Market compliance a small price to pay for access to capital

NZX CEO Mark Peterson. Photo / Greg Bowker

Access to equity and diversified debt capital should be "top of mind" for boards and executives as companies emerge from the current health crisis, NZX chief executive Mark Peterson says.

"The value people will place on having access to equity and the way they think about their balance sheet structures in terms of debt-to-equity ratios will change, so this can be a real opportunity for public markets," Peterson told a Trans-Tasman Business Circle briefing.

The burden of compliance and a decent set of regulatory obligations that came with being publicly listed, he said, was "well worth" taking on if they gained access to capital as a result.

"What we are seeing is markets being supportive of companies they trust, so some of the book builds we've had are heavily oversubscribed and that gives you a sense of how investors are feeling."

Recent successful capital raises include Auckland International Airport, which attracted $489 million in applications for its $200 million share purchase plan, Investore Property's $85 million placement and $15 million share purchase plan, which received applications for more than $31 million, and Kathmandu, whose $207 million offer received strong retail shareholder and institutional support.

Peterson said the underlying level of enthusiasm to support companies showed capital markets were "there and ready," in spite of uncertainty and tough economic conditions. "If investors believe in those businesses and they have a good track record they'll help them out."

While markets had obviously seen some volatile trading, this had also seen liquidity pick up across institutional investors, retail investors, through to exchange-traded fund flows. Electronic execution had also seen a "big lift" in liquidity, which was great for the retail side in particular, Peterson said.

Platforms

The market has seen a significant uptake over the past two months in the retail market, led by the do-it-yourself digital platforms, such as Jarden's Direct Broking and most recently, "pocket-trading" platforms such as Sharesies, which at last count had 150,000 clients.

The advent of these new platforms and the perception of value in the market had propelled equity trades up more than 360 percent to 1.3 million during April. According to a recent BusinessDesk report, the increase in low-value trades had cut the average on-market trade size in half to $2,463 over that time.

"Transactional numbers and applications for customers to join are at the highest levels we've seen."

Peterson said technology and agriculture were likely to show their importance to the economy during the recovery now underway.

"Established – and emerging – tech is important, as it is one growth area that has no physical boundaries in terms of how you sell that to the world, and I think we'll once again be leaning on agriculture, so that needs to be promoted," he said.

Nor should investors ignore the travel and tourism sectors.

"We're pretty good at reinventing ourselves and, if we can create an Aussie-Kiwi bubble, we could get some really interesting innovation out of that sector."

Peterson said that if anything was learned from the crisis, it was that the business sector needed to trust the capability and leadership already in place.

"This won't be the only virus that we'll see, so the economy needs to be more resilient to pandemics."