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Sharemarket with training wheels is a top idea

Friday 12th May 2000

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CASH BOX: 'Model unlikely to be popular'

The concept behind the New Capital Market (NCM) is that punters will put money into a company based solely on the reputation and nous of the promoters, trusting them to look for an as-yet-unidentified deal.

But in practice it may not work that way. "We believe this pure 'cash box' model is unlikely to be popular," DF Mainland's John Paine said.

It is more probable most NCM companies will be formed with a specific key transaction in mind and that deal disclosed in the initial public offering prospectus, giving investors a chance to decide beforehand if they like it or not.

"In fact we see the most common proposal is likely to be to restructure the promoters' existing business by acquiring new shareholders for a reverse take-over," Mr Paine said.

The NCM is designed for small to medium companies to raise capital which they can use to acquire low cost funding for business expansion or pay off some of their debt replacing it with equity and reducing interest costs.

The rules governing NCMs ensure the low cost of funds as NCMs cannot pay dividends until they are worth $10 million and migrate to the main board.

Brokers are confident the NCM process will protect investors because there are checks to make sure the promoters' interests are aligned to investors.

The promoters must put in a minimum of $200,000 of their own cash, there must be an independent valuation of the key transaction and the company must hold a shareholders' meeting to approve the key transaction and the promoters cannot vote at that meeting.

Also the Stock Exchange has the right to veto the key transaction and there are limits on when the promoters can sell their shares and how much of the funds can be spent on administration.

Broker DF Mainland said many of the companies which have approached it so far want to raise money to expand across the Tasman. As there is no NCM equivalent in Aust- ralia, companies there seeking to have a presence in New Zealand, could, subject to certain restrictions, raise capital in New Zealand in this manner. Once companies reach $10 million market capitalisation they could dual list on both the Australian and New Zealand stock exchanges.

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