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NZX [NZX: NZX] , New Zealand's stock market operator, plans a new market with less disclosure obligations to attract smaller companies, eventually replacing the New Zealand Alternative Market, the NZAX.
Wellington-based NZX launched the alternative index in November 2003 to target small to mid-size growth companies. It has 18 stocks with a market cap of $479.8 million and has declined 9.8 percent the past year, lagging an 18 percent gain in the benchmark NZX 50 Index over the same period.
"AX didn't work as well as we would have hoped it would do," Aaron Jenkins, head of markets at NZX, told BusinessDesk. "The short-term plan is to grow a successful new market but over time, assuming we do a good job of it, we'd expect to retire the AX."
Rules for the new market would be more lenient to reduce costs and attract companies with a market cap between $10 million to $100 million to list. Companies will be able to use key operating metrics to outline their business performance instead of more onerous prospective financial information requirements in their projections, and will be required to disclose information to investors periodically rather than continuously, according to draft rules released for consultation by NZX.
"The intent behind the two markets is similar in that they're targeting growth companies," Jenkins said. "The big difference with this market, which is intended to properly differentiate itself from the main board, is that it will reduce the obligations at IPO times and the requirement of prospective financial information, which we expect would be a significant cost reduction in terms of advisory fees."
Wool Equities, which is in the process of de-listing from the alternative market, cited the significant cost of maintaining a share register under the listing rules as one of the reasons for its departure. Once the new market is established NZX would expect NZAX listed companies to migrate to the new market.
The new market will have a different website with distinct branding from the NZX and a risk warning where investors "acknowledge difference between the new market and other NZX markets".
"The reality with the AX was that it never properly differentiated itself from the main board," Jenkins said. "Investors in this market will be aware that they're investing in a stock that is potentially going to be higher risk and therefore need a health check or a health warning to do that."
NZX's capital markets business accounts for half of the company's revenue. Last year it benefited from 10 new listings worth $7.5 billion as the government partially privatised energy companies and privately owned businesses such as Z Energy, SLI Systems and Synlait Milk also publicly listed. The boom is unlikely to be repeated in 2014 as the government has just one smaller asset, Genesis Energy, slated for listing this April and the remaining offerings are expected to be much smaller.
Shares in NZX recently traded at $1.26 and have gained 1.6 percent this year.
Submissions on the new market draft rules are due by April 4.