ASX's foreign exempt-status stance all part of profit search

Friday 12th October 2001

News that the Australian Stock Exchange (ASX) is contemplating tightening its rules for foreign, including New Zealand, listings came as another blow to the local equities market.

The Australians want to enforce stricter limits on capitalisation size and profitability levels for foreign exempt-status companies. The ASX's plans would give non-qualifying foreign companies the option of full listing or delisting.

Some such as Telecom and The Warehouse would encounter higher listing costs, although dual-listed Otter Gold Mines claims the issue is no big deal.

It appears the ASX wants to have a clean-out of its foreign exempt-status listings in order to improve their quality. Although in New Zealand the issue has been addressed from the local point of view, ours will not be the only country with companies listed on the Australian bourse.

The ASX is not averse in principle to foreign companies being listed on its exchange. An issue of INSTO, the Australian funds management industry magazine, carried an article a while back on the ASX's expansion strategy.

The ASX is seeking to increase its share of foreign listings to boost its revenues as a publicly traded company. Cleaning up the foreign exempt-status board and requiring full listing from non-qualifying companies is likely to be part of the search for higher profits from a larger market. After all, the ASX has shareholders to feed.

Another part of the plan to build a bigger Australian sharemarket was merger with the NZSE but that proposal fell over.

There may now be some regret in local quarters that the merger did not proceed. The local broker market is undergoing consolidation and restructuring, with some broking houses retreating to Australia.

These changes parallel a trend for New Zealand companies to shift to Australia to operate within a bigger market. The New Zealand government will lose tax revenue as this occurs, and local investors will find that they are increasingly unable to access benefit from imputation credits as Kiwi firms shift to primary listing on the ASX. The NZSE risks becoming a ghetto exchange of fairly small and non-qualifying companies.

The government has indicated it will intervene in the matter, citing CER as a reason for New Zealand companies to get special treatment. Such treatment would occur relative to the way in which foreign companies from other countries would find themselves told to shape up or ship out. Arguably those countries could have an issue with the ASX if New Zealand firms were seen to have an unfair advantage in raising capital in Australia.

While Commerce Minister Paul Swain, who is going in to bat for the NZSE with the Australian Financial Services and Regulation Minister Paul Hockey, has hinted at involving the WTO if he cannot get his way, other countries could play the same game too. And New Zealand has comparatively few companies and therefore relatively little extra capital to offer the ASX in order to build political leverage.

It is ironic that the government has invoked CER when it has appeared to go out of its way to antagonise Australia with key policies. A major row over our government offering permanent residency to up to 25,000 overstayers resulted in the Australian government tearing up the longstanding policy of automatic permanent residency for New Zealand citizens and an exodus of Kiwis across the Tasman before the new rules came in.

Failure to co-ordinate immigration policy with Australia has denied New Zealanders a long-standing right of great value. The new Australian policy will also encourage more Kiwis to make the move before the permanent residency application cut-off age of 45 years.

Defence has been another disaster zone, with the non-aligned policies of the New Zealand government not meshing with the strong commitment of Australia to close military alliance with the US.

The Australian government expressed open contempt for the changes made to our defence policy. Now that the world is at war on terrorism, our government's scrapping of the contract to buy F-16 fighters and its decision to wind down the navy and air force and focus on building an army fit only for UN peacekeeping looks utterly short-sighted and needlessly destructive of our relationship with our transtasman neighbour. Recent events must make New Zealand look like a security risk to the Australians in light of our defence and immigration policies.

The government cannot have it both ways. It cannot go it alone when it suits and tell the Australians to give us special partnership status otherwise. The number one foreign policy priority of New Zealand must surely be to foster close and warm relations with Australia.

Our government has bungled meeting this priority, its opportunistic complaisance over taking some Afghan refugees rejected by Australia notwithstanding. Mr Swain will be talking about CER to an Australian government minister about to face a general election in the middle of political backlash over the collapse of Ansett, for which the New Zealand government has been partly blamed, as was made evident to Helen Clark when angry aviation workers marooned her across the Tasman. If we have problems looming with the ASX for New Zealand listed companies, the government should look in the mirror if it wishes to locate a guilty party.

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