Long wait for exchange to develop capital market

Friday 17th August 2001

The Stock Exchange must do more than indulge in rhetoric to actively develop the New Zealand capital market, to quote managing director Bill Foster.

His statement was in a press release commenting on an article which apparently misquoted his views on companies shifting head offices to Australia, in the context of Baycorp's merger with Australian company Data Advantage.

The merged company will have its head office in Sydney. Mr Foster's press release said the point about transtasman movement of listings was it was a relatively isolated issue which had been mainly related to particular corporate strategies, acquisitions and the balance of assets on either side of the Tasman.

"Some companies may migrate their listings, but it certainly doesn't mean that all will, or that any should."

That was OK, but Mr Foster added other comments that, while valid at face value, were worth further examination,

"The NZSE recognises the need to encourage new companies on to the market to replace the Baycorps and this is why the exchange so strongly supports demutualisation, which will create a new structure and a mandate for the exchange to begin to actively develop the New Zealand capital market."

That will be considered after dealing with Mr Foster's second comment: "Advantages of location in New Zealand included access to a well educated and lower-cost source of skilled labour, excellent infrastructure, a well-regulated, integrated and efficient market operated to the best international standards, lifestyle attractions, political and economic stability and access to international markets and capital through an international broker network well represented locally by NZSE member firms."

Mr Foster may have written that, rather than a PR firm, and he would certainly have vetted and approved any draft from someone else, but the rhetoric can be seen by repeating the quote after changing six words, three replacements for three and three deletions.

"Advantages of location in Australia include access to a well-educated source of skilled labour, excellent infrastructure, a well-regulated, integrated and efficient market operated to the best international standards, lifestyle attractions, political and economic stability and access to international markets and capital through an international broker network represented locally by ASX member firms.

"And lower cost" was deleted in relation to skilled labour but the revised statement could also have referred to lower Australian company taxes.

The lifestyle argument was emotional and irrelevant, because one person's "lifestyle attractions" can be another's putoffs. More Kiwis, both in absolute numbers and proportionately to population, prefer Australia than Australians prefer New Zealand. This [Kiwi] columnist is not knocking our country, but is trying to get some reality into hyped-up assessments of a place that is not "Godzone's" on any criteria.

We come back to the Stock Exchange's proposed active development of the New Zealand capital market, including the need to encourage new companies to list.

The Stock Exchange has been on about this for a few years but has done little apart from a few listings through the New Capital Market (NCM), create a market surveillance panel that worries itself sick, query companies on price rises from 6c to 8c (33.3%) and track the inability of several listed companies to comply with basic administrative listing rules.

The exchange has taken quick action in past situations. It was noted here last week that Savoy Equities was "unsuspended" on the exchange after getting its reporting systems into order.

The exchange announced on August 1 that seven companies failed to issue their audited annual reports from the year ended March 31 which were due with the exchange by July 31, as opposed to preliminary profit statements through the exchange's daily memorandum.

They were: Beauty Direct and Online, Colonial First State Property Trust, Compass Communications Group, Electronic Transaction Technology, Horizon Energy Distribution, Mooring Systems and Retailx.

There could be faults on both sides in that context. Companies could (and perhaps do) tell the exchange documents will be late for unforeseen problems, the exchange could (and may) use some kind of early warning system, or companies should remember to put the exchange on mailing lists.

Where will the exchange get new listings to develop the capital market? The biggest non-listed local companies in the country are effectively family owned. Why would they want to list on an exchange where 60% of listed companies account for 4.3% of market capitalisation?

We wait to see how the exchange will "actively develop" the New Zealand capital market, given that 3.8 million people cannot generate many large enterprises, outside rural-based companies such as the dairy industry.

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