In this episode we discuss what to do when faced with tough financial business decisions, and how businesses can take on new investment to help them not just survive, but succeed.
NZX chief executive Mark Peterson says companies' ability to raise capital on the public markets offers a pathway of recovery for the economy as it struggles through the Covid-19 downturn.
He points to the flood of new issues to hit the market since the outbreak as evidence of what canbe done by companies to soften the body blow posed by the pandemic.
Since the level 4 lockdown was declared in late March, just under $5 billion has been raised on the NZX's debt and equity markets, dwarfing the $170m raised at a similar stage during the Global Financial Crisis (GFC).
Peterson said in an interview that the markets had a role play in digging the economy out of what analysts say is likely to be a deep, pandemic-driven downturn.
"In this particular occasion, it is absolutely there," he says.
Peterson said companies needed the support of their shareholders in difficult times.
The need for equity, as opposed to debt, had come into sharper focus as a result of the pandemic.
"There has been a reliance on debt that has been there for some time, and people are realising that in times like these, that debt is sometimes not the right option, and that having access to equity is a really critical aspect."
That's what a sharemarket can do - provide access to equity - the price of which is effectively the cost of compliance on the exchange.
Even though economies here and around the world face unparalleled uncertainty, there remains a huge appetite for new paper.
London's Financial Times said that listed companies in Britain have tapped shareholders for more than £10b ($19.5b) since the Covid-19 pandemic took hold, with some looking to top up acquisition war chests and others raising emergency funds to ride out the deepest recession for centuries.
The paper said at least 69 companies have issued equity valued at £5m or more since the middle of March for pandemic-related reasons, raising £10.5b in total, according to data compiled by analysts at Peel Hunt.
A total of £2.8bn of equity was raised by 14 companies in the past fortnight alone.
Peterson said the NZX was "taking a lot of calls" from companies checking out their options to raise capital as they face the prospect of a deep downturn.
"To get out of this, it's all about growth.
"It is about getting capital to work to support those companies and to support jobs."
NZX chief executive Mark Peterson.
Peterson said there was a lot of cash "looking for a home" - particularly in the infrastructure sector and that he expected to see more capital raisings in the coming few months.
There were also potential opportunities for new companies coming to the market in the second half.
He says comparisons of today's challenges to those posed by the GFC only go so far.
"The GFC was really a credit crisis, whereas the virus has created an economic crisis that is right across the board.
"This time it's sharper, and a lot broader.
"Going into an immediate lockdown has put a stress and strain right across the economy."
The first cab off the rank in the capital raising stakes was Kathmandu, which successfully raised $207m through an offer to institutions and individual shareholders in early April.
Kathmandu set the ball rolling with a $207m capital raising in early April. Photo / File
The largest to date in 2020 was Auckland Airport's $1.2 billion placement and retail share purchase plan, which was comfortably filled.
"There has been a tremendous amount of cash looking for investable products, and demand has not yet been sated by the capital raisings done to date," Peterson said.
What is a capital raising
When companies offer new shares in exchange for funds, often through share placements or share purchase plans (SPPs).
Share offers are expressed in a ratio of new shares on offer to existing shares held, usually at a discount.
Proceeds are usually used to pay down debt or to take advantage of new opportunities, such as an acquisition.
Capital raisings can dilute the value of shares because they increase the number of shares on issue.
NZX advice to shareholders: Do your homework
The sharemarket has been holing up remarkably well, despite the challenge of Covid-19.
After a down day on Friday, the S&P/NZX50 index finished at 10,926 and was still comfortably higher than its late March low of 8948.
Much of the market's support has come from retail investors using low-cost share trading platforms.
Peterson said investors needed to do their homework.
"My comment to people would be to get some advice before you make your decisions."
"Or if you are not comfortable with your knowledge of the markets, do your homework first."
Peterson said there were unprecedented levels of retail investment in the sharemarket at the moment.
Platforms like Sharesies, Direct Broking and ASB Securities are opening up the sharemarket to a different type of investors.
"The market is becoming more accessible, which I think has been fantastic in many respects."
Peterson said it appeared investors were prepared to "look through" some extraordinarily high share price valuations and assess them, relative to other stocks here and around the world.
"You have got to assume that investors are rational and are basing their decisions based on information and their attitude to risk."
