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NZX may lose more listed companies in 2017 as IPO pipeline remains tepid

Thursday 16th February 2017

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The NZX may lose more companies this year as takeovers eat into the ranks of listed firms faster than new businesses elect to go public, says law firm Chapman Tripp. 

The stock market operator's initial public offering pipeline is looking thin, following a weak 2016 when just three companies went public, the law firm said in a report on New Zealand equity capital markets. That will probably lead to a decline in the number of issuers on the main board as foreign companies, such as APN News & Media, quit their local secondary listing and as others face merger and acquisition activity, such as Hellaby Holdings. 

"We expect to see a similar number of IPOs this year, which is disappointing in relation both to the much stronger relative performance of the ASX in attracting new listings of 2015 and 2016 and to NZX's success in doing the same through 2013 and 2014," partner Rachel Dunne said in a statement. 

Chapman Tripp said the NXT and NZAX 'junior' boards have "failed to develop a strong pipeline of new issuers" and the appointment of a new chief executive paved the way for the stock market operator "to review whether the New Zealand market can support more than one equities board or whether some consolidation is needed" when crowdfunding platforms appeared to plug the gap for small companies.

The law firm advised Christchurch-based Powerhouse Ventures in its ASX listing last year, which the company chose over the NZX because of Australia's bigger capital market. 

The report comes just days after NZX reported annual profit more than halved in 2016, largely due one-off costs such as its long-running litigation against the vendors of the Clear Grain Exchange, and higher costs of ensuring it met the requirements of a new regulatory regime. 

The Wellington-based company's market operations delivered a 9.5 percent increase in earnings to $41.1 million on a 6 percent gain in revenue to $52.9 million as an increased appetite for debt listings offset a weak IPO pipeline, while trading volumes were bolstered by New Zealand's attractive dividend stocks luring overseas investors.

However, NZX was cautious about the outlook for markets this early into 2017, even as it was more upbeat on the earnings outlook having got through a period of one-off costs. 

Christchurch-based broker Grant Williamson, a director at Hamilton Hindin Greene, said he was glad to see NZX build itself a platform for earnings growth, but was disappointed with the number of new offers coming to market. 

"We'd really like to see some chunky, quality equity issues coming to market, but instead we're seeing some companies possibly leaving the board," he said. 

Chapman Tripp was more optimistic about New Zealand's public market as an attractive investment option and anticipated strong secondary capital raising activity will be maintained as the market continues to perform well and low interest rates stay relatively low. 

The law firm doesn't anticipate any let-up in the tide of regulatory change, and the Financial Markets Authority this week said it would look at off-market trades, which is relatively high in New Zealand. 

FMA chief executive Rob Everett told a media briefing this week the regulator's "starting point would be to question whether that's a healthy dynamic in the market, but we don't have a set conclusion."

Chapman Tripp also noted the growing appetite for property syndicates among investors last year and that NZX signalled it might consider revising the Listing Rules to "better accommodate managed investment products, which could lead to syndications being listed to provide investors with better liquidity."

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