IPO disclosure shakeup predicted for 2016

by Miklos Bolza29 Feb 2016
The increased use of pre-registration advertising to help IPOs reach a wider range of investors is a trend which will continue this year, according to the latest analysis by Chapman Tripp.
The report, New Zealand Equity Capital Markets: Trends and Insights, stated that the Financial Markets Conduct Act (FMCA) of 2013 and a new push by the New Zealand Financial Markets Authority (FMA) has led to the wider distribution of IPO research reports in order to address any imbalances between different investor groups.
“The FMA has been concerned about information asymmetry between investors pre-IPO launch for some time,” Rachel Dunne, Partner in Chapman Tripp’s Commercial and Corporate Team, told NZ Lawyer. “Providing high quality, useful information to retail investors before registration of the PDS is now a possibility under the FMCA.”
This is possible because New Zealand, unlike the USA, has no ‘black out’ restrictions on research published prior to the launch of an IPO. Therefore, investors can be given more time to make informed decisions and seek independent financial advice about upcoming IPOs, Dunne said.
However, the report also noted that there is a resistance to change in how formal offer documents for equity IPOs are presented. In particular, a number have been longer by word count than several of the 2014 investor statements prepared under the now repealed Securities Act.
While an equity product disclosure statement should be no longer than 60 pages or 30,000 words, Chapman Tripp suggested issuers aim for documents which are much shorter than this. “The page/word length is a limit, not a target,” they wrote.
This resistance stems from the tendency for formal offer documents to be viewed as “lawyer-led risk control mechanisms” for directors, Dunne said.
“The liability settings under the FMCA have been significantly improved, so while it is still important for there to be a due diligence process, there should be a greater opportunity for directors and issuers to focus on telling their story in their own words in the formal offer document, without being so worried about personal liability if there happens to be an inadvertent oversight.”
With the repeal of the Securities Act, issuers and advisers need to be open to doing things differently from the disclosures of old, she added.