Paul McBeth is the editor of The Bottom Line and Curious News, having worked at BusinessDesk for 15 years. He’s owned shares of NZX since January 2024 and been a member of the New Zealand Shareholders’ Association since February 2024.
When the big end of town welcomes looser regulation, it’s easy to be a little cynical.
After all, the rules are meant to act as a check on those behemoths to stop them taking advantage of the little guy or gal – something that’s easy to do when you’ve got deep pools of other people’s money, be that shareholder or taxpayer funds, and the top advisers from the shiniest offices on speed-dial or in a WhatsApp group.
But you’d be hard-pressed to find anyone crying over the tweaks to investment offer documents confirmed this week, which make providing tightly defined financial forecasts optional for potential candidates to go public and join the stock exchange.
The boffins at the Ministry of Business, Innovation and Employment’s expansive Stout Street office in Wellington reckoned that crystal-ball gazing alone typically accounted for between 5% and 15% of the cost of listing on the NZX, which isn’t peanuts when you’re racking up billable hours aplenty in Auckland’s Commercial Bay.
And the stalwart voices for little investors at the New Zealand Shareholders’ Association weren’t too fussed by waving goodbye to them, saying most experienced people pay little attention to them, preferring their own research into a company’s strategy.
In fact, the retail investor lobby said the less experienced investor is more likely to get swept up in the inherent optimism in an initial public offering, where a company will spruik all the opportunity laying before its feet, rather than the things that might trip them up.
The association preferred using ranges with the underlying assumptions highlighted to help investors get a better grasp of the ups and downs a firm may face without getting swept up in the moment.
Slip inside the eye of your mind
It’s easy to see why we all thought that level of prediction was desirable when the rules were getting set.
The wide boys had run rampant in the finance company sector, with impenetrable offer documents – we called them prospectuses back then – that regular folk glossed over, enamoured more by the projected returns, which were usually way out of whack with the actual risk they were taking on.
In hindsight, the pendulum swung too far and the attempts to avoid trying to regulate risk probably failed, in that those reforms more than a decade ago set the bar too high at a time when private money and unregulated offerings simply became much more attractive alternatives.
Because while the raft of work underway will undoubtedly remove the blinkers for companies to see the NZX – or Catalist for that matter – as Craigs Investment Partners’ investment banking chief Justin Queale points out, private capital has simply been a stronger alternative in recent years.
That private money has made it easier for companies to put off their IPOs, even if the big private equity houses’ investors are getting antsy about how long their cash is being tied up for.
And that’s not limited to New Zealand, despite the chorus of complaints that the NZX has dropped the ball in finding new candidates to join the public markets.
The local industry knows more needs to be done and they’re urging the government to add to the regulatory wish-list in making things easier, be that through changes to director liability which has seen the premiums on their liability insurance soar to eye-watering levels, or through small tax changes such as making those equity offer costs tax deductible.
The thing is, we’re in a dynamic global environment where every stock exchange is fighting for relevance.
A better place to play?
Across the Tasman, the ASX this month made a handful of suggestions to get its own markets moving again, such as shortening the IPO process to remove some of the risks involved before going public, or allowing the likes of dual-class shares seen in other markets where egotistical founders get to keep control of their companies and take other people’s money.
Meanwhile, Singapore has dangled a five-year 20% corporate income tax rebate for companies that go public and make the SGX their primary listing among a suite of changes to revive its own ailing market.
And Hong Kong is toying with reducing the proportion of a company’s shares that trade freely on its exchange, making it easier for some of those Mainland Chinese tech startups to access money from the outside world.
All of which is a good reminder that the government can pull all the levers it wants, but that’s not necessarily going to mark the behavioural shift that’s wanted – in this case being a vibrant public market where new companies list, older ones get snapped up, investors get rewarded for providing firms money, and capital is used in new and more productive ways.
Investors aren’t getting opened up to an unenviable amount of risk through the tweaks that are coming to bear, but they might question whether policymakers and our masters of the universe have a clear idea of what they’re actually trying to achieve.
Image from Getúlio Moraes on Unsplash.
