Institutional investors remain dubious about NZX plans to attract smaller company listings via a dual level disclosure regime under its proposed new listing rules.
Most of the five funds management groups submitting on the NZX draft rules rejected the plan allowing listed companies to comply with either ‘premium’ and ‘standard’ rules.
The NZX proposal, intended to offer a main board listing avenue for small companies in lieu of the bourse’s failing NXT platform, could damage the wider market reputation, according to submissions from the New Zealand Superannuation Fund (NZS), Devon Funds Management, Mint Asset Management, and Fisher Funds published last week.
For example, the Mint submission says any “growth and innovation” in NZ markets should not come at “the expense of the integrity of market practices or retrograde steps in corporate governance and investor protection mechanisms”.
“Our preference would be for a single set of rules and a single market,” Mint says in the submission. “The overall standard of the rules needs to set in an international best practice context but allow flexibility for smaller issuers to meet those standards. We do not want the rules to be set as the lowest common denominator.”
Likewise, the NZS, Devon, and Fisher question the value of a self-selecting two-tier approach for listed companies, preferring a single market albeit with mechanisms allowing smaller companies to gradually lift compliance standards.
Devon, for instance, says smaller firms could face “a grace period for some rules via NZX rule waivers or exemptions – however it would need to be clear to shareholders what waivers were in place”.
Regardless, the investor submissions argue that the mooted changes would likely do little to attract smaller NZ firms to market.
While remaining “agnostic about the standard/premium structure” the Accident Compensation Commission (ACC) fund submission suggests a “focus on reducing compliance costs may be a more direct way of addressing the concerns of small issuers”.
“We are concerned about the choice of the terms ‘standard’ & ‘premium’ for the 2 tiers of the market – in our view the standard should be the current rules and the lesser standard be termed secondary (or similar),” the ACC says.
Fisher Funds also opposes the NZX premium/standard proposal but lobbies for creating two categories of issuer – operating companies and listed investment companies – with differential rules.
“Differentiation on this basis would have the effect of compliance (and associated disclosures) being specific to a group of entities based on the nature of its activities so that an investor has appropriate information relevant to that type of entity, irrespective of size,” the Fisher submission says. “Such differentiation would also align well with the proposed modular approach to the NZX Listing Rules with special purpose rules.”
Last October, Hamish Macdonald, NZX general counsel and head of policy, said the proposed listing rules could attract more financial products – including managed funds – to list on the local bourse.
“It’s not as easy as it could be for funds to list on the NZX,” he said at the time. “We have looked at what bespoke set of rules other regimes use for listed funds.”
The country’s two largest investors – the ACC and NZS, collectively responsible for about $70 billion – also push the NZX to take the listing review further.
For instance, the NZS submission says the review should examine how new listing rules could “best reverse the current dominance of placements over pro-rata share issuance”.
Meanwhile, the ACC says the NZX appears to have set a tight deadline for the listing rule review that is “materially more complex than the [earlier] NZX [Corporate Governance] Code Review”.
“The [listing rule review] objectives place inadequate focus and importance on the relationship between investors and issuers (directors and managements),” the ACC submission says. “Well-formed rules will provide needed accountability and minimize the cost of capital benefitting all parties.”
Despite the niggles, all institutional investor submissions backed the proposed overhaul as a timely move by the NZX, which last reviewed listing rules about 15 years ago.
The NZX plans to release an exposure draft of the new listing rules by April with implementation slated for “Q4 2018”, according to a statement released last week.