PAUL MCBETH: SpaceX another example of nonsense wholesale regime
What changes on Friday?
Paul McBeth is the editor of The Bottom Line and Curious News, and worked at BusinessDesk for 15 years.
If ever you needed another example of New Zealand’s two-tier investment regime further separating the haves from the have-nots, just take a look at the treatment of Elon Musk’s audacious SpaceX initial public offering in the US.
The world’s biggest listing ever isn’t for the faint-hearted. It’s predicated on a mercurial founder in the form of Elon Musk, who operates on another planet from normal people – literally.
He’s a divisive figure, having won over the residents of the leafy suburbs when Tesla showed the world that electric vehicles weren’t the realm of science fiction before losing them in his pivot to a free speech absolutist.
And the company itself – formally called Space Exploration Technologies Corp – isn’t just a rocket company. Its web of satellites under the Starlink banner is its main source of cash generation, while the recently added xAI artificial intelligence and social media platform is the biggest mouth to feed from the US$74.4 billion of new money it plans to raise.
The US$1.75 trillion – yep, trillion – valuation is simply out of this world. When Saudi Aramco went public, the powerhouse of Saudi Arabia’s economy was valued at US$1.7 trillion as it delivered about a tenth of the world’s oil production.
More than workin’ for the right man
That was making bank whereas SpaceX is losing money, with more red ink on the cards as it chases an unbelievable US$28.5 trillion market in outer space.
I guess it’s not cheap building solar-powered space-based data centres, let alone establishing a permanent human colony on Mars with at least one million people. Yep, that’s actually one of Musk’s targets to unlock another stratospheric payday.
And as of Friday in the US, everyday New Zealanders will be able to log on to their favourite trading platform to buy shares of SpaceX at the prevailing market price, which will be getting a tailwind from the company’s swift inclusion in the Nasdaq and FTSE Russell indices that some big institutional investors track.
The S&P 500 will be a longer wait for SpaceX and the other looming AI giants, with S&P Dow Jones Indices refusing to bend to the pressure of the new teen titans in fast-tracking their inclusion.
For those with a few spare shekels, a hardy constitution and an unwavering belief that Musk is a visionary, SpaceX might very well tick their boxes as a worthy addition to their investment portfolio. For others, it most certainly will not.
Monday I’ll have Friday on my mind
But what grates your normally placid correspondent is the fact that well-heeled investors who clear the hurdle of being able to opt out of the typical investor protections will be able to participate in the IPO proper, buying shares at the US$135 per share offer price.
The Sharesies and Syndex platforms put out the calls late last week that they’d secured allocations that so-called sophisticated investors could participate in. Sharesies gave them until Wednesday night to get their applications in.
Begging the question: what changes in SpaceX’s risk profile between Thursday and Friday that separates the elite from the everyday?
Sure, the set price of the IPO might not have the weight of money pushing the price around every millisecond, but we’re not short of analysts providing their view on the investment bankers’ valuations of SpaceX, let alone talking heads giving their reckons on boldly going where no one has gone before.
We have lines in the sand in our investment regime to swaddle the masses in cotton wool – for all the lip service paid by politicians about not being able to regulate risk, New Zealand certainly tries its hardest to do so.
I know of nothin’ else that bugs me
But the 15-year-old regime is running up against an even faster shift in how business is actually done, where New Zealand’s tyranny of distance is truly a thing of the past.
Sharesies opened the doors for a million people to invest in the US and has been a key part of the conversation in getting people to think more laterally about their wealth and future beyond the house being the greatest store of your wealth.
Heck, we even had the government essentially tell people to invest their first $100,000 overseas in their tweaks to the clunky foreign investment fund tax regime. Aurellan Asset Management’s Anthony Edmonds might’ve spent his career arguing that PIE funds are the single best structure for local investors, but as he says, the loophole is simply too good to ignore.
The strange part to wrap your head around is the fact that our regulations recognise the formal exchanges of some jurisdictions as being trustworthy enough to accept their offer documents, including Australia, London and New York.
Sure, it’s up to a company to decide whether or not to have its prospectus lodged in a particular country – SpaceX is expected to set aside A$1 billion for Australian retail investors to participate in the offering – but the straitjacket of our rules seems to ignore the flexibility that was envisaged for the regime 15 years ago.
I’ll change that scene one day
The carve-out created for unregulated offerings was meant to provide an avenue for those with the means and ability to back more complicated – and potentially more lucrative – opportunities, in turn lowering the cost of capital for those firms.
Instead, we got an explosion of unregulated offerings effectively pitched at retail investors to fund inherently risky property developments – something that when you say it out loud shouldn’t be a surprise given the nation’s proclivity for bricks and mortar.
The fact that our framework puts those offerings on the same footing as an IPO in a foreign jurisdiction says something isn’t working, despite the self-congratulatory work done a few years back by the boffins at the Ministry of Business, Innovation and Employment in the midst of a bull-run that the market conduct legislation was doing what it was meant to do.
Bright lines are helpful when there are clear boundaries between different types of products.
But as we hurtle towards an increasingly grey investment environment where a blossoming world of token derivatives sits outside the regulator’s remit, it’s probably time to recognise that if we think this is success, we’re seriously mistaken.
