‘Come home,’ top lawyer tells some NZ companies

by Sol Dolor24 Jul 2017
New Zealand companies that chose to list solely on the ASX should come home as the strategy is not just costing more money, but also presents other significant disadvantages, said Chapman Tripp partner Rachel Dunne in a note to clients.

The primary purpose of listing on the ASX is to have greater access to capital, primarily from institutional investors, said Dunne, a corporate and commercial partner in Auckland.

“A recent study showed that 42 of the top investors in Australia require a company to have an ASX listing before they were capable under their investment mandates to invest in that company,” she said.

However, the strategy may be hurting companies more because of a misconception.

“This has been a trend we’ve been seeing largely in relation to smaller cap New Zealand companies, and I think that the reason that they choose to list solely on the ASX is that they perceive that there will be less regulation involved. That’s not in fact the case,” she said.

New Zealand-incorporated companies that choose to list solely on the ASX have the burden of complying with both New Zealand company and securities law and with the ASX rules, she said.

“That means that any corporate action that such a company chooses to take requires advice typically from both the New Zealand and Australian advisers, which isn’t in fact cost effective,” Dunne said.

Companies are employing the strategy, when there is an even better alternative.

“Almost all of the New Zealand companies that have chosen to list solely on the ASX would have been able to qualify as a Foreign Exempt Listing on the ASX. That means they would have their primary listing on the NZX instead and then listed in Australia as a Foreign Exempt Listing,” she said. “That means they only have to comply with the New Zealand regulatory regime. There is no additional regulatory obligation, but they still gain access to that greater pool of capital in Australia.”

Dunne said that companies should bear in mind that when they list on the ASX, they’re a small fish in a big pond.

“New Zealand is obviously a smaller market, and being a smaller company listed on a smaller market means you’re more likely to get investor attention,” Dunne said. “If you were a company with $100m market cap and you listed on the NZX, you’d sit at around the 100 mark in terms of the list of companies. On the ASX, in comparison, you’d be sitting at over the 2,000 mark. Being a minnow in a large market like the ASX does present challenges for listed companies. And it’s telling that all of the New Zealand companies that chose to list solely on the ASX have had poor share price performance post-IPO.”

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