Dialogue: ASX moratorium poses challenge for NZ firms

By SIMON HORNER*

The Australian Stock Exchange's recent announcement of a moratorium on applications for foreign-exempt listings creates obvious problems for firms outside the Lucky Country looking to take advantage of an ASX listing.

New Zealand companies that decide to test the benefits of an ASX listing have found the exemption a useful toe in the water. The theory that this type of listing gives them a low-cost way to increase their Australian profile and provides access to a wider pool of investors is not always demonstrated in reality.

But a foreign-exempt listing does at least enable overseas firms access to Australian index funds whose constitutions prevent them from investing in non-ASX-listed firms.

Over time, they might even achieve a listing in an S&P/ASX index, fuelling greater demand for their shares, higher prices and the start of an investment cycle.

That was the position until this month, when the ASX's moratorium also revealed a proposal to amend its listing rules, with changes to take effect from June 30 next year.

The proposal indicates that the ASX is considering raising the threshold for admission to the foreign-exempt category 40 times more than the current net tangible asset test, to $A2 billion ($2.44 billion) from $A50 million.

It also plans to boost its net profit test for foreign-exempt applicants to $A200 million profit, assessed before tax and over three years.

Why has the exchange done this? Consistency is the official reason, though that would mean doing away with all foreign-exempt listings.

Some commentators suggest that the ASX is concerned that New Zealand does not have a statutory continuous disclosure regime. However, analysis of the NZSE and ASX disclosure rules shows they are not materially different.

The main driving force is likely to be a simple commercial one - the ASX is itself now a listed entity, and it sees effective removal of the discounted foreign-exempt listing alternative as a means of enhancing revenue from companies it regards as needing an ASX listing.

So what will happen to New Zealand companies on the ASX as foreign listings? There are more than 20 to date, including Telecom, Carter Holt Harvey and The Warehouse.

The initial impact will be the increased costs of an ASX listing. Companies must also decide whether to shift their primary listing from the NZSE to the ASX, or apply for a full dual listing on both exchanges.

Some New Zealand companies are already dual-listed, but those which are not - and are considering the option - could face more than double their present compliance fees as well as a need to change their constitutions and be vigilant to comply with both regimes.

Gaining any form of Australian listing is no guarantee of access to an S&P/ASX index.

Inclusion is ASX trading volume/liquidity-based - and to date Telecom is the only New Zealand company included in an S&P/ASX index.

But there is nothing to stop the NZSE or New Zealand-based broking companies from approaching fund managers to explore whether, through constitutional amendment or trustee exemptions, they can move their investment activities to the NZSE and other foreign exchanges.

If attracting greater investment is the issue for New Zealand-based companies on foreign-exempt listings - and this must be a primary driver for most of them - then they should consider this suggestion carefully.

In the long run, it could prove a better option for both them and the NZSE than a sudden, expensive move to a full ASX listing.

* Simon Horner is a partner in Russell McVeagh's corporate practice group.