New admissions rules by the Australian Stock Exchange represent a new hurdle for the accelerating number of New Zealand companies listing across the Tasman.
In the past three years, the number of kiwi companies either sole or dual-listing on the ASX has more than doubled to 46 and another half dozen or so are said to be following suit this year. There are 36 Kiwi companies dual-listed on the ASX compared to only eight Australian-based ones on the NZX.
The rate of New Zealand companies listing in Australia has sped up since last September after the ASX amended its listing rules to allow those listed on the NZX main board to be recognised under a New Zealand foreign exempt listing category, meaning they don’t have to issue a prospectus.
But minimum admission requirements in the ASX’s new rules, which it’s now discussing with the Australian regulator, will make it harder for early-stage companies with limited revenue to list. The changes will capture kiwi companies listing under the foreign exempt category.
The proposed changes follow an Australian Securities Investment Commission review into defective disclosure in IPO prospectuses and poor due diligence, mainly among small to mid-sized issuers. There has been a trend towards early-stage tech listings on the ASX and almost half of those companies floated in the past two years had revenues under A$1 million.
The planned changes, due to come into effect on Sept. 1, increase the financial thresholds required by companies listing to at least A$500,000 of profit, net tangible assets of A$5 million or a market capitalisation of A$20 million. In addition, a minimum free float requirement of at least 20 percent of shares will be introduced and minimum share parcels for each security holder will rise to A$5,000.
Max Cunningham, the ASX general manager of listings and issuer services, said start-ups should avoid listing too early.
“There’s a lot of learning from boot-strapping the business and getting equity and loans from friends and family and venture capitalists.”
Kiwi companies likely to list on the ASX in the next six months – Powerhouse, HydroWorks, CropLogic, Pushpay, and NZ King Salmon – are expected to do so under the foreign exempt category, which covers 24 New Zealand companies on the Australian exchange. Jewellery retailer Michael Hill is also changing its primary listing to the ASX.
New Zealand companies “quite rightly want to access a broader pool of capital and a lower cost of capital”, Cunningham said.
A 2014 Orient Capital study the ASX commissioned claimed an Australian listing enabled NZ companies to access an investment pool of A$241 billion, five times the funds available to those solely NZX-listed. The market value of securities on the ASX is A$1.6 trillion compared to the NZX’s $122 billion. Many Australian managed funds are also constrained to only invest in Australian-listed entities.
It’s not just New Zealand companies seeking to sole list on the ASX, Cunningham said, with companies from Singapore, the US, and Israel also attracted to seek investors with an appetite for risk.
Originally, technology incubator Powerhouse had planned an NZX listing but decided instead to seek a sole Australian listing through a planned A$20 million IPO in August or September because of its bigger capital markets, said chief executive Stephen Hampson. It has managed to raise only a third of the $15 million it sought in New Zealand in pre-listing capital. It also wants to raise its profile in Australia where it’s about to seal its first deal to commercialise research from an Australian university or research institute.
According to a Forsyth Barr report in March, Australian dual listings are now 78 percent of companies on the S&P/NZX 50, up 28 percent since 2012. Australian investors are also contributing to the near record level of foreign portfolio ownership of the New Zealand equity market, which hit 46.3 percent at the end of last year.
Hartley Atkinson, founder of Auckland-based drug-maker AFT Pharmaceuticals, said it dual-listed last year because it does more business in Australia than in New Zealand though the bulk of its shareholders are based in this country.
“The Australian institutions that have invested are still important. They make a difference,” he said.
Cunningham wouldn’t respond to recent comments from NZX chief executive Tim Bennett who compared local companies listing across the Tasman to “welcoming Australians into an All Blacks training camp and allowing them to take our best players”.
“We have a high regard for the NZX and wouldn’t have a New Zealand foreign exempt category if we didn’t,” Cunningham said.
Bennett said the local market “wasn’t broken” and that listings of Kiwi companies fell into two categories – mid-sized to larger companies dual-listing to access a much bigger capital pool and smaller, early-stage companies sole listing who had “effectively exhausted the sources of capital from New Zealand investors”.
Companies dual-listing is not “a threat by any means” because most of the share trading and price-making of their stock is still done on the NZX, he said. Year-to-date, NZX had traded 70 percent of the value of the top 10 dual-listed stocks and this figure has not changed significantly over the past few years, he said.
However, he admitted more work needs to be done by the entire eco-system – brokers, fund managers, bankers, and investors – to get the capital needed for early stage companies in New Zealand that are turning to Australia.
The NXT market, set up specifically last year with less onerous rules for high growth companies, has only attracted four listings to date although Bennett said he had been saying until “I’m blue in the face” that he was happy with its development.
“We have to measure the success of that in three to five years by the capital raised and type of companies it has attracted,” he said.
