WAV/RULE: NZXR: NZX Market Supervision Waiver Decision - HED - Rule 5.2.3

18 Aug 2010 5:28 pm

NZXR 18/08/2010 WAV/RULE

REL: 1728 HRS NZX Regulation

WAV/RULE: NZXR: NZX Market Supervision Waiver Decision - HED - Rule 5.2.3

18 August 2010

NZX Market Supervision Decision Horizon Energy Distribution Limited Application for Waiver from NZSX Listing Rule 5.2.3.

Background

1. Horizon Energy Distribution Limited ("HED") is a listed Issuer with ordinary shares ("Shares") quoted on the NZSX market.

2. On 14 September 2009, Marlborough Lines Limited ("MLL") made a partial takeover offer for 51% of HED's Shares. This offer lapsed unsuccessfully, and MLL did not acquire any Shares under the offer.

3. On 13 January 2010, the Eastern Bay Energy Trust ("Trust"), which at that time held 77.29% of HED's Shares, announced its intention to make a full takeover offer for 100% of HED's Shares. That offer was ultimately not made and no Shares were acquired by the Trust under that offer.

4. On 14 June 2010, MLL, a holder of approximately 3% of HED's Shares at that time, announced its intention to acquire 10.1% of HED's Shares through a stand in the market. As a result of that stand in the market, and subsequent acquisitions by MLL, MLL now holds 13.43% of HED's Shares.

5. Following these transactions, these two entities hold the following percentages of HED's Shares: (a) 77.29% held by the Trust; and (b) 13.43% held by MLL.

6. This has resulted in the percentage of Shares held by Members of the Public decreasing from approximately 23%, on 11 June 2010, to approximately 9.3% on 4 August 2010.

7. Rule 5.2.3 provides that an Issuer's Securities will generally not be considered for Quotation unless those Securities are held by at least 500 Members of the Public holding at least 25% of the number of Securities of that Class issued, and those requirements are maintained, or NZX is otherwise satisfied that the Issuer will maintain a spread of Security holders sufficient to ensure a sufficiently liquid market in the Class of Securities.

Application

8. HED has approached NZX Market Supervision ("NZXMS") seeking a waiver from the requirement contained in Rule 5.2.3, to allow the percentage of Shares held by Members of the Public to be less than 25%.

9. In support of its application, HED submits that:

(a) The number of shareholders who are Members of the Public exceeds the requirements of Rule 5.2.3 (2,003 shareholders compared to the 500 required);

(b) The aggregate market capitalisation of Shares held by Members of the Public is approximately $9.5 million, as at 4 August 2010. This is significantly less than the figure of $50 million stated in the NZX Guidance Note on Spread (1 May 2007) as being a suitable indicator of a sufficient liquid market. However, HED submits that the number of shareholders remaining in the market helps ensure that there is a readily available market in the Shares;

(c) The policy behind Rule 5.2.3 focuses on ensuring that there is a ready market in an Issuer's securities. In the last 12 months, there have been 165 on-market trades representing 327,091 Shares;

(d) If a waiver is not granted, HED will be unable to comply with Rule 5.2.3. This matter of compliance is largely outside of the control of HED and its board of directors;

(e) Although HED has not technically met the Rule 5.2.3 spread requirements in the past, given the more significant changes in the shareholding base in recent months, it is appropriate that the recognised "compliance in substance" position of the past be formalized;

(f) The Trust is a community owned shareholder, which has grown out of previous restructuring in the electricity industry. It is a unique shareholder in that it holds Shares on behalf of a large number of public beneficiaries, in accordance with the terms of its trust deed;

(g) NZXMS has previously granted a waiver from Rule 5.2.3.

Rule 5.2.3

10. Rule 5.2.3 provides:

A Class of Securities will generally not be considered for Quotation on the NZSX or NZDX unless those Securities are held by at least 500 Members of the Public holding at least 25% of the number of Securities of that Class issued, with each Member of the Public holding at least a Minimum Holding, and those requirements are maintained, or NZX is otherwise satisfied that the Issuer will maintain a spread of Security holders which is sufficient to ensure that there is a sufficiently liquid market in the Class of Securities.

Decision

11. On the basis that the information provided to NZXMS is full and accurate in all material respects, NZXMS grants HED a waiver from Rule 5.2.3.

Reasons

12. In granting a waiver from Rule 5.2.3, NZXMS has considered the following:

(a) Rule 5.2.3 provides that Securities shall not be considered for Quotation unless minimum spread requirements are met and maintained. In the absence of meeting these requirements, NZX will not consider the Quotation, or continued Quotation, of an Issuer's Securities. This Rule is intended to ensure that Quoted Securities are held by a sufficient spread of holders so as to increase the likelihood that there will be an active market for those Securities.

(b) In December 1999, the Trust increased its holding in HED, resulting in it holding 77.29% of HED's Shares. This holding has not changed significantly since that date. Accordingly, shareholders have been aware of this significant holding, and the resulting effect on the "active" market for HED's Shares, since 1999.

(c) In this instance, as a result of the Trust's existing significant holding, and MLL's stand in the market, HED's Shares are now held by 2,003 Members of the Public, with the remainder being held by these two entities, both of which have previously stated an intention to make takeover offers. In the absence of further information regarding the intention of each of these entities in respect of their holdings in HED, it would not be in shareholders' interests to cease Quotation of HED's Shares.

(d) Following these offers, HED is currently considering its options in respect of listing and continued compliance with the Rules. NZXMS does not wish to pre-empt any decisions made by HED, or preclude any options that it may wish to pursue.

(e) NZXMS will continue to monitor HED and its shareholding, and will continue to consider the suitability of this waiver in light of any changes in HED's shareholding in the future.

ENDS. End CA:00198504 For:NZXR Type:WAV/RULE Time:2010-08-18:17:28:54

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