New NZX capital overwhelms AX hype

Peter V O'Brien

Friday 14th November 2003

NZX's new AX market starts trading today with 11 companies beginning the operation. Others are expected to list before the end of the year.

NZX refers to an eventual "first XV" in an apparent attempt to cash in on the Rugby World Cup.

Companies listed on the new market pay lower listing fees and annual fees than those on the main board and get easier listing requirements, although the basic rules apply to both groups.

There could be a philosophic debate about the two-tier structure, but the deed has been done and investors will have a choice of main board and the AX market.

The New Capital Market (NCM) was supposed to be the stepping stone to the main board. It attracted only a handful of companies and the AX will replace it.

Most of the groups expected to constitute the AX market are included in the unregulated, unlisted stocks market, which has provided a market for investors to be involved in companies enjoying good growth in developing industries.

Wine companies, those associated with other non-traditional land uses and food processing, technology and general entrepreneurial activities dominate the unlisted stocks market.

Their transfer to the AX market would broaden the range of industrial and commercial activities available to investors while giving the latter most of the protection imposed under NZX listing rules.

The AX market is a NZX initiative to increase the sharemarket's size, number of stocks and market liquidity, the last being the total number of securities available for trading.

Publicity, even houpla, accompanying the new AX facility should not be allowed to overshadow the fact that main board companies provide most of the daily action, most the liquidity, most of the new capital and even most of the takeover activity.

The last has the negative impact of removing companies from the list and reducing overall market liquidity unless another listed group issues its shares to acquire the target.

Inflows of new capital from companies already listed, as opposed to those making their debut, should not be underestimated and lost in the hype of new listing.

For example, liquor producer 42 Below raised $15 million in its recent public offering, had 121 million shares listed this week and a market capitalisation of $44.77 million.

Those figures can be compared with rights issues and placements this year from listed companies.

Property investor Capital Properties had a 1:3 cash issue at 75c a new share. The company issued 58.6 million new shares and raised $43.95 million, close to last week's market capitalisation for 42 Below.

Capital Properties' shares were 90c on Monday and the market capitalisation was $211.5 million. Each of the new shares was obviously price at 90c, so the 58.6 million shares are worth $52.74 million, or 17.8% more than 42 Below's market capitalisation.

Other comparisons can be made between new listings and existing companies.

Health products group Blis Technologies said last week it would have a 1:2 cash issue at 10c each, raising $3.17 million, subject to shareholder approval. The amount of money announced was relatively small, but Blis will have another 31.69 million shares after the issue, increasing share liquidity 50%.

Urbus Properties was an interesting example of a new listing that later improved its share liquidity. The company listed in July. It had 90.61 million shares on issue this week, priced at 90c and capitalised at $81.55 million.

Urbus' figures included a placement of 18.4 million shares to institutions in September at 81.5c each, raising $15 million. The new shares are worth $16.56 million on Monday, or 20.3% of the capitalisation.

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