More Kiwi firms may be lured to ASX as costs fall

A two-year push by Australia's stock exchange to entice Kiwi companies to list across the ditch is paying off and the trend is likely to accelerate following a reduction in compliance costs.

ASX listing rule amendments allow Kiwi companies listed on the NZX main board to be recognised as foreign exempt entities, which means they save costs by not having to submit a prospectus.

The ASX campaign was spurred by the New Zealand government's partial sell-down of Mighty River Power in 2013, sparking a slew of initial public offers (IPOs) on the local stock exchange, at a time when the Australian market had not yet kicked off.

Since 2013 the number of Kiwi companies listed on the ASX through a primary or dual listing has increased to 41 from 19. Another five to 10 are in the pipeline in the next year, ASX general manager of listings and issuer services Max Cunningham says. 

Typically New Zealand companies list on the ASX to gain access to a deeper pool of capital, Mr Cunningham says. The market value of securities on the ASX is $A1.5 trillion compared to the NZX's $100.6 billion.

An Orient Capital study ASX commissioned last year claimed an Australian listing enabled New Zealand companies to access an investment pool of $A241 billion, five times the funds available to a solely NZX-listed company.

Of the $A377 billion funds under management in Australia, only $A66 billion is currently available for investment in non-ASX listed New Zealand securities because many of the fund managers are constrained by investment mandates and trust deeds limiting them to investments in Australian-listed entities.

The mandates are "uncompetitive", says NZX chief executive Tim Bennett, who's faced with only a couple of Australian companies dual listing in New Zealand.

Mr Bennett says plenty of money is already available in New Zealand to invest in local companies. "KiwiSaver accounts are projected by the Treasury to grow to up to $70 billion by 2020 and that money can be invested in these companies."

A second reason for an ASX listing is the potential for greater profile raising, Chapman Tripp commercial partner Roger Wallis says.

New Zealand-based medical devices company Adherium recently raised $A35 million in an IPO on the ASX which it chose because of Australia's life sciences and healthcare index, good analyst coverage, and a larger pool of investors with sector expertise.

Other Kiwi companies in the med-tech sector that are considering a public listing in the next couple of years say Australia attracts them for the same reasons, including AFT Pharmaceuticals which recently confirmed plans for an IPO and dual listing.

Contact Energy was the first to dual list under the new rules. Its board said the move was in shareholders' best interests to attract a wider pool of investors given the heavy concentration of energy companies now listed on the NZX.

With the foreign exempt change, the main disadvantage to an ASX listing is the additional listing fee. Both exchanges charge according to company size but a comparison shows the NZX is cheaper.

For a $A200 million company the ASX charges an initial listing fee of $A175,000 and then an annual $A45,000 fee while the NZX would charge $156,600 ($A143,700) and $45,000 ($A41,300) in annual fees.

Minter Ellison Rudd Watts corporate partner Silvana Schenone says there's also a technical glitch that could stop some Kiwi companies seeking foreign exempt listing because it will require, as in Contact's case, Australian Securities and Investment Commission permission to also raise capital in a low-cost way.

NZX research on the perceived benefits of dual listings found there were limited circumstances where they were of value for an NZX-listed business.

Issuers to have successfully done so are those with substantial activities in Australia and a strong focus on investor relations in that market.

For example, NZX-listed Ryman Healthcare is mulling a compliance listing on the ASX once it gathers more momentum in Australia, where it has five retirement villages planned to open by 2020.

NZX's Mr Bennett says businesses undertaking a primary offer may also find dual listing enhances competitive tension through a book build and price-setting process, though smaller and mid-sized New Zealand-based issuers generally get lower Australian broker support and research coverage.

It may also benefit larger businesses in the NZX top 10 in terms of market capitalisation but in most cases, most trading activity remains on the New Zealand exchange, he says.

The research showed no material difference in sector valuations between the markets, suggesting NZX-listed business will achieve better valuations and investor outcomes by focusing on raising profile with domestic and offshore fund managers, and NZX participants, rather than incurring the cost of a secondary dual-listing in Australia, Mr Bennett says.

The Warehouse delisted from the ASX in 2012 citing the sale of its Australian operations in 2005, additional costs, and the low level of liquidity in trading of its shares, with less than 2% of its share capital held on the Australian register. The company said the move had little impact on the business. Australian shareholders had reduced to 808 last year, from 982 in 2011.

ASX's Mr Cunningham agreed an ASX-listing was "no panacea for liquidity" and that Kiwi companies generally had higher liquidity in their primary market. But he says many Australian fund managers preferred to trade shares in ASX-listed foreign companies in their home markets because they tended to get better prices than on the ASX.

Tim Preston, a partner in CM Partners, one of the market advisers for NZX's new NXT market, says dual listing is not what it is cracked up to be.

"It's not nirvana. It's worked for some and been an absolute flop for others. It might not represent good value."

(BusinessDesk)