The changes proposed to the NZX Listing Rules now await formal approval by the Financial Markets Authority, with the rules change not expected to take effect before 1 October 2023. We support the changes made and outline key points for consideration by issuers, advisors and investors below:
- NZX has agreed to introduce accelerated non-renounceable entitlement offers or “ANREOs” (as permitted under the ASX Listing Rules), with a 1:3 entitlement ratio limit. In addition, issuers will be required to disclose within the offer documentation why an ANREO was chosen, why they consider it to be in the best interests of the issuer and the expected impact on non-participating investors. There were differing views expressed in submissions, but we support the introduction of ANREOs as a permanent feature (with their use being temporarily permitted under COVID-19 waivers). NZX has indicated they intend to publish guidance to assist issuers that choose to undertake an ANREO in meeting these new disclosure obligations.
- Pro rata renounceable offers will be required to include a liquidity event, being a shortfall bookbuild or quoted rights. We support this change when read together with the introduction of ANREOs, given it means that renounceable offers must be both renounceable in name and in practice.
- Pleasingly, NZX has not progressed the proposal that any shortfall from a pro rata offer must first be offered to existing shareholders who wish to subscribe for more than their pro rata entitlement. As we noted in our submission, this would limit the ability of issuers to introduce new shareholders to its register and would result in issuers favouring placements to do so, which have a dilutionary impact on existing shareholders.
- NZX has introduced a requirement for “downside price protection” for retail investors where there are different components or legs of an offer. This will generally apply in relation to accelerated offers or share purchase plans (SPPs) that accompany a placement. Note that this does not mean that retail investors must receive a discount or lower price if the market moves against the issuer, but instead the price paid by retail investors cannot be higher than the price paid by institutional investors. The same downside price protection rules do not apply in relation to a placement that takes place before a rights issue (whether that rights issue is accelerated or not).
- The limit for SPPs will be increased from NZ$15,000 to NZ$50,000 per shareholder, with the aggregate limit to be increased from 5% to 10% of the shares then on issue. We expect this change will mean that a placement plus SPP combination remains the dominant capital raising structure deployed by NZX issuers. Issuers who are also listed on the ASX will need to consider whether any Australian Securities and Investments Commission relief is required to be able to rely upon this higher limit.
- NZX is applying enhanced disclosure requirements, including in relation to allocation policies and underwriting arrangements. NZX has not proceeded with the proposal that the identity of sub-underwriters be disclosed – in our view, this is a sensible position as the sub-underwriting arrangements are between the underwriter and the sub-underwriters, not the issuer, so if disclosure was required, it would upset the current commercial balance currently struck between issuers, underwriters and sub-underwriters.
We look forward to the rule changes commencing and continuing to assist our clients on their capital raising needs. Please contact us if you would like to discuss the changes in further detail.