After a five-year growth period in the number of issuers on the NZX Main Board, the bourse will likely continue last year’s trend and see a contraction in 2017, a top New Zealand firm predicts.
The languid IPO pipeline this year – influenced by an uncertain local and global political environment and the mixed performance of recent IPOs – will likely be insufficient to offset delistings as a result of a healthy M&A market, said Chapman Tripp in its annual New Zealand Equity Capital Markets Trends and Insights report.
This is despite the country’s equity capital markets performing reasonably well in 2016. The NZX 50 absorbed headwinds from the Brexit vote and the election of Donald J. Trump to reach a record high in September and finish 8.8% up year-on-year.
In 2016, only three companies – Tegel, Investore Property, and New Zealand King Salmon – were added to the main board via IPO. NZME and Tilt Renewables joined the main board via compliance listings following their respective demergers from APN and Trustpower. Chapman Tripp said that 2015 also produced just three additions to the main board, indicating that around three IPOs a year may unfortunately be the market’s “new normal.”
“We expect to see a similar number of IPOs this year, which is disappointing in relation both to the much stronger relative performance of the ASX in attracting new listings of 2015 and 2016 and to NZX’s success in doing the same through 2013 and 2014,” said Rachel Dunne, Chapman Tripp partner.
The firm said that delistings resulting from takeovers – such as the case with Diligent Corporation, Nuplex Industries, and Wellington Merchants – drove the decline in the number of main board-listed firms last year. Insolvencies of firms like Pumpkin Patch and Wynyard Group also contributed.
The firm also said that New Zealand-based companies that might have listed on the NZX have instead headed to other markets in 2016 as a result of trade sales and the more conducive capital raising environment provided by larger and more sector specialist markets, such as the ASX, to smaller companies in more speculative sectors.
The alternative NZAX and NXT boards have “failed to develop a strong pipeline of new issuers,” the firm said. It added that the imminent appointment of a new NZX CEO will give the market operator the chance to assess whether the country’s market is large enough to support more than one equities board – especially since equity crowdfunding appears to be successfully aiding smaller issuers, which are the main target clients of the NZAX and NXT boards.
Earlier this week, NZX reported that net profit for the year ending December slumped 62% from $23.9m to $9.2m, or 3.4 cents a share, weighed down by one-off costs including expenditure from a protracted legal battle with former owners of the Clear Grain Exchange.
Nonetheless, Chapman Tripp predicts that secondary raises on the NZX will likely remain strong in 2017 as issuers bolster balance sheets and fund acquisitions. The relatively strong New Zealand economy, the quality of its capital markets regulatory framework, and interest rates which are likely to remain relatively low makes the NZX an attractive investment option, it said.
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