New Zealand is in danger of becoming an investment backwater as listings shrink

By Peter V O'Brien

Friday 16th November 2001

The New Zealand Stock Exchange will have lost 18 companies in 2001 if current takeover offers and wholly, or largely completed by the end of the year.

That would be 12.5% of the 143 locally-based groups listed at the end of 2000 and, if continued at the same rate, would see the end of New Zealand listings before the end of the same decade.

Such a prediction might seem silly, but there are several reasons there could be substantial verification.

Those reasons also applied to the situation this year, so examination of 2001 is a guide to what could happen in future.

Companies are removed from the list if they are taken over, go into receivership/liquidation (voluntarily or involuntarily) or request removal.

There are also cases where companies move their domiciles and place of incorporation outside New Zealand, as in the recent cases of Brierley Investments, Nufarm and Lion Nathan. They may keep a listing here, but the prime listing is overseas.

The following companies have been delisted so far this year: or are likely to be in the reasonably near future: FCL Energy (sold), Gold & Resources (back to Australia), Grocorp (takeover), Kiwi Development Trust (takeover, Kiwi Property Holdings), Contact Energy (takeover Edison Mission - assuming successful), Manor Inns (receivership), Max Resources, Montana (takeover), Frucor (takeover, assuming successful), National Mail (delisting), Nufarm (shareholders' decision), Otter Gold (takeover Normandy NFM - assuming successful), PDL Holdings (takeover), Property Leaders companies - three (voluntary winding-up), Radioworks (takeover) and Roller International.

Kirkcaldie & Stains, Wakefield Hospital and Wellington Drive Technologies were the only new listings so far this year.

The statistics were hardly those usually associated with a vibrant and thriving equities market and suggest more erosion is likely.

Takeover activity is always with us and will continue in future, given the number of companies with a dominant shareholder or shareholders.

Corporate strategies decide when, or if, major shareholder should move on the rest of the capital.

They can take their time, because, if they have more than 50%, no other company can make an acquisition without agreement.

A similar situation would apply in most cases where the dominant holder had, say, 35% or more and that is about half the New Zealand list.

Takeovers may be good for shareholders in the target company, irrespective of their effect in shrinking the list further but involuntary receivership/liquidations and so on are bad.

Receiverships were few among listed companies this year, but, the evil day could be looming for several where shareholders' equity is falling, debt is rising and operating losses are growing.

Obvious potential candidates can be seen in the broadly defined "technology" sector.

Their share prices crashed when the technology fad ran out of puff here and overseas. They scrambled to "restructure," changed names and (supposedly) operational directions and still have depressed market ratings.

Blue-sky technology companies have done one thing well; issuing hyped-up PR releases about agreements and arrangements with other companies for products or services for which there may be little demand.

The sector had a share price shakeup. It may get a financial shakeup if financiers decide to protect loans and other arrangements against any continuing operating losses.

Market participants and observers have been aware of the New Zealand sharemarket's erosion for years, but few have an answer.

The New Capital Market (NCM) was supposed to provide a bridge for small companies to progress towards listing on the exchange's main board.

For practical purposes it has failed, with no new listings this year and only 11 since the NCM began.

It should be noted that the system has failed, not the companies listed under its aegis, although none of them is likely to shake the market in the foreseeable future.

Deregulation of New Zealand's financial markets and the ability to invest freely overseas was supposed to open our insulated system to new money and techniques, with consequent benefits to the locals.

The opposite has happened. Substantial amounts have been shifted to investment overseas and little or nothing new has occurred on the local scene.

New Zealand-domiciled brokers are either part of international firms or increasingly operating directly, or indirectly, in overseas markets.

The New Zealand sharemarket has no growth future and will soon, if not already, become an investment backwater for local institutions wanting a New Zealand exposure and for mums and dads to buy equities if they prefer direct action to participation in funds.

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