New Zealand exchange tries to encourage more companies to list directly

THE NZX has changed its rules to lure existing companies to list directly on the exchange.

The amended rules, approved by the Financial Markets Authority last month, have removed the requirement for prospective financial information — profit forecasts — to be included in company listing profiles.

The new rules will also introduce a framework to help clear the way for more overseas ‘‘foreign exempt Issuer’’ applicants, through specifically designed templates.

The traditional route to the sharemarket has been through initial public offerings (IPOs), when companies raise capital.

Then there is the socalled ‘‘compliance’’ listing, otherwise known as a direct listing, when companies with an existing capital base and shareholders debut on the market without raising fresh capital.

Hamish Macdonald, the

NZX’s head of external relations, said the issue was identified in the Capital Markets 2029 report, released last year, to promote alternative pathways for companies to gain a listing.

Mr Macdonald said direct listings meant companies did not have to have an initial share distribution.

‘‘You don’t necessarily need a broker for the listing because you are not issuing or selling shares through the transactions.

‘‘What this means is that a broader range of advisers and parties can bring companies through for listing,’’ he said.

Pushpay, which listed in 2014, was an example of a corporate law firm carrying out the direct listing process for the company.

He said a direct listing meant listing prospects did not have to gain the investor support typically required by an IPO.

‘‘It makes the process less complex in some ways because you don’t have the capitalraising component and therefore do not have the costs associated with that,’’ he said.

‘‘And what that means is that the risk profile is different from that of an IPO, because you are not raising that capital.

‘‘The shareholders are already there and will receive additional shareholder protection as a result of the listing that follows.

‘‘Recognising that, they have a different risk profile than an IPO — and you are not obliged to provide a prospective financial information, or forecasts.’’

Preparing prospective information is costly, requiring professional advice and audits.

He said the $150,000 to $450,000 costs of preparing that information could outweigh the benefits of providing it.

The exchange’s moves had received favourable feedback from some interested parties, including the New Zealand Shareholders Association.

Last year’s Capital Markets Report said there were 1200 or so companies earning more than $30 million a year that could be suitable for a direct listing.

He said the Covid19 period was one where many companies capitalraised via the NZX.

CM Partners principal Tim Preston (CM specialises in bringing small to mediumsized companies to the market) said the move would make the NZX more attractive.

The new rules take effect from November 3. — The New Zealand Herald