NZX share-price drop reflects shrinking market

Mark Weldon

The New Zealand Exchange (NZX) is the only publicly traded stock exchange whose share price fell last year, a decline which reflected the shrinking of its market.

Companies including Carter Holt Harvey, once the fourth-biggest on the exchange, are being taken over.

South Canterbury Finance, NZ's third-largest finance firm, was among those ditching plans to list shares.

"What investors really want is some big floats and they simply aren't there," said Rickey Ward, who helps to manage $450 million at Tyndall Investment Management in Auckland and reduced his holding of the exchange this year. The stock "reflects the subdued nature of our market".

Shares in the NZX have dropped 20 per cent, trailing a 0.4 per cent loss in the All Ordinaries Index of 123 stocks. They jumped 63 per cent in 2004 and have risen 116 per cent since listing in June 2003.

Last year's gains among 18 other publicly traded markets worldwide range from the London Stock Exchange Plc's 6.3 per cent to Nasdaq's 263 per cent. Aside from London, all the stock exchanges outperformed their benchmark indexes.

The Australian exchange, for one, has surged 55 per cent, beating a 16 per cent gain in the S&P/ASX 200 Index.

NZX chief executive officer Mark Weldon said he aimed to revive the market's fortunes by encouraging more investors to buy stocks, promoting trading and drawing listings from a wider group of companies.

"We would clearly prefer the number to be different," said Weldon, referring to the share price. "The conundrum for our stock is [that] its price moves around on very small volume" because it has a market value of $94 million and no investor can own more than a 10 per cent stake.

The total value of stocks listed on New Zealand's market shrank 3.7 per cent to $57.38 billion last year, according to data compiled by Bloomberg.

The figure peaked at $62.37 billion on March 9, the day before the country's central bank unexpectedly raised interest rates and said more increases were probable.

A total of $7.1 billion of shares were delisted from the exchange this year, exceeding the $2.4 billion of stock that commenced trading, according to exchange data.

Since the data was compiled, Goodman Fielder listed in New Zealand and Australia. The company raised about $300 million of its initial public offering in New Zealand, according to a December 9 report in the New Zealand Herald.

Carter Holt, New Zealand's biggest lumber maker, dropped to the ninth-largest company from fourth in the NZX 50 Index after Rank Group built an 85 per cent stake. The stock dropped to 11th-largest from seventh in the broader All Ordinaries Index.

Rank, headed by New Zealand billionaire Graeme Hart, bought International Paper's 50.5 per cent stake in the company in August and made an offer for the remaining shares. Rank has extended the bid until January 13 to try to gain 90 per cent of the stock, allowing Rank to acquire the rest and delist the company.

Takeovers took other companies off the market entirely. Independent Newspapers, a publisher valued at $2.4 billion, delisted on July 1 after being bought by Sky Network Television.

NGC Holdings, New Zealand's No 1 gas seller, had its $1.9 billion of shares delisted on September 7 after a takeover by Vector, the nation's biggest electricity distributor.

Ports of Auckland, operator of New Zealand's largest port, was removed from the exchange on July 27, after being bought out by major shareholder Auckland Regional Holdings in a bid that valued the company at $848 million.

South Canterbury Finance cancelled plans last month for a $210 million initial public offering to pursue alternatives.

Woosh Wireless, a provider of wireless internet services, in October abandoned plans to raise about $70 million by going public.

Weldon, who wants to lure more private companies to the market in coming years, predicted that an average of five export-focused design and technology companies would list each year through to 2010.

"The future of the New Zealand market as a growth story is going to be around stocks that list around the $100 million to $400 million range and hit $1 billion in three years," he said.

"That's where the excitement is going to be."

Rakon, a designer of crystals and oscillators used in mobile phones, computers and navigation systems, is considering listing this year.

Rakon has not decided how much it wants to raise, managing director Brent Robinson said.

To help increase investment in New Zealand stocks, the exchange in December 2004 began allowing investors to bypass and trade stocks directly on the market.

Annual trading has increased to 56 per cent of the value of New Zealand's market from 32 per cent when Weldon started three years ago. He predicted it will reach 70 per cent in three years.

In Australia, the figure is about 85 per cent.

The exchange charges brokers $1 a trade, and adds fees based on the size and type of transaction. Average revenue for each trade works out to $6.

Transaction fees made up 26 per cent of the exchange's income in 2004 and were the largest contributor after listing fees, accounting for 41 per cent.

Weldon said Government policies would boost trading on the exchange.

Finance Minister Michael Cullen wants to divert private investment into shares from residential property.

New Zealanders have 9 per cent of assets in pension funds and shares, less than half the 20 per cent in the US, according to a 2004 report by the New Zealand Retirement Commission. Real estate accounts for 36 per cent, above the US figure of 28 per cent.

Capital-gains taxes on mutual funds' profits from share trading will be scrapped on April 1, 2007.

The Government also plans to introduce a savings plan by that time that will offer incentives, including reduced fees and a $1000 deposit, to any workers investing some of their salary with a fund manager.

Growth in a state-run pension fund that is steering money into the market may also help. The New Zealand Superannuation Fund is forecast to expand to $120 billion of assets by 2025 from $7.5 billion on October 31, according to the fund's website.

Of the present total, 7.5 per cent is invested in local stocks.

Weldon said a new investment culture would arise out of the Government's policies, boosting investment in stocks and drawing more companies to the market.

"A growing savings pool results in a growing investment pool, which means more direct investment in the market and more savings availability for local companies," he said.

"That's a big job, though, changing a culture." 
 

Companies listed on the NZX

Total value of stocks listed on the NZX dropped 3.7 per cent to $57.4 billion.

Departed last year - $7.1 billion worth of stock, including:
* NGC Holdings, worth $1.9 billion.
* Ports of Auckland, $848 million.
* Independent Newspapers, $2.4 billion.
* Most of Carter Holt Harvey.

Arrived in 2005 - $2.4 billion worth of stock.

- BLOOMBERG