The Genesis Energy IPO, scheduled for April 17, is the last of the Government’s Mixed Ownership Model (MOM) offerings. However, Chapman Tripp senior associate and corporate and securities law specialist, Rachel Dunne, says this does not signal the start of a stagnant period in New Zealand capital markets.
While the MOM programme has been instrumental in jump-starting the sector, Dunne says the overall number of offerings isn’t likely to take a dramatic hit following the Genesis offering – they’re just going be very different in nature.
“The MOM programme offerings featured established businesses with excellent dividend yields, whereas I think we’re going to see a shift towards more mid-size businesses that actually require capital to grow,” says Dunne.
For lawyers, she says, the MOM programme is going to have a continued impact on the way the industry handles IPOs in New Zealand, at least until the FMCA comes into force on December 1.
“There have been a number of things that have been done differently through the MOM programme, which we expect will be rolled forward with future listings. There’s been a huge amount of activity in the market over the last 12-18 months – unprecedented levels. People have described it as the ‘renaissance’ of the New Zealand capital markets. But there’s also a huge amount of change coming in terms of our capital markets and lawyers are going to need to adapt to that.”
Dunne says Genesis served as an early adopter of what Chapman Tripp believes the new PDS [product disclosure statement] is going to look like once the new FMCA disclosure regime takes effect.
“We acted for The Treasury on the Genesis IPO and, together with the company, we were able to work collaboratively and very closely with the FMA to come up with an investment statement that looks and feels a lot like what we think the PDS under the FMCA will look like. That was achieved by obtaining quite wide-ranging exemptions from the content and layout of an investment statement under existing securities laws and we expect issuers going forward to apply for those same exemptions. We think it would be a real shame and a step backwards for disclosure if we were to go back to the standard investment statement model.”
She says the FMA has been “quite clear” that they want the PDS to be a retail investor-focused document.
“The Genesis document was prepared with that in mind and, in fact, we used the draft FMCA regulations, which set out the PDS suggested content, to come up with the Genesis document. We’re aware that other issuers are taking the same approach with their disclosure. So with the FMA’s help, the Genesis investment statement has effectively shifted the market towards PDS-style disclosure ahead of the 1 December law change.”
Another point of difference with the Genesis offer was the utilisation of a front-end bookbuild. While this is no new phenomenon (Summerset did this back in 2011), Dunne says none of the large IPOs have used the front-end structure.
“In the media, there was criticism about ‘mums and dads’ being subjected to the ‘dark arts’ of the book-build process…Who would buy something without knowing what the price was going to be? So Genesis went back, in a way, to the front-end bookbuild process to provide retail investors with more certainty and to allow brokers to participate in the price setting exercise. Again, we suspect it will be difficult for issuers to go back to the back-end bookbuild process where they are targeting strong retail participation.”
Finally, she says, the number of ASX dual-listings is on the rise, meaning New Zealand lawyers need to maintain a “working knowledge” of the ASX rules.
“All the MOM companies are listed both on the NZX and the ASX and the ASX have been actively marketing in New Zealand to get NZX issuers to list on the ASX. What that means is that New Zealand lawyers need to become increasingly conversant in the requirements of the ASX listing rules as well as the NZX. Your client is subject to two sets of listing rules, so while we’re not Australian lawyers, we do need to have a working knowledge of the ASX rules.”
Going forward, Dunne says there’s a solid pipeline of IPOs out there and business is looking positive. However, there is one factor which may dampen the outlook somewhat, at least in the short-term.
“We’re in an election year, so there’s likely to be a slow down towards the election; a no-fly zone where people don’t necessarily come to market while facing uncertainty as to what the election will bring. But there are plenty of potential issuers lining up to go public this year…We have clients who are seriously considering listing prior to the election.”