NZX announces additional class waiver and ruling in response to COVID-19

On 26 March, NZX Regulation announced an additional class waiver and ruling for issuers in response to the challenges posed by COVID-19. This follows two previous waivers announced earlier in the month.

The NZX’s media release is available here.

Who needs to read it? Why?

The NZX’s announcement will be of interest to all listed issuers, particularly those considering their capital raising needs in the coming months.

What does it cover?

Accelerated non-renounceable entitlement offers

Under the NZX Listing Rules, issuers are currently permitted to undertake pro-rata renounceable or accelerated offers of equity securities, which typically take the form of an ‘accelerated renounceable entitlement offer’. However, in light of the challenges posed by COVID-19, NZX Regulation has engaged with market participants and agreed to a class waiver that enables issuers to undertake a different type of offer through an ‘accelerated non-renounceable entitlement offer’ (ANREO), without the need to obtain approval by ordinary resolution under Rule 4.1.1.

The class waiver is provided on the condition that any ANREO is conducted as an accelerated offer in compliance with Rules 4.4.1 and 4.4.2, subject to the following modifications:

  • the ratio of equity securities offered to held must not be greater than two-to-one;
  • the rights must be non-renounceable, and therefore the requirement that an issuer sell or offer in one or more bookbuilds the rights of ineligible shareholders (as though they were eligible to participate) and return to those excluded shareholders the premium achieved in excess of the price does not apply to ANREOs; and
  • instead, an issuer may:

(a) offer the underlying equity securities to which an ineligible shareholder would be entitled if they were eligible to participate, under one or more bookbuilds and retain for itself any net premium achieved in excess of the price, or

(b) otherwise issue such equity securities within three months of the ANREO closing date provided the price, terms and conditions are not materially more favourable to the person to whom such equity securities are issued than those contained in the original offer.

Downside price protection

Given the current market volatility, NZX has also granted a class ruling for Rules 4.4.2 and 4.4.3 to enable issuers to include downside price protection mechanisms for retail shareholders in any accelerated offers.

The class ruling give issuers the ability to include differential pricing in any accelerated offer (not just ANREOs), provided the price paid by retail investors is lower than the price paid by institutional investors.

Timeframe

Both the class waiver and ruling will apply until 31 October 2020, but NZX has indicated that it will continue to actively monitor the COVID-19 situation and may extend the scope of the class waiver and ruling if appropriate. The protections for shareholders under the Companies Act and the Financial Markets Conduct Act will continue to have full effect during this period.

While ANREOs are a permitted offer structure in Australia, dual-listed issuers should seek advice on their ability to make such an offer to ASX investors in the current market environment.

Our view

Generally, the class waiver and ruling is another positive move by NZX intended to incentivise capital raisings which may be required in a short time frame, but pricing will remain a key element for boards to consider in a time of high market volatility.

The ANREO structure is common in international capital markets and is a welcome introduction that provides lower market and execution risk for issuers during a challenging period, while the protection of retail investors via differential pricing should encourage the continued participation by investors in New Zealand’s equity markets, and helps mitigate any dilution they may suffer.

What next?

If you have any questions on the class waivers, or your NZX Listing Rule obligations more generally, please contact one of our experts.

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