New Zealand: Strong mandate for change from NZX listing rule consultation

NZX has a strong mandate for change in the response to its listing rule review, with approximately 70 submissions received.

The submissions released by NZX this morning in response to the initial consultation phase show a high level of market interest in reform.

There will be a further opportunity for feedback when NZX releases an exposure draft of the proposed new rules, expected in April 2018. The changes will then be submitted to the Financial Markets Authority for approval.

Broad cross section of responses

Two response options were available – either a submission or participation in an NZX survey.

There were also a number of confidential submissions received by NZX.

Chapman Tripp prepared our submissions following discussion with the leading investment banks active in the New Zealand market as well as a range of listed issuers. We encourage interested parties to continue to engage actively in the process. This could include commenting on the exposure draft and/or attending any further workshops or forums run by NZX.

There would be value in hearing from smaller issuers as it is important that the rules work for them too and most of the feedback to date has been from the bigger end of the market.

Key submission themes

The objectives NZX is seeking to achieve were, in the large, well supported.

Proposal	Submissions at a glance
NZX should move to a single equity market
There should be two categories of issuer (Premium and Standard)
At least two independent directors should be required - but with majority independence recommended under the NZX Corporate Governance Code
The maximum placement capacity should be reduced to 15% from 20%
The threshold for shareholder approval for major transactions should be reduced to 25% from 50% of average market capitalisation

Market structure

There was a strong consensus amongst respondents that NZX should move to a single equity market, consolidating the current three boards. But the response was much more mixed to NZX's proposal to follow the LSE and adopt "Premium" and "Standard" categories for issuers.

The majority preference is for a single category of issuer.

As we highlighted in our submission, and as noted by a number of other respondents, the best way to deliver the desired flexibility and reduced compliance costs for smaller issuers is by providing appropriate flexibility in the rules themselves, rather than creating two categories of listings. This could be supplemented with additional recommendations and commentary in the NZX Corporate Governance Code, with which NZX issuers must "comply or explain".

Governance

Respondents generally supported retaining a minimum of two independent directors, but introducing a recommendation in the NZX Corporate Governance Code that the board should have a majority of independent directors.

Placement capacity and transaction thresholds

NZX had floated reducing the placement capacity to 15% from 20% and reducing the threshold for major transactions from 50% to 25% of average market capitalisation. Opinion was divided on both proposals, with issuers and advisors generally supporting the status quo while investors generally supported reducing the thresholds.
In line with a number of other submitters, Chapman Tripp considers that market capitalisation may not always be the most appropriate measure for major transactions and that enterprise value should be used instead.

Debt, funds and depositary receipts

It is pleasing to see strong support for NZX's proposed changes to the debt market. NZX also received support for introducing specific rules for listed funds and depositary receipts. This shows innovative thinking which will expand the choices available to investors.

We look forward to continuing to engage with NZX as it progresses this important project for New Zealand's capital markets.

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.