WAV/RULE: NZXR: NZX Regulation - MEL - Waiver Listing Rule 11.1.1 & 10.4.1

16 Jul 2010 8:53 am

NZXR 16/07/2010 WAV/RULE

REL: 0853 HRS NZX Regulation

WAV/RULE: NZXR: NZX Regulation - MEL - Waiver Listing Rule 11.1.1 & 10.4.1

18 January 2010 NZX Regulation Decision Meridian Energy Limited

Application for Waivers from NZDX Listing Rules 11.1.1 & 10.4.1

Background Meridian Energy Limited ("MEL") is a State Owned Enterprise ("SOE"), being 100% owned by Her Majesty the Queen in right of New Zealand.

MEL is proposing to offer two tranches of bonds in an aggregate principal amount of $150 million in (with the ability to accept oversubscriptions of $50 million in aggregate) ("Bonds"), each having a face value of $1.00 (the "Offer").

Application has been made to NZX for permission to list the Bonds on the NZDX market.

As an SOE, MEL is subject to the requirements of the State Owned Enterprises Act 1986 ("SOE Act"). The SOE Act requires, among other things, that MEL provide: its half-yearly report to its shareholding Ministers within 2 months of its financial half-year end, which must in turn be laid before the House of Representatives within a further 12 sitting days; its annual report to its shareholding Ministers within 3 months after its financial year end, which must, in turn, either be laid before the House of Representatives within a further 12 sitting days, or, if not laid before the House of Representatives within 5 weeks of the Minister receiving them, must be published together with a notice in the Gazette indicating that publication has occurred; The terms of the Bonds will be governed by the terms of a supplemental trust deed, and a trust deed, between MEL and the Trustees Executors Limited (together being the "Trust Deeds"). Clause 6.12 of the trust deed provides that: Partial Transfers: A Holder may transfer part only of its interest in a Security. However, no transfer of any part of its interest may be effected is such transfer would result in: (a) the transferor or transferee holding or continuing to hold Securities with an aggregate Principal Amount of less that the Minimum Principal Amount. It is proposed that the supplemental trust deed would specify that the Minimum Principal Amount to be held by the transferor and the transferee be $5,000, and that transfers must be made in minimum amounts of $1,000, and multiples thereof. Listing Rule ("Rule") 11.1.1 restricts an Issuer from imposing in its Constitution, or otherwise, subject to the provisions of any legislation, and to Rules 11.1.4 and 11.1.5, any restriction on the right of a holder of a Quoted Security to transfer that Security, or any restriction upon registration of a properly completed transfer of Quoted Securities.

Application 1- Transfer Restrictions

MEL has approached NZX Regulation ("NZXR") seeking a waiver from the requirement of Rule 11.1.1, to permit MEL to include provisions in its Trust Deeds so that it may restrict the transfer of Bonds of principal amounts of less than NZ$1,000, or a multiple thereof, and/or which result in the transferor holding Bonds with an aggregate principal amount of less than $5,000. In support of its application MEL submits that: Permitting holdings of less than $5,000 Bonds, and transfers of less than $1,000, would significantly increase MEL's compliance costs.

The Bonds are Debt Securities. Debt Securities are not generally subject to the same level of trading as Equity Securities. Both the Investment Statement and Prospectus in respect of the Bonds will contain appropriate information to inform potential investors as to the: the restrictions on transfer; and the terms of the Bonds. The Bonds will only be allotted in multiples of $1,000 and only to investors who subscribe for Bonds of at least $5,000 in principal value. NZX has granted a number of similar waivers. Rule 11.1.1 Rule 11.1.1 provides: Subject to the provisions of any legislation, and to Rules 11.1.4 and 11.1.5, no Issuer shall impose, in its Constitution or otherwise, any restriction on the right of a holder of a Quoted Security to transfer that Security, or any restriction upon registration of a properly completed transfer of Quoted Securities. Decision- Application 1

On the basis that the information provided to NZXR is full and accurate in all material respects, NZXR grants MEL a waiver from Rule 11.1.1 to allow for the inclusion of provisions in MEL's Trust Deeds which prohibit the transfer of Bonds that have an aggregate principal amount of less than $1,000, or a multiple thereof, or which would result in the transferor holding Bonds with an aggregate principal amount of less than $5,000, on the following conditions: The restrictions on transfer and their implications are clearly and prominently disclosed in all Offering Documents and the Prospectus relating to the Bonds; and MEL only allots Bonds in minimum amounts of $5,000 and multiples thereafter of $1,000.

Reasons- Application 1

In granting a waiver from Rule 11.1.1, NZXR has considered that: It will have the opportunity to review and approve the Offering Document and Prospectus to ensure that the level of disclosure to prospective holders is sufficient to ensure that they are aware of the terms of the Bonds and can therefore make informed investment decisions.

It would be burdensome on MEL to be required to allow Bondholders to hold parcels of Bonds holding an aggregate principal amount of less than NZ$5,000, as allowing investors to hold such smaller parcels would likely to significantly increase the compliance costs relating to the Bonds. Debt Securities are generally not subject to the same degree of trading activity as equity securities. There is precedent for this decision.

Application 2- Preliminary Announcements

MEL has approached NZXR seeking a waiver from the requirement of Rule 10.4.1, so as to enable MEL to make preliminary announcements at the same time as MEL's annual or half-yearly report (as the case may be) is laid before the House of Representatives in accordance with the SOE Act. In support of its application MEL submits that: SOEs are subject to comprehensive supervisory, accountability and disclosure obligations. Expectations of shareholding Ministers are outlined in the Owner's Expectations Manual ("OEM"). The OEM outlines expectations in a number of areas including board duties, reporting requirements, financial governance, and the way in which the board deals with strategic issues; SOEs must prepare a Statement of Corporate Intent ("SCI") each year. The SCI sets out an SOE's objectives, the nature and scope of its activities and certain financial and accounting-related information. SOE's must also provide Ministers with draft business/ strategic plans that contain considerably more information (often comMELcially sensitive) than is required to be included in an SCI and keep shareholding Ministers informed pursuant to a 'no suprises' policy; An SOE must also: Provide its half-yearly report to shareholding Ministers within 2 months of its half year end. That report must then also be laid before the House of Representatives within a further 12 sitting days; and Provide its annual report to its shareholding Ministers within 3 months after its year end, which must in turn either be laid before the House of Representatives within a further 12 sitting days, or if not laid before the House of Representatives within 5 weeks of the Minister receiving them, the Minister must, in addition to causing them to be published, publish a notice in the Gazette indicating that publication has occurred. NZX has recognised that SOE's are subject to reporting obligations that extend beyond those required of other companies. In particular Rule 10.5.2 (and Rule 10.5.4(f) as it relates to Rule 10.5.2) provides an extended timeframe within which SOE's must provide their annual and half-yearly reports to NZX. This means that SOEs are not required to provide their annual and half-yearly reports to NZX until they are provided to the responsible Minister and laid before the House of Representatives (or, in respect of an annual report, published in the Gazette-whichever is earlier). As an SOE, this extended time frame will apply to MEL; However, the Rules also require Issuers to make preliminary announcements in respect of both their full and half-yearly results, within 60 days of the period end. No exemptions or extended time frames apply to SOEs in respect of those announcement dates. As such, MEL may be required to make preliminary announcements to the market before providing its annual or half yearly report (as the case may be) to their shareholding Minister and/or before that report has been laid before the House; MEL wishes to avoid situations where MEL is required to: make preliminary announcements before MEL has provided its half-year or annual report (as the case may be) to its shareholding Ministers; and before that report has been laid before the House of Representatives. MEL is not seeking to be exempted from the disclosure requirements of the Rules. MEL understands the ongoing obligations to disclose 'Material Information' immediately to the market pursuant to Rule 10.1 and does not seek any waivers in respect of those obligations. Rather it is seeking extensions to the timeframe within which it must provide certain information to the market, so those timeframes match MEL's disclosure obligations under the SOE Act. In addition, MEL is issuing Debt Securities only, which, as NZX has recognised, are less price sensitive than Equity Securities. We note that similar exemptions to those being sought in this application were granted in respect of Securities issued by a subsidiary of an SOE, being New Zealand Post Group Finance Limited, earlier this year.

Rules 10.4.1

Rule 10.4.1 provides that: 10.4.1 Each Issuer shall make an announcement pursuant to Rule 10.4.2 through NZX for public release, in the manner prescribed by Rule 10.2 as soon as the Material Information is available, and in any event: (a) before the release of each annual report, and not later than 60 days after the end of the financial year to which that report relates; and (b) before the release of each half-yearly report and not later than 60 days after the end of the financial half-year to which that report relates.

Decision- Application 2 - Preliminary Announcements

On the basis that the information provided to NZXR is full and accurate in all material respects, NZXR grants MEL a waiver from Rule 10.4.1, on the following conditions: that MEL make an announcement pursuant to Rule 10.4.2, in the manner prescribed by Rule 10.2, at the earlier of: the time at which MEL's half-yearly or annual report (as the case may be) is laid before the House of Representatives; the time at which MEL's half-yearly or annual report (as the case may be) ceases to be confidential; and

in the case of MEL's annual report, the date on which notice of the publication of MEL's annual report is published in the Gazette in accordance with the SOE Act; or in the case of MEL's half-yearly report, within four months of MEL's financial half year end; that MEL make an announcement, in the manner prescribed by Rule 10.2, as soon as it is known, and in any event: within 2 months of MEL's financial half-year end, disclosing the date on which MEL's preliminary announcement is expected to be released to the market; within 3 months of MEL's financial year end, an announcement disclosing the date on which MEL's preliminary announcement is expected to be released to the market; that not later than 60 days after the end of MEL's financial year or financial half-year (as the case may be), the Directors of MEL provide to the market, in the manner prescribed by Rule 10.2, certification that all relevant financial information required to be disclosed to the market, pursuant to NZDX Listing Rule 10.1.1, has been provided.?

Reasons- Application 2 - Preliminary Announcements

In coming to its decision to grant MEL a waiver from Rule 10.4.1, NZXR considered the following matters: As the SOE Act sets out procedures under which the financial statements of MEL are laid before the House of Representatives, it is preferable that the provision of MEL's preliminary announcement coincide with the release of MEL's annual or half-yearly report (as the case may be) under the SOE Act. The timing of this release is not significantly different from the requirement of Rule 10.4.1.

It is the convention for SOEs that the annual and half-yearly information provided to Ministers in accordance with the SOE Act is treated on a confidential basis until such time as it is laid before the House of Representatives. Should confidentiality be breached before the Minister submits MEL's annual or half-yearly report to the House of Representatives, MEL will be required to immediately disclose MEL's preliminary results and MEL's annual or half yearly report to the market.

As the Bonds will constitute Debt Securities, their trading and price sensitivity to Material Information is less than that of Equity Securities.

MEL will be subject to the Continuous Disclosure regime enshrined in the Rules and, as such, will be required to disclose any Material Information to NZX via the market announcement platform. Additionally, the certification from the directors will ensure that MEL specifically considers its financial position prior to the date at which the preliminary announcement would have otherwise been required, and confirm that all relevant information has been disclosed to the market. NZXR will have the opportunity to review any Offering Documents in respect of the Offer and ensure that the terms of this waiver are clearly and sufficiently disclosed, ensuring Bondholders and potential Investors are sufficiently aware of MEL's differing reporting obligations.

Pursuant to section 36ZM of the Securities Markets Act 1988, the Securities Commission was approached to comment on MEL's application and NZXR's decision in respect of that application. The Securities Commission concurred with NZXR's decision in respect of this application. ENDS. End CA:00197336 For:NZXR Type:WAV/RULE Time:2010-07-16:08:53:49

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