There have been no initial public offers on the New Zealand stock exchange this year. Photo / Michael Cunningham
With just nine weeks until the Christmas holiday period begins and markets still volatile, this year looks set to feature no initial public offers on the New Zealand sharemarket.
Roger Wallis, a partner specialising in equity capital markets at Chapman Tripp, says the lack of listings is not unique to New Zealand.
"The US has had the lowest number of IPOs for many, many years, as has Australia," says Wallis.
"It is a global phenomenon."
Wallis says smaller merger and acquisition deals have also slowed, but there has been action by acquirers, particularly in Australia, with longer-term objectives such as superannuation and sovereign wealth funds.
In New Zealand there have been big deals, such as the sale of the Spark and Vodafone mobile infrastructure towers and Waste Management.
"There has been some quite large deals at the really big end of town."
Wallis says the issue with IPOs is the economic unpredictability with no bank economist had predicting the most recent 7.2 per cent inflation, exchange rates are bouncing around like a yo-yo and the geopolitical environment is volatile.
"There's a lot of uncertainty. So it's the worst possible time ever to do an IPO."
The last year the NZX had no IPOs was 2018 and before that 2008.
Wallis says this is just where the cycle is, and IPOs could come back by the second half of next year. "They are not done and dusted."
But he says the means to get listed is changing.
"A more sophisticated approach may be to do either a smaller IPO or even to do a listing where you are not raising capital."
That could be a direct listing, a backdoor listing or what is known as a SPAC listing, as Rocket Lab did, where a company acquires an already listed company.
He says there is a growing trend for companies to list not because they need to raise capital, but want to offer liquidity to their investors.
"You have got a lot of capital sitting in the VC, private equity, round A, B, C, D and F and once they get to a decent size they actually don't need to raise capital any more, what their investors need is liquidity. There is a healthy co-existence between sources of private capital and public markets."
IPOs are not quite a relic, but the big event where a company raises a heap of capital is not needed to the degree that it once was.
It is now easier to raise capital privately and then once scale is reached, list to get liquidity through a "same class" secondary offer.
"IPOs are not the only tool in the toolbox."
Likewise, there have not been any significant takeovers of listed companies this year, although there is ongoing speculation about Pushpay.
Wallis says there is often a spate of takeovers where the market is seen as undervalued and opportunistic investors buy in.
But markets don't seem to have fallen far enough for those buyers to emerge.
While the IPO market might be closed, listed companies are still taking the opportunity to raise debt.
Air New Zealand was this week looking to raise up to $100 million in a 5.5-year bond offer in its first debt offer since Covid hit New Zealand.
The bond had an indicative margin of 1.5 per cent to 1.65 per cent over the underlying swap rate, with a minimum coupon of 6 per cent.
David McLeish, head of fixed interest at Fisher Funds, said Air New Zealand had some big capital expenses it needed to fund while an existing bond had also matured, meaning it needed to refinance that.
But Air New Zealand will be paying more for the debt this time around, reflecting the rising interest rate environment. Its previous bond had a 4.25 per cent coupon rate.
McLeish said 6 per cent was likely to be attractive to investors due to the airline's implicit government backing.
"I suspect retail investors, mums and dads, might find some comfort in that - that the money is pretty safe and anything over the government rate is good."
But he saw it as too low compared to what BBB-rated companies were paying globally.
"The company is BBB-rated and we see BBB-rated investments around the world offering almost twice as much as far as a pick-up over the base rate right now."
Auckland Airport, which has an A- credit rating, has also indicated that it plans a bond offer soon with a 5.5-year maturity.
McLeish said the airport also had a big capital expenditure programme planned for developing the whole precinct around the site, as well as other maturities needing to be refinanced.
But he said the 2028 bond would be the longest-dated bond in the airport's portfolio if it goes ahead.
"They are certainly looking to lock in an interest rate for a longer period of time given the uncertainty around interest rates and the future path of them, especially given they have got long-term assets."
The timing couldn't be better, with the airport yesterday significantly upgrading its profit forecasts.
But it too will probably be paying more to borrow investors' money. Its current bonds have coupon rates ranging from 3.29 per cent to 4.28 per cent.
McLeish said there was a captive audience in New Zealand for corporate-issued bonds.
"There really is a weight of money still sitting there to be invested in these types of opportunities and they don't really come around that often.
"Whereas globally there are hundreds of billions of dollars worth of borrowing for companies to do and investors are really spoilt for choice in other parts of the world. That's why there is more price tension in offshore markets than here in New Zealand."
This week's inflation data did surprisingly little to dent the New Zealand sharemarket.
Devon Funds Management's Greg Smith said inflation was expected to moderate from 7.3 per cent, and every forecast had a 6 in front of it.
"When it came in at 7.2 - it came down but it barely budged really."
Smith said the market did rise on the day but that came after the US markets staged a huge rebound and the Australian market was up strongly.
"Yes it rose, but if that inflation number hadn't come in as high, the rise would likely have been a lot more. Potentially we would have been looking at 1 to 2 per cent."
Smith said there was quite a shock at the level of domestic inflation, which was 6.6 per cent - the highest on record.
"That is the type of inflation the central bank and the Government can control a bit more."
And tradeable, or imported, inflation was also higher than expected at 8.1 per cent.
"There wasn't really any good news on either the domestic or imported inflation front."
Smith said the numbers highlighted the challenge for the Reserve Bank in getting inflation down.
Current forecasts from the RBNZ were for the official cash rate to peak at 4.1 per cent but that was off the table now and it was likely to be over 5 per cent.
"The bottom line is interest rates are going higher than expected. Inflation has come down in places but remains higher than expected so rates are going to rise a bit further next year."
Rising interest rates would have an impact on businesses and lending and would hit consumers, with many people rolling onto higher mortgage rates.
"There's going to be a bit of a nasty shock for some mortgage holders and that's going to potentially flow through to consumer spending, the economy."
Smith said that until October last year it had been a bit of a one-way street upward for markets, apart from the pandemic blip in 2020.
"Stocks can still do well but there might be a bit more selectivity. And we have already seen, if you look overseas, high-growth technology stocks being under the pump.
"Rising rates will have an impact and with businesses, there will be a level of awareness of companies that have got high levels of debt because that is going to get more expensive to service."
Smith expected retailing to come under greater pressure although certain retailers stood up better than others.
"Companies with good market positioning - companies like the Warehouse, Briscoes, whose price points are at the defensive end of the scale - we could see them doing okay if there was a downturn and companies with good pricing power could still weather the storm."
Yesterday marked 35 years since the 1987 sharemarket crash.
Shane Solly, portfolio manager at Harbour Asset Management, said that leading up to October 20, 1987, markets began to show daily losses, culminating when the Dow lost a nerve-wracking 508.32 points - 22.6 percent of its value - in one day.
New Zealand's market fell nearly 15 per cent on the first day of the crash.
"In the first three-and-a-half months following the crash, the value of New Zealand's market shares was cut in half.
"By the time it reached its trough in February 1988, the market had lost 60 per cent of its value."
Solly said the US markets were down around 23 per cent this year but the conditions were different to 1987.
"We don't have the same valuation bubbles. History doesn't repeat but it does rhyme."
Solly said there were echoes and shades of the 87' crash in the current market.
"The risk of a 1987 crash - I'm not going to rule it out but we don't have the same conditions."
While central banks continued to increase rates there was hope that would stop by the first quarter of next year.
Solly said US company results were coming in and didn't seem too bad while New Zealand was about to head into its annual general meeting season.
He said the make-up of the New Zealand sharemarket was also different now.
"We don't have the conglomerates. We don't have the businesses that weren't real businesses."
The market meltdown turned generations of New Zealand investors off shares but that seems to have been overcome now with the rise of platforms such as Sharesies, Hatch and InvestNow, which have made it easier for retail investors to put smaller amounts into the markets.
Private equity is seen as a likely buyer for Fonterra's consumer business.