The strong capital markets activity has coincided with a wave of new law focused on improved disclosure and governance of both debt products and managed funds, This represents a massive shift in the legal landscape. It has largely flowed out of the 2009 Capital Markets Development Task Force Report and sees the replacement of a huge swathe of securities laws dating back to 1978. The new Financial Markets Conduct Act alone is over 450 pages.
Most of the new law comes into force on December 1 this year. The current disclosure regime, introduced in 1997, was designed to provide investors succinct and relevant offering documentation but has instead resulted in documents that are large, complex and daunting for retail investors, (as the Financial Markets Authority (FMA) said in its October 2013 report on the implementation of clear, concise and effective disclosure). Two hundred plus pages of disclosure from a combined investment and prospectus has become the market norm - largely because of concerns that liability might arise out of a failure to disclose something that could, even if unlikely, be a risk of investment.
The good news is that, under the FMA's stewardship, the market's approach to disclosure seems to be moving in the right direction already. Both Genesis and Intueri have moved away from the combined document approach and have obtained exemptions allowing the exclusion of some irrelevant prescribed information and the presentation of disclosure in a more logical manner than prescribed by law.
Whether the proposed law changes will increase the public's general investor literacy remains to be seen, but they will make the information more accessible. Accessibility of information to investors is crucial. A recent investor survey conducted on behalf of the Financial Markets Authority and NZX showed "people who decided not to invest in an IPO showed a tendency to find the information in offer documents too much to digest" and that was indicative that "IPO documents - prepared under previous legislation - may have been an obstacle in decision-making for some investors".
For companies coming to market, the changes to disclosure should generally be positive. Documents should be shorter and more digestible and if the survey for the FMA and NZX is anything to go by, better disclosure is likely to result in an increased number of investors. The companies will also benefit from the change to the criminal liability regime, which means a director is only criminally liable for defective disclosure where they knew the disclosure was defective (or they were reckless).
This contrasts with the current "strict liability" position. Directors (and potential directors) can be forgiven for being slightly gun-shy against that background.
Another high note has been the 1 April introduction of law changes flowing from the government's business growth agenda which are designed to facilitate access to growth capital. These changes, and those which are effective on 1 December, will make the law much easier to interpret and less restrictive. Previously, there were too few opportunities to raise capital without a prospectus and investment statement.
Key business growth agenda changes include new exclusions for small offers, employee offers and offers made over a "crowd funding" or "peer-to-peer lending" platform. The most interesting has been borrowed from Australia and allows a company to raise $2 million per year from up to 20 investors.
With more offerings, together with more accessible and better quality information, we expect to see the continued strengthening of our capital markets.
Initial Public Offerings
2013
Mighty River Power
Z Energy
Meridian Energy
Synlait
Airwork
SLI Systems
Wynyard Group.
2014
Genesis Energy
Intueri
• Michael Pollard is co-head of the corporate advisory group and leads the private capital group at Simpson Grierson; Andrew Matthews is a senior associate at Simpson Grierson.
