SMELLIE SNIFFS THE BREEZE: Backwater blues

SMELLIE SNIFFS THE BREEZE: Backwater blues

By Pattrick Smellie

Oct. 26 (BusinessDesk) – Another triumph for Fortress New Zealand with the announcement of the takeover of the Australian Stock Exchange by its Singaporean equivalent, the SGX.

Of course, no one was actually attacking the fortress. They’ve just ridden on by.

With this truly Austral-Asian tie-up, the New Zealand castle looks in danger of becoming a relic of interest only to tourists and anyone seeking locations for yet another Hobbit film in years to come.

A decade ago, the ASX came knocking for the NZX, and was rebuffed as the local champions of freely moving global capital argued a nationalistic case for maintaining a separate exchange here.

Perhaps they were right then. Perhaps that would have shut down a pipe for local companies seeking capital. But the suspicion is equally that we could have done with a bit of what they’re getting.

The SGX bid is at a 37% premium to the ASX’s share price last week. Today, the NZX share price rose 2.6%, a sign of life no doubt and an acknowledgment that exchange stocks are in play, but hardly a stonking endorsement.

In the same way that Contact Energy shareholders missed a trick by turning down the 2006 Origin Energy merger deal, so New Zealand as a whole missed a chance to be more deeply linked to the Australian capital markets by agreeing to a tie-up 10 years ago that is as logical as that now proposed between the Singaporean and Australian bourses.

Today, it seems highly unlikely that anyone is thinking about the “New Zealand opportunity”, a point eloquently made by NZX chief executive Mark Weldon, when he said: “If I’m sitting in Singapore, I have no interest whatsoever” in cutting a special deal to include this corner of the world in the merged new entity.

On one hand, that means there must be a role for a domestic exchange, some sort of listing board giving local punters the option to get into good local companies in an atmosphere of trustworthy, regulated public disclosure. This is, after all, the least corrupt country in the world, according to Transparency International’s 2010 Corruption Perceptions Index, released today.

On the other, you have to wonder if this is just a polite way of describing the New Zealand capital markets’ inevitable slide to oblivion. Or have we been there for a while anyway? Weldon has certainly been preparing for such a world.

As he argues it, New Zealand companies will still seek capital no matter where the public trading platforms are, that private equity won’t always be enough to satisfy local demand, and the would-be listed companies won’t all be big enough to leap the Tasman to the ASX.

For one thing, ASX trading volumes in mid-cap stocks are, if anything, feebler than they are here – so local companies should value a local option.

For another, the size of companies listing on the NZX – to the extent they’ve come to market at all recently – shows there has been much greater willingness than there was 10 years ago to welcome the company with $30 million annual turnover, where once only $100 million would have done.

In other words, for all the grizzly complaints about NZX – and the costs of listing will remain a bugbear for smaller wannabe’s – the fact is it has tried to adapt to what is coming.

Let’s hope the strategy is right.

If it’s not, New Zealand’s public capital markets, already on the sidelines, are now heading metaphorically for the showers. Efforts like the new Financial Markets Authority will not only be short of things to do, but so will most of the country’s business press if there isn’t a steady flow of audited public accounts and material disclosures to report.

The reality is that while many interesting things are happening in the New Zealand economy, where the owners are not bound by disclosure obligations, the resulting disclosure is routinely impenetrable, self-serving and/or inadequate. Public markets set a bar.

As Commerce Minister Simon Power contemplates quick trips to Singapore and Sydney to check that the FMA is not placing New Zealand capital-raising at a competitive disadvantage to prevailing regulation there, the far greater question for him is how well placed the New Zealand capital markets are to foster growth at all.

Here again, Weldon has a clever deflector from the question of his own market platform’s survival.

He points to the reality that a market is unlikely to “outgrow its economy”. In other words, the New Zealand economy needs to grow faster.

From the achingly slow process of mollycoddling farmers into a hybrid tradable security that will reflect Fonterra’s performance but not, according to Fonterra, amount to “investing” in the cooperative to the water-dripping-on-stone process of testing the political marketability of a partial privatisation programme, the progress is slow.

The government has been sitting on the Capital Markets Development Taskforce report for nearly a year now. It was replete with recommendations for a careful programme of partial privatisations to raise substantial funds for a government seeking fiscal rectitude, create solid investment opportunities for Mums, Dads, and KiwiSaver fund managers, and encourage some sorely needed depth in local capital markets.

In recent times, the best we have seen is Power nervously thanking Solid Energy chairman John Palmer for not raising the privatisation issue at the state-owned coal-miner’s Christmas drinks at Parliament last week.

But the clock is ticking on this one. Key and Co. know it’s the right thing to do. But like so many of their principled political opportunities, this one risks dying on the vine of political caution.

(BusinessDesk)

© Scoop Media