Float flops delay planned NZ IPOs
Global jitters show how tough the market is — but next year’s offerings expected to catch up strongly
Speculation has been mounting that there might be one more initial public offer to hit the New Zealand market this year. However, Latitude Financial’s failure to float in Australia this week shows it’s a tough market not just here but overseas too.
Stock Takes understands that some sizeable New Zealand IPOs that were set down for around now have been put off to next year because the businesses were not quite ready to float.
But those decisions were made before the Latitude deal flopped.
There could still be room for a small IPO, possibly another cannabis company or a small tech business, but time is running out with Christmas fast approaching.
Roger Wallis, a partner at Chapman Tripp, said Latitude’s situation and the WeWork IPO that didn’t get off the ground in the United States, shows it is tough in Australia and the US as well as here.
“It’s just where we are in the cycle,” he said.
Wallis said there were certainly businesses around that were IPOable, and “if they get pushed into next year that is not a bad thing”.
He expected the start of 2020 to be a busy time for capital raisings.
“You will see a strong start next year,” he predicted.
Two IPOs this year does not seem like many, but the amount of capital raised has been strong.
Wallis pointed to recent rights issues by Arvida and Goodman Property Group, which had been snapped up by investors.
Short-term punt
No wonder New Zealand Rugby has been so relaxed about taking a 5 per cent stake in Sky TV — it’s only a shortterm position.
Sky confirmed yesterday morning, ahead of its annual meeting, that NZR will only have to hold onto the shares for two years — until November 2021.
That will give it plenty of space to sell the shares before it has to renegotiate the five-yearly broadcasting rights again.
But the 5 per cent shareholding will also make it very obvious when NZR sells or even reduces its stake, as any change in the holding will trigger a substantial shareholder notice to the stock exchange.
Analysts are bound to be watching out for this as a future indicator of whether Sky TV will continue to hold the rugby rights.
Any sale could trigger a dip in Sky’s share price. One only has to look at the rise in Sky’s share price on Monday to see how vital the rugby rights are to its business model.
However, the two-year minimum may be seen as a boon for Spark and its Spark Sport streaming service.
One analyst said the rugby rights deal had effectively locked Spark out of rugby. Why would NZR give the rights to another broadcaster if they own shares in Sky TV?
But the ability to sell the shares in two years will allow NZR to remove that barrier and bring things back to a level playing field — should it wish to.
The deal, which will see a sporting code take a stake in a broadcaster for the first time in New Zealand, has been labelled entrepreneurial and innovative.
But the reality is that companies typically include shares in a deal when they don’t have enough cash to pay outright.
Sky TV hasn’t put a price tag on the rights offer, which sources suggest could be worth around $400 million. The share portion is a just a small part of that — valued around $19m before the deal was announced.
The bigger question may well be how will Sky TV afford to bid for the rights in another five years, when it could have even less in the kitty if it loses the rights to other sporting codes?
Sky shares closed at $1.07 yesterday.
Who’s in and who’s out
Fletcher Building shares have been under pressure in the past two weeks as investors try to manoeuvre to take advantage of pending changes to the MSCI New Zealand Index.
The index is currently made up of the top seven free-float stocks on the New Zealand share market but there are expectations it could be expanded to eight next month.
Irrespective of that happening, Fletcher Building is expected to fall out of the index and Mercury Energy is thought to be a shoo-in to get back in.
If it is expanded to eight, Contact Energy could be included, which would mean three out of the eight companies are power companies.
The MSCI indices matter because many managed funds track them and changes to the indices will also force them to buy and sell the shares in companies that are either in or out.
Since October 1, Fletcher Building shares have fallen from $5.16 to $4.84 as of yesterday’s closing price.
Meanwhile, Mercury Energy shares have had a very strong run in recent weeks, rising from $4.955 on September 25 to $5.58 on October 11, although in recent days they have dropped back a little to $5.46.
Devon Funds’ Mark Brown said a lot of pre-positioning was going on.
“There are hedge funds that are probably ahead of the game.”
Hedge funds can short certain stocks in anticipation that they will fall in price. The changes will go through on November 7.
If [potential IPOs] get pushed into next year that is not a bad thing Roger Wallis, Chapman Tripp