposit. Iknew from number means you get all the bene- skills are vital. He says eventually volatile. This was an ideal time to buy. grow. Then when one becomes large, watching overseas investors such as fits of diversification. The stocks are you’re going to need someone who Small cap stocks are riskier than the market takes notice and it Warren Buffet that it is possible to diversified across industries and can sell the company’s story to the large cap stocks. Taylor says Pie becomes efficiently priced.” achieve returns of 20 per cent ayear.” across both Australia and New Zea- wider investment community. “If the Funds guards against the volatility of This investment philosophy has He says the problem with funds is land. Diversification benefits dimin- CEO is abad presenter then no-one the sector by carrying alot of cash. worked well for Taylor and Pie Funds. they are often set up with the aim of ish with higher numbers.Apart from is going to buy the stock,” he says. “You never know when the next It’s aboutique fund with an impress- earning fees. Managers are told not anything else, he says it’s hard for Leadership skills are also import- opportunity will turn up, having ive record. Morningstar ranks Pie’s to lose any investor funds. Yet, to fund managers to keep aclose eye ant. Taylor says just because some- money means you can seize it.” Australasian Growth Fund in the top generate high returns you need to on that many investments: “You can one is aCEO, it doesn’t mean people Ideally afund would have a100 10 globally for equity performance take on greater risk. be too diversified.” will follow them. He looks carefully per cent success rate. Taylor says in between 2007 to 2016. It has returned The other characteristic of most Dealing with amanageable num- to watch how staff respond to the reality about seven out of 10 work out. 20.2 per cent per year since it began. funds is that they are widely diver- ber of otherwise unwatched smaller CEO. Of these afew usually do well and Taylor says he started Pie Funds sified. It’s not unusual for them to companies means spending time He says aconcentrated portfolio one or two will make five times the in 2007 after realising most fund include dozens of companies, maybe doing research and due diligence. of small cap stocks is more likely to money invested. The trouble is managers under-performed. He says: as many as 100. Taylor says he pays special attention generate ahigher return than one “When you buy the stocks, they all “If you left money with one for five Pie Funds uses the concentrated to company financials and to meeting made up of large cap stocks. This is look the same.” D18 nzherald.co.nz | The New Zealand Herald | Thursday, May 19, 2016 Capital Markets Estate of play forhousing

nterest rates have never been institutions out of the second-tier lower and demand has never Landdevelopment is along andcapital-intensive lending market. I’m all in favour of been higher —sowhy aren’t vast the capital adequacy regulations on I new housing estates springing process and in some cases this is holdingbackthe finance companies, and people up all over Auckland? should have agreater level of protec- Is it the price of land, price of rate of building newhouses, reports Anne Gibson tion when investing. construction materials, labour and “It’s all about the Government in- trades shortage, or could it be issues terference with our lending, such as with developers getting access to setting of fees rather than letting the money to finance such big schemes? market decide. If alender charges Evan Davies, chief executive of high fees and high interest rates, no Todd Property, arguably New Zea- one is going to go to them. The market land’s largest residential developer, should be left to sort it out. We now says funding challenges are indeed have fewer alternative terms of one of the problems as development finance. becomes more intense and far more “If it’s not the banks, where do you costly to build in Auckland. go? Years ago there was more divers- “I’ve never subscribed to the the- ity of funding, well before the global ory that it’s raw land prices,” Davies financial meltdown, and they had says, when asked about reasons for wider mandates. We don’t want to go lack of new housing development. back to where people put money in “It’s not so much the availability of and lost it. Laws that have strength- funding, but capacity in abroad fin- ened the financial stability are good ancial sense is the issue,” he says, laws,” Cairns says. referring to the ability of many When it comes to residential de- developers to get access to money for velopment, retirement village busi- the more complex, long-term, large- nesses are bigger than Todd and scale housing projects. Fletcher combined, and they are “Much land development is avery powerful financial forces when it long, capital-intensive process,” he comes to funding. says, referring this time to the need Their money comes from tra- for those developers to secure lines ditional trading bank sources and of credit over along-term time frame. their shares are widely held by a “The period of time between com- combination of institutionaland retail mencement [of aproject] and realisa- investors. tion can be quite anumber of years.” Ryman, Metlifecare and Summer- Todd has had experience of that. set are NZX listed businesses, and The 160ha Long Bay project, where have Auckland central in their it is building thousands of new resi- growth plans, although Ryman has dences as well as anew town centre, spread to Melbourne where it says it has been running for years. will soon be buildingmore residences “Part of that was getting the plan- than throughout all of New Zealand. ning in process but more time- The village operators argue that consuming was creating the infra- existing housing stock is freed up for structure before it could begin selling purchase when older people buy a land, mainly to group builders, for the licence to occupy in avillage. residences. Reesby &Company describes itself To date, more than 300 residences Todd Property’s Evan Davies at the Long Bay development. Picture /Brett Phibbs as “the largest commercial property are up there —amixturemainly of finance brokers in New Zealand. The terrace-style and stand-alone larger into focus because you need more landscaping the parks and streets. figure was around 15,000. The issue majority of our transactions are in the houses on Auckland’s northern out- and it takes longer to build apart- Fletcher and Todd worked is that the level is still not high $1 million to $20 million range, how- skirts. ments than single homes —itsimply together, and are almost finished, at enough. Residential construction is a ever the company has also financed “Estimated project completion requires more capital,” Davies said. Stonefields in Mt Wellington. big employer, but anumber of anumber of New Zealand’s largest date: 2022,” Todd says, on its website, Todd and NZX-listed Fletcher General Finance, based at Ellerslie, developers are saying it is getting property projects. of Long Bay. Yet plans were first Building are New Zealand’s largest loans up to 70 per cent to buy harder to find skilled tradespeople. “... We also have our own private launched for housing there way back businesses funding and developing standard residentialsections. “One of the most effective ways to lending vehicle for property finance in 2001 by former landowner Greg Auckland’s mammoth new housing “In smaller centres or out in stabilise house prices is simply to that does not meet bank criteria.” Olliver and his Landco. estates, responding to the critical country areas we will reduce our loan build more. This is more effective The Auckland-headquartered That is a24-year timeframe shortage of housing. to value ratio accordingly. We do not than enacting anumber of new laws business, headed by Martin Reesby, between the initial conception and But these businesses are not just lend on commercial subdivisions. If such as land taxes, that do not make offers merchant banking,commercial completion. The project has changed financing the creation of the projects. aborrower wishes to purchase a much sense,” General Finance says. and retail finance, and development along the way, including Todd agree- They are building them as well, taking piece of land to cut up into acouple Williams Cairns of General Finance and investment finance, and is be- ing to develop only 60ha of its 160ha all the steps in the process: buying of sections, we are happy to consider said his business funded small-scale hind some of New Zealand’s largest site above the preciouscoastal Long bare greenfields and brownfields this,” they said in afortnightly com- housing developments. “Once you get projects. Bay Regional Park. sites, and developing amaster plan mentary. outside the banks, there’s very few Many of these are towering new Davies says the rise of more multi- for what will sometimes be entirely General Finance has noticed abig second-tier lenders in the market and apartment blocks and include the unit housing schemes, more terraced- new town centres within the sur- increase in house building. that’s because alot of the financial $100 million Queens Residences style housing and more apartment rounding housing estates. They must “Nationally, the number of building regulations have resulted in big com- apartments on Queen S, $200m blocks brings more expense and then secure planning consent to al- consents being issued for new pliance and banks have the ability to Lighter Quay development in the more complexity to large-scale hous- low for housing, create the legal titles dwellings was 28,000 to the end of comply with all the rules. Some of the Viaduct Basin, $60m Chaffers Dock ing projects. for each residence, register those the March year. The last time this smaller people are saying this is too Apartment building in Wellington, “As we focus more and more on titles, build the infrastructure needed figure was matched was in 2004, hard and they’re just got out of it. Vincent Apartments in Auckland intensity in residential development, such as roads, bridges, footpaths and before the global financial crisis. “The regulation in the marketplace CBD, and Hopetoun and Urba that brings capital availability more street lighting. Then there’s “Only four years ago, the national has pushed the indigenousKiwi Apartments in Freemans Bay. Reboundcreates more interest frombanks

About 80 per cent of residential With the recent rebound “It would be difficult for the offshore confidence will return, but some of the subdivisions get some or all of their banks to have significant involvement banks may now be abit more con- funding from one of the four main in prices Ithink it’s likely outside ajoint venture because scale cerned about the longer term projects,” banks, one sector chief says. that confidence will projects require an experienced team, he says. Ashley Church, Property Institute on the ground, to attend site meetings, Geographic concentration is also chief executive, said the remaining 20 return, but some of the cost meetings, and progress updates considered arisk. One of the major per cent comes from avariety of banks may now be abit throughout the build process, and that banks pulled out of asignificant Flat second-tier lenders. “These are busi- can’t be achieved remotely, Church Bush land purchase by one of its nesses such as NZ Mortgage &Security more concerned about says. customers due to having five to six (James Kellow, backed by Mansons New greenfields subdivisions have other projects under way in the area. TCLM), Newgate Capital (Jared Lynch, the longer term projects. slowed down abit over the past 12 Funding of apartment develop- backed by Tournament) and Reesby Ashley Church months, mostly as aresponse to the ments has also slowed, generally, on (Martin Reesby). loan to value ratio restrictions. the back of weak sales data earlier this “Usually one of these will be the aproject-by-project basis but may, “Occasionally there are offshore Church says this is compounded by year —“and this may not recover main funder —but sometimes they will instead, have alarge debt facility to funders involved with projects. For some of the conditions (builders quickly due to the extent to which the provide mezzanine finance, some- develop with, he says. That means example, I’m aware that one of the terms) accompanying subdivision pro- activities of the big four banks are times equity funding, or some times they don’t need formal bank approval major banks and an offshore bank are jects (for example, where settlement influenced by their Australian parent they act as abroker/arranger for one to buy, build or sell. “Large iwi are also involved with the Sugartree apart- is aligned with completion/on sale of companies, which are about to go of the main banks,” Church says. land developers but debt levels — ment development (in central Auck- afinished house), which add to the risk through some pain with an oversup- Some of the larger land subdivision whether they fund the project or gear land), and the Rose Garden apartments profile and make the banks less keen ply of apartment projects completing developers, such as Fulton Hogan, up on investment assets —are harder in Albany also have one of the Chinese to be involved. “With the recent re- in Sydney, Melbourne,” Church says. Todds and Fletchers, may not fund on to gauge,” Church says. banks involved. bound in prices Ithink it’s likely that —Anne Gibson D19 Capital Markets Helpingtobuildthe industry

James Kellow, director of NZ Mortgages &Securities, runsand half-owns oneofthiscountry’s largest residential development funding businesses. He talkstoNew Zealand Herald property editor Anne Gibson

How hard is it for developers to create aproject in areasonable asecond mortgage called mezzanine Name some of the big projects you build big housing projects? location, of good design that will be finance, often up to 100 per cent of are funding now? Planning, creating and delivering a desirable to purchasers and tenants the projects cost. On our first mort- Ilike to talk about projects that are large-scale housing project is all- and with asound profit margin (to gage deals we are often able to well advanced and you can actually consuming for the developer/project cover unforeseen cost increases and provide property development see them rather than being in the principal and often the project risk), then the funding part is easy. finance with no presale require- planning stages. NZMS funded financier. Ihave never been involved in agood ments. When an experienced projects completing this year are: It is difficult, but probably not project with sound level of presales developer is able to lock in asufficient ● Urba Apartments —143 apartments different to any other business and margin that has not been able to percentage of the project sub trade, at 5Howe St, Freemans Bay. transaction of $100 million or more. find the funding. we are able to fund without afixed- Completed value is $70 million. There is alot of money involved and The biggest impediment to funding is price head contractor. Purchasers start moving into their with housing you have the added that the project is simply not good NZMS can approve afinance facility new homes this month (May). responsibility that you are creating enough. Buyers are very smart, and within hours if all of our directors are ● Queens Residences —281 people’s homes, or for investors, their simply won’t pay up for substandard available. apartments and retail just behind retirement income. development product. It is this speed, that adds to aproject’s Queen St between Wakefield and So you think alot about the built momentum, that many borrowers Airedale Streets. Completed value is environment and try to get that right. How much would you loan to this prefer. They may pay abit higher total $130 million. Purchasers start moving The key message is that with any $50 sector annually? interest but get the development around June. million-$100 million project it will be Many developments take longer than started (and finished) sometimes ● Belmont Residential Estate, hard and you need more than agood 12 months so this is ahard question months earlier. Pukekohe. Approximately 350 finance partner. You also need to to answer accurately. In anormal residential sections within anew employ specialist planners, quantity year we would like to lend well over What interest rates and terms do Special Housing Area (SHA) with 10 surveyors, engineers, architects and $100 million split between first and James Kellow you loan on? per cent of the lots covenanted as project managers. People with second mortgages. Interest rates for first mortgages affordable housing. The first 70 experience who are not scared of A$20 million second mortgage backing winners, projects with good normally range from 7per cent to 11 sections are complete now with working to alarger scale. Once you normally has $80 million of bank debt momentum —sowedon’t do every per cent depending on loan size, term house building to start next month have successfully completed a as first charge holder, so $50 million deal, just the ones we know will work and level of risk. and we are anticipating to have atotal number of large projects it becomes of second mortgage mezzanine is out well. On adevelopment loan the funds are of 300 sections finished by Christmas. alittle more cookie-cutter —but there roughly $250 million of total project drawn monthly as the building Total gross realisation of sections are always little surprises to watch funding. Why do they come to you when progresses, so the facility is only fully funded by NZMS will be $105 million. out for. This year we have projects banks fund alot? drawn for the last few months of the Many of the larger deals are for New Zealand Mortgages &Securities completing with gross realisation of We work in with abank. Abank will project before the presales settle. So borrowers that NZMS or the (NZMS) have never backed an well over $300 million but it will be typically fund between 70 and 80 per higher interest rates are not necessa- company’s principals have known for unsuccessful project. We like to think alarger than normal year. NZMS has cent of aproject’s cost. On a$100 rily alarge part of aproject’s costs. many years. this is the result of experience and no real funding constraints. When million development there is more On our second mortgage mezzanine We are always happy to help with expertise —not luck. there are sound property deals to than $20 million of hard equity funding the rates or fees are higher, small transactions from $3 million as invest in, we will take as much as is required. but with 80 per cent of the loan we have learned that with our What are the impediments in available. When the opportunities Most Auckland developers do not provided by bank funding at (say) 6 support and expertise, borrowers can terms of funding? slow down, the funds are invested in have this much cash readily available per cent the average interest cost is grow to undertake larger projects in Ialways think that if adeveloper can other areas. We have apreference for so we can provide this equity with similar to our first mortgage loans. the future.

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ew hotels worth hundreds 2016, we had 3.216 million. of millions of dollars are NewZealand is filling up fast, as annual “This is an increase of more than desperately needed 700,000 new visitors in the past three N throughout New Zealand to tourismgrowth hasrisen from3-4 per cent years,” Humphries says. “I believe it solve our critical accommodation caught everyone in the industry by shortage. to 10 percent, reports AnneGibson surprise.” Dean Humphries, Colliers Interna- “There is no silver bullet. However, tional’s national director of New Zea- Project Palace is akey initiative by land and South Pacific hotels, said anumber of Government depart- international and local investors ments to assist with the critical short- would build that new stock. fall in hotel rooms. “In the past 18 months the invest- “We also need awide range of ment split has been close to 50/50,” other initiatives from the public and he says. private sectors,” he says. Just how many new hotels are Humphries’ latest report on the needed will be revealed in the New sector found the surge in visitors has Zealand Trade and Enterprise initiat- translated into record occupancy ive, codenamed Project Palace. levels with the majority of key NZTE is trying to sell hotel projects markets operating at or near full to investors in Asia, the Middle East, capacity during the peak summer pockets of the United States and period. Europe, “Record occupancy levels have Humphries says Auckland and created highly favourable conditions Queenstown have critical supply for hoteliers to aggressively drive shortages. room rates, which has resulted in “Based on forecast unconstrained double digit or close to double digit tourism demand, we will need alarge average daily rate growth in the number of new hotels in most of our majority of our centres led by main centres, most particularly Auck- Queenstown,up19.5 per cent in the land and Queenstown. March 2016 year, Auckland up 9.6 per “Government forecasts suggest in- cent and Rotorua up 13.1 per cent,” his creasing tourist numbers will con- report showed. tinue as New Zealand is growing fast “Buoyant trading conditions have in popularity due to its safe environ- contributed to increasedproperty ment, attractive exchange rate and values with strong level of invest- many attractions. Construction is soon to start on the $200 million Park Hyatt on Auckland’s waterfront. ment activities recorded in 2015 —11 In 2017 alone, we have the World sales totalling over $300 million. Masters Games, Lions (rugby) tour Further excitement was generated upswing has taken operatorsbysur- Zealand is filling up fast. In the past “In the March 2016 year, five hotels and Rugby League World Cup. last month when it was announced prise. 12 months we have seen an additional had been sold for $114 million. “This means we are now on the 10,000 Chinese Amway agents “We have gone from annual 320,000 international visitors come “Despite positive trading global radar as one of the most at- would come in groups of about 500 growth of 3to4per cent to in excess to New Zealand. This is nearly the size conditions, new supply anticipated to tractive places for hotel investment to Queenstown in the shoulder of 10 per cent. Conversely, over the of the city of Christchurch. In 2012, come online in main centres in the in the Asia-Pacific region,” says seasons of around 2017/18. same period we have had virtually we had 2.5 million international tour- short term remains low,” Humphries Humphries. Humphries says the big tourism no new hotel rooms built, so New ists and in the year ending March says.

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