Sharechat Logo

Backdoor listings to face Stock Exchange scrutiny

By Nicholas Bryant

Friday 5th May 2000

Text too small?
Edgar Eion
History of unhindered local backdoor listings
The Stock Exchange is looking at tightening its rules to suspend trading after backdoor listings, a move likely to put an end to the market hype that has helped build investor Eric Watson's fortune.

At its next meeting the NZSE board will investigate whether to adopt the Australian market rules to freeze trading when shell or backdoor listing vehicles take a change of direction - regulations that this week affected dual-listed Frontier Petroleum.

The move signals the NZSE is developing uniformity with its Australian counterpart.

Trading has been halted in Frontier Petroleum shares until July, which has confused local investors but pleased critics of the increasingly trendy backdoor listing strategy.

The suspension of trading was in response to last week's Watson-backed move to bundle 15 Australasian receivables companies together using Perth-based exploration minnow Frontier Petroleum as the vehicle.

But backdoor listings are done differently across the Tasman.

The Australian Stock Exchange demands a business model and projected earnings before companies can resume trading.

ASX spokesman Gervase Greene said the ruling, under ASX Listing Rules chapter 11, was enforced for investor safety.

"We don't like backdoor listings ... we think companies should be able to get their own shareholder spread without backing into someone else's company."

The chapter 11 rule gives existing shareholders the ability to size up a significant change of company direction and decide whether to support or ditch it.

The suspension usually lasts for about six weeks, similar to that of an initial public offering.

In this country it is commonplace for listed companies to plan a change of business direction, suspend sharetrading for only a day as they announce the move and then resume trading immediately.

That has led to calls for greater transparency, as some new companies have received investor support built on dotcom hype.

Mr Watson has used the backdoor listing strategy with his companies New Zealand Petroleum, which turned into Eldercare, and most recently with Frontier Petroleum.

The news of Frontier's suspension surprised local investors. "We've seen heaps of shells transformed of late, all of which traded throughout," one investor on website Sharechat said.

Stock Exchange chairman Eion Edgar acknowledged the recent environment had created an issue and promised it would be investigated.

He said examples such as New Zealand Salmon becoming Newcall, the proposed Force-Ihug deal and Paynter Timber's transformation had created a speculative environment.

"I can understand the rule, but our view has always been to try to allow the market to continue as long as it's fully informed.

"But it is an issue we're going to review at our next board meeting ... with more and more companies trading on both markets [here and Australia] we recognise the need for consistency," Mr Edgar said.

Frontier Petroleum chief executive John Tarrant said the company needed to hold a general meeting of shareholders, probably mid-June, to approve the transaction while complying with the ASX chapter 11 requirements.

Frontier, which by July will be Receivables Management Group, will have to re-enter the ASX on the most basic of levels.

SLAMMING DOORS:

  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comment:
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

NZ dollar steady ahead of Fed decision, NZ GDP
Vital proceeds with $37m first stage of Wakefield Hospital redevelopment
Risks from exploration ban coming to pass
Pushpay lifts annual earnings guidance; shares rise
Treasury mindful of gaps in living standards framework
Cannasouth slumps on debut as investors back blue-chips
Zespri signals profit growth, trims expected fruit and services payment
Wider annual current account deficit meets expectations
Wider annual current account deficit meets expectations
19th June 2019 Morning Report

IRG See IRG research reports