Opinion: Mark's kingdom of Weldonia shrinking

By Simon Louisson of NZPA

Friday 10th June 2005

NZX chief executive Mark Weldon was hailed at the exchange's annual meeting by the Shareholders Association as King Mark of Weldonia, but his Monaco-sized kingdom is shrinking fast.

Existing companies are delisting from the stock exchange and with nearly half the year gone, there has not been a single new listing on the main board.

Weldon blames market volatility and an impending economic downturn for the drought.

The listing of Christchurch-based mortgage lender, Avon Investments on the Alternative Market (AX) is NZX's only new entrant this year. It is capitalised at just $1 million.

The main board drought will be broken when Allied Work Force lists on July 6 following an $11.4 million Initial Public Offering (IPO) announced yesterday.

"In Q1 (the first quarter), there were on a daily basis debates around hard (economic) landings, soft landings, rising interest rates, exchange rate volatility, what was going to happen to the market... my conversations with companies who were planning for listing and brokers was for them to delay listings or take a wait and see approach until things settle down," Weldon told NZPA this week.

He said decisions to delay listing were rational and showed flexibility.

NZX, whose share price has dropped 15% this year, said it expects a 24% fall in second quarter earnings partly because of the lack of listings. Its stock dropped 6% today.

The Australian exchange also blames volatile equity markets for a slowing in IPO activity. Still, some $A14.2 billion ($NZ15.5 billion) has been raised there in new floats in the year to May 31. Half as much again has been raised in secondary listings.

Almost as embarrassing for NZX, has been publicity of this week's success of Auckland-based Neuren Pharmaceuticals - it bypassed NZX to list on the ASX in February. On Monday, its shares shot up 25% on the development of its brain drug, lifting its market capitalisation of $41.5 million.

While New Zealand's new listing figures are pathetic in comparison (even allowing Australia's economy is six times the size), Weldon doesn't believe it is long-run trend.

"Obviously, we would like to see more - I won't kid you about that - but we are not concerned about a trend against markets."

He thinks it is just a timing issue.

"If the market stays where it is... you will start to see a little more activity in the second half of the year and through to 2006."

Weldon also blames the hive of merger and acquisitions (M&A) activity as taking up all the time of a limited number of investment bankers in New Zealand.

"There is not enough of them to work on both."

That excuse may seem a bit thin to some.

But not only is there is a dearth of new listings, there has been a run of companies delisting from NZX for various reasons - some of them very large companies.

Independent Newspapers is shortly to be absorbed into Sky TV, having sold its main assets - its New Zealand publishing assets - to Australian-listed John Fairfax Holdings.

While the listing last year of CanWest Mediaworks was a welcome addition to the media sector here, both our major newspaper groups are now owned by Australian listed companies.

The good news is Sky will be bigger and more liquid.

The probable delisting of Ports of Auckland following Auckland Regional Holdings' takeover offer for the 20% it doesn't already own, particularly hurts NZX.

It was seen as a nice example of how publicly-owned companies could be partially privatised while leaving public control.

Weldon said many investors are perplexed about why ARH wants to delist. They question what ARH can do with the company with full control that it can't do with 80%.

Partial privatisations enforce disclosure and transparency, allow benchmarking and bring in independent governance, he said.

Another body blow will be the delisting of Westpac New Zealand.

Although Westpac Corp will be listed here, local investors will no longer get the tax benefits from imputation credits.

Weldon suspects that delisting is due to politics and the Reserve Bank's decision to force Westpac to change from operating the bank as a branch here. The big boys have taken their toy.

"Westpac's delisting is a shame because it has provided very good fully-imputed dividends to New Zealand investors," he said.

Other names to have recently disappeared from NZX's board include Williams & Kettle (swallowed by Wrightson), Owens (taken over by Mainfreight), Vertex (taken over by private company Masthead) and Cue Energy (wanting to just be listed in Australia where mining companies are common and well understood).

Urbus looks set to go to ING, Toll NZ is holding on by the skin of its teeth until the Australian parent, Toll Holdings, can get from 88% to 90%, while NGC will shortly be swallowed once by Vector - the one bright sign for NZX.

The float of a quarter of Vector later this year will be the biggest since Contact Energy in 1999 with up to $600 million likely to be raised.

NZOG is due to decide later this month if it will spin off its Pike River coal assets.

The tap has been turned off in the 2000s from one major source of new listings - central government privatisations. Weldon points out that Government consumes 40% of GDP and therefore many of the country's top 200 companies are owned by regional or central Government. But even a change of Government holds out little prospect with National saying it won't sell off State-owned Enterprises.

NZX is quite pleased with progress of the AX market even though the number of listings is behind target. When launching the market 18 months ago, NZX aimed to have 30 companies listed by the end of last year. Instead, there are just 26 today.

Weldon said a good chunk of them have performed well and a number of companies would not otherwise have come to the market and had access to the capital provided. AX-listed Kiwifruit company Seeka last week announced plans to raise $15 million and step up to the main board in a development along the lines NZX envisioned.

"We're a little south of where we would like to be, but not too much south," Weldon said.

Overall, he is not pessimistic despite the poor listing numbers.

"We have seen a turn in sentiment towards markets in the last couple of years - even from the Government in the last budget.

"If you were chasing quarterly numbers you might be concerned but if you're in for the long haul, that's okay."

However, even though Weldon says there is a backlog of IPOs as backers wait for markets to settle, he says the outlook for new offerings is still only moderate.

"I would hazard that Q2 to Q3 it will be at about two thirds of 2004 levels."

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