The O'Brien Column: Stock Exchange washes up in even more of a backwater

Friday 16th June 2000

The New Zealand Stock Exchange is going further down the road to being the home location for relatively small companies and an effective branch listing for companies that are majority-owned overseas or have their head offices in other countries.

I have looked at the changing face of the Stock Exchange several times this year. Developments in the past month added more features to the face.

Australia's Westfield Trust has made an offer for the 53.6% of shopping centre operator St Lukes Group it does not already own (see discussion of listed property companies on p44) and a deal is under way for Australian group Golden Circle to acquire Brierley Investments' 49% holding in food processor Cedenco plus other shares to give Golden Circle 54%.

The Cedenco case is an interesting example of the internationalisation of New Zealand-listed companies. Cedenco moved its tomato processing business to Australia some years ago and entered an arrangement with the Australian arm of Cerebos Pacific.

Brierley Investments' head office shift to Singapore and incorporation in Bermuda made the investment group an overseas company, with the consequence that Cedenco would also be classified as an overseas organisation for the purposes of New Zealand rules.

The sale of BIL's holding and the other shares would make Cedenco a subsidiary of another overseas company.

Westfield Trust's offer for the rest of St Lukes Group is pitched at $1.70 a share, with shareholders having the option of being paid in cash or investing in Westfield Trust.

The deal is subject to High Court approval and the consent of St Lukes shareholders and noteholders.

St Lukes has assessed the offer as fair and fully valuing the company, and having the advantage of Westfield's ability to access the large funds required to finance St Lukes' redevelopment activities.

Opportunities to tap into finance sources are often strong motivations for New Zealand companies to shift overseas or take up acquisition proposals from overseas companies.

The list of movements and share deals this year was already impressive before the moves in St Lukes and Cedenco.

BIL completed its physical move and set up its main sharemarket listing in Singapore.

Asia Pacific Breweries made an offer for the 42% of liquor company DB Group it did not already own and finished up with 74.9% of the company.

DB was already a subsidiary of Asia Pacific but the acquisition of more shares reduced the number available for local private investors and institutions.

Lion Nathan said last month it intended to shift its head office and primary stock exchange listing to Australia, noting its New Zealand shareholding had declined from 85% in 1989 to 15% and Australian business was 70% of group assets.

A sizeable part of the decline in the New Zealand shareholding arose from Japan's Kirin Breweries' acquisition of 47%.

The BIL decision to sell its holding in fishing company Sealord did not have a direct effect on the Stock Exchange, because Sealord is not listed, but the exercise saw the government intervene to keep control of the asset in New Zealand hands.

That was a rare move and not followed up when CanWest Radio New Zealand raided RadioWorks and subsequently increased its holding to more than 50%.

Questions about a seemingly inconsistent government approach to ownership of fishing assets and those in the communications industry were discussed in this column on May 19.

There is no need to pursue that issue again but CanWest Radio's operation saw control of another listed New Zealand company pass into overseas hands.

The list of companies under direct or indirect overseas effective control gets bigger and bigger, including Air New Zealand, BIL, the CDL companies, Carter Holt Harvey, Cedenco, Contact Energy, DB Group, various bits of Fletcher Challenge, Independent News, Lion Nathan, Montana, New Zealand Refining, Natural Gas Corporation, Nobilo (soon), Radioworks, Sky TV, St Lukes, TransAlta and Tranz Rail.

There are also several Australian-based companies with sizeable share turnover on the New Zealand exchange, particularly the banks and demutualised insurance groups.

Our exchange is in increasing danger of becoming even more of an international investment backwater as a result of the steady transfer of ownership and domicile.

Those who run the exchange are exercising their minds about this situation, but little has been said publicly so far, apart from comments on the sharemarket's supposedly robust condition. Apparently some proposals are in the pipeline and due for release soon.

The rundown in New Zealand has happened while big international exchanges have been linking themselves across national boundaries.

There are problems in such links, because securities, taxation and accounting systems differ from country to country and exchanges looking at tie-ups have to co-ordinate internal listing and regulatory regimes.

The New Zealand exchange should be doing something soon because the initiative is moving away from it as companies relocate overseas and international groups continue to acquire substantial stakes in local businesses.

That initiative needs to be regrasped locally. New Zealand hardly ranks on the international scene and therefore has to do something for itself.

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