Market merger could halt shrinkage trend

Friday 13th July 2001

By Peter V O'Brien

There was some irony in seemingly unrelated statements last week from the New Zealand Stock Exchange and chemicals company Nufarm.

The Stock Exchange announcement was a precis of a section in its annual report related to current proposals to demutualise the organisation.

Exchange chairman Simon Allen said the demutualisation scheme was intended to commmercialise the exchange and turn it from a mutual, with members as beneficiaries, into a client-driven company with shareholder.

It was intended to list the new NZSE Ltd on the exchange to access the capital required to fund the exchange's expansion and, by definition, the capital market.

Referring to merger discussions with the Australian Stock Exchange, Mr Allen said the merger proved to be too difficult for both parties.

The costs would have fallen almost exclusively on the New Zealand capital markets participants. The Australian exchange was unable to give any undertakings in terms of the New Zealand exchange's primary objective for the merger; that of developing the New Zealand capital market.

Nufarm issued a statement the previous day about a proposal to cease listing on the New Zealand exchange.

It said the company's board decided it was in the best long-term interest of the group and its shareholders to stop trading as an "overseas listed issuer."

The board recognised it was crucial for Nufarm to improve its position within the Australian exchange indices to attract institutional investor support.

A company's liquidity, or turnover, on the Australian exchange was a major factor in the determination of a stock's inclusion and weighting the indices.

Nufarm required all its trading volume, including that conducted on the New Zealand exchange to occur on the Australian exchange to maximise its position in the indices.

The company was removed from the SAP/ASX top 200 companies index at the end of June after a regular quarterly review of the company's market capitalisation and liquidity.

A report from Computershare Analytics, a company specialising in public company share trading analytical services, showed the company would have remained in the index had turnover in New Zealand been added to the Australian turnover.

The benefit of having all Nufarm's turnover on the Australian market would be that the company had the potential to maximise its weighting in the Australian indices.

It was expected that would lead to increased demand for the company's shares from Australian and global institutional investors.

Nufarm started life in 1916 as The New Zealand Farmers Fertiliser Co. The company changed its name and then moved its headquarters to Australia in recent years.

Nufarm had a market capitalisation on the New Zealand market of $248.22 million last week. Delisting will remove that amount from New Zealand market statistics.

That might seem a minor matter in the total New Zealand market, but it raised a more important point when considered in conjunction with the NZSE's statement about the failed merger proposals with the Australian exchange and development of the New Zealand capital market.

Several companies apart from Nufarm transferred head offices to Australia in recent years and others could take the step in future.

Some could find themselves in Nufarm's position in relation to the Australian market indices and decide to delist in New Zealand, constraining the local exchange's "primary objective" of developing the New Zealand capital market.

A merger of the two exchanges would overcome that problem, among other things, although the danger of New Zealand companies getting swamped among the hundreds of listed companies in Australia could still exist.

Another Stock Exchange statement last week said it had enjoyed a record turnover of $30.2 billion in the year ended June 30, up 13% on the previous year's $26.7 billion.

The figures sounded impressive, until one looked at Australia where, for example, national turnover last Friday was $A2.37 billion. Assuming that was a "normal" trading day, Australia in 13 days would equal for New Zealand's record annual turnover, before taking account of the exchange rate.

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