Dual Listings Create Opportunities for Directors

More New Zealand companies are expected to dual list on the Australian Securities Exchange in the next few years, creating opportunities for Australian directors to govern Trans-Tasman companies.

Fifty NZ-based companies are currently dual listed in Australia, ASX data shows. At least half have joined ASX in the last five years through Initial Public Offerings (IPO) – and increased their board size through the recruitment of Australian directors.

The trend is well established: nine of NZ’s 10 largest companies by market capitalisation and more than half of the top 50 already are dual listed in NZ and Australia.

Much of the growth in dual listings is expected to come from small- and mid-size NZ companies that launch IPOs. An expected increase in IPOs on ASX this year could boost the number of NZ companies dual listing in Australia.

Some of ASX’s largest IPOs this decade have been for NZ electricity privatisations such as Meridian Energy, Mercury NZ (formerly Mighty River Power) and Genesis Energy. The dual-listed companies collectively raised about $3 billion through IPOs and have performed solidly since listing.

“It’s becoming the norm for IPOs of significant New Zealand companies to dual list their shares on their home exchange and ASX,” says David Kirk, non-executive chairman of NZ-based companies Kathmandu Holdings and Trade Me Group, and co-founder of Bailador, a well-performed investor in growth-stage information-technology and media companies.

“It is very important for NZ companies of scale to have access to Australian equity,” says Kirk.

An Australian listing helps NZ companies access an investable capital pool estimated to be five times larger than that in NZ, according to a 2014 Orient Capital Survey.

Also, the investment mandates of some Australian fund managers restrict them to ASX-listed shares, meaning they cannot buy NZ companies that are not dual listed here.

Deeper share liquidity and the potential for greater sharemarket promotion and profile, by virtue of a larger investor audience, are other attractions for NZ companies to dual list. It is thought some NZ companies, particularly smaller ones, might even choose ASX as their primary listing in coming years because of this market’s superior liquidity.

“Share liquidity is a persistent challenge in NZ for smaller companies,” says Kirk. “A dual listing can potentially expand their investor base and help turnover in their shares. That’s very important for smaller companies that are looking to raise capital and grow.”

Governance of New Zealand-based companies is a good fit with Australian directors. The markets have similar economic and cultural characteristics; corporation law is broadly similar and governance standards and requirements are comparable.

Kirk says it makes sense for dual-listed NZ companies to add Australian directors to their board. “There are obvious benefits in having directors who have deep experience in both markets, especially when the NZ company earns a lot of revenue in Australia. Directors with international experience are a benefit for any company.”

The ability of NZ companies to appoint Australian directors is slightly restricted by NZX regulations requiring a minimum of two NZ-resident directors on the board of an NZX-listed company. A small NZ IPO that dual lists in this market, and forms a three-member board, thus has less scope to add Australian directors until its board expands.

Kirk says directors who join dual-listed companies need to understand the listing requirements of NZX and ASX and any differences in corporation law. “It’s much the same, but directors should be aware of areas where rules vary.”

For example, Australia has had more onerous occupational health and safety rules (OHS), which have implications for boards, compared with NZ. But the NZ Health and Safety Reform Bill, effective from April 2016, has largely brought NZ up to Australian OHS standards.

Executive pay is another area of difference. New Zealand requires lower disclosure of pay compared with Australia. Pay-disclosure requirements in NZ have changed far less in the past 20 years than those in Australia, where executive pay has been a key governance issue.

Critics of pay disclosure could argue that Australia’s greater transparency on this issue has fuelled pay comparisons and led to bigger pay packets for CEOs here. Growth in NZ CEO cash remuneration, relative to total worker pay, has been below that in Australia.

Kirk says boards should understand the practicalities of dual listings. “It adds another layer of exchange listing costs and there are some extra compliance costs. There’s also more cost in communicating with shareholders in two markets and directors certainly must travel more. Overall, the benefits of dual listings far outweigh the extra cost.”

Subtle differences between Australian and NZ investment communities are another dual-listing consideration, says Kirk. “Australian investors tend to be more focused on quarterly performance and can be more aggressive in their buying and selling of shares. Also, A dual listing might attract more stockbroking research coverage and institutional capital, meaning a bigger investor-relations program is needed. But that’s a good problem.”

Although there are challenges, Kirk enjoys chairing dual-listed companies. The former Fairfax Media CEO has had a distinguished career in Australia and New Zealand across management, boards and through Bailador, which manages a Listed Investment Company (Bailador Technology Investments) on ASX. “It’s very satisfying to help companies grow on both sides of the Tasman through good governance,” he says.

Tony Featherstone is Consulting Editor of the GLC.