A number of companies on the NZX are said to be considering raising capital in response to the impact of Covid-19. Photo / Supplied
A number of companies on the NZX are said to be considering raising capital in response to the impact of Covid-19. Photo / Supplied
Stock exchange operator NZX is in talks to give listed companies room to raise more capital without needing to obtain shareholder approval, amid market upheaval.
While the move could see small shareholders have their stakes diluted, a body representing retail investors says the current conditions may warrant a change, atleast temporarily.
Under the current listing rules, companies listed on the main board of the NZX can raise no more than 15 per cent of their market capitalisation without seeking the approval of their existing shareholders.
This limits the size of share placements, which often see blocks of shares sold to institutional investors overnight, with the details of the capital raise not disclosed to the market until after the process is completed.
But as part of its response to Covid-19 NZX has begun negotiations which could see the 15 per cent limit raised, as it was in 2009 during the global financial crisis. Then the threshold was raised to 20 per cent, although the current negotiations could see a higher threshold.
The move comes after a number of companies have withdrawn their earlier performance guidance or downgraded forecasts, amid fears of a major shock to the economy.
National's finance spokesman Paul Goldsmith said the measure could be useful.
"A lot of big businesses, right now, are wanting to go out and raise more capital, and there's quite a big queue apparently forming with the people helping them do that," Goldsmith said.
He believed the threshold could be raised as high as 25 per cent, to allow companies to move quickly "to raise the capital they need to save the jobs" as conditions deteriorated.
"There are definitely big companies looking to raise extra capital to get through difficult times and a useful thing that could be done quickly is to make it easier for them, and less bureaucratic and faster to get more capital."
Chapman Tripp partner Roger Wallis said raising the limit on share placements without approval would be a "sensible thing for NZX to think about" however changes made in 2013 made had made other options more efficient.
"Listed companies can raise money pretty efficiently post those [2013] reforms, by effectively confirming that they're satisfied that they're up to date with continuous disclosure [requirements]," Wallis said.
"You can move on a rights issue within a month whereas back then it was more like two months."
Neil Paviour-Smith, managing director at Forsyth Barr, said it would be "well worth NZX thinking about doing something like that. If there's precedent in the GFC, we're in a similar, but different situation right now."
While the move would increase options for companies needing capital, it would dilute existing shareholders, especially if money was raised at a discount to market value.
"Discounts are going to be a reality in a volatile market, in particular if there's a queue of companies" wanting to raise capital, Paviour-Smith said.
Large share placements are often opposed by retail investors because they do not tend to be able to take part.
Tony Mitchell, chairman of the NZ Shareholders Association. Photo / File
Tony Mitchell, chairman of the NZ Shareholders Association, said while the organisation was concerned about the risk of dilution, the current conditions may make a relaxation of the rules necessary.
"Given the special circumstances this should be considered and all stakeholders should be involved in the discussions."
Mitchell said companies should look to obtain credit from banks "but if that is not feasible then we would not want to see listed companies be adversely affected and hence shareholders be adversely impacted".
A spokesman for the NZX declined to comment on active discussions but said: "we have been working actively to look at a number of measures to respond to the current conditions, with regard to Covid-19".
