NZX chief executive Mark Peterson. Photo / Greg Bowker
NZX chief executive Mark Peterson says there has been heightened interest in the capital markets since the Government made public its plans to make it easier for businesses to raise funds.
The Ministry of Business, Innovation and Employment (MBIE) said in December that it was “progressing” a package of reforms to improve the way markets work.
The MBIE opened consultation on potential changes to KiwiSaver settings and to the climate-related disclosures regime as part of a package that was aimed at invigorating New Zealand’s capital markets.
As a first step, the ministry said the Government was making it easier for businesses to raise money from the public by making it voluntary to provide forward-looking financial information as part of an initial public offering (IPO) of shares.
The MBIE said the proposed changes would give businesses more flexibility and bring New Zealand closer in line with other countries like Australia.
Peterson said the announcement had piqued interest in the public markets.
“We’ll see how we go this year, but certainly, straight off the bat when those announcements were released, there was heightened interest and an understanding that it [raising capital] was a real option,” Peterson said.
“We are pleased that the Government sees the public market as an important feature of New Zealand’s economy, and that they are willing to look at these settings,” he told the Herald.
“We have had great support from officials and regulators, so it’s been fantastic.
“But there is a lot of competition for capital and IPOs globally have been less frequent.
“Part of that is economic conditions, part of it might be regulatory settings, part of it might be the amount of capital available from alternative forms.”
Peterson has high hopes for 2025.
“The broader economic environment plays its part as to whether things come to fruition, and greater levels of certainty help when you want to grow and raise capital.”
The MBIE has opened consultation on potential changes to KiwiSaver settings and the climate-related disclosures regime.
The department has received over 130 submissions combined across the two discussion documents.
“We are currently analysing this feedback, to inform policy advice for the Minister of Commerce and Consumer Affairs [Scott Simpson],” Gillian Sharp, MBIE corporate governance and intellectual property policy manager, said.
“Cabinet decisions are expected in the coming months,” Sharp said in emailed comments to the Herald.
In the December 31, 2024 financial year, $15.8 billion was raised on the NZX platform – $5.5b of that from equity raises and $8.4b from debt issuance.
The exchange said its fundraising performance over the year highlighted the value of being NZX-listed in a capital-constrained environment.
Australia’s Santana Minerals listed locally, with foreign-exempt issuer status, last July. More than 40% of Santana’s share register on the ASX is made up of holders with New Zealand-registered addresses.
Large capital raises and placements were facilitated throughout 2024 and all were significantly oversubscribed.
These included: Auckland Airport equity capital raise ($1.4b), Fletcher Building ($0.7b) and Infratil ($1.15b).
The demand for environmental, social and governance (ESG) designated bonds remained strong as companies look to decarbonise their businesses. These make up 30.3% of the total New Zealand debt market (NZDX).
The NZX’s total market capitalisation of $236b was made up of about $167b of equity, $59b of debt and $10b of investment funds.
Equity comes in two forms.
“One is new listings – new companies coming through – be it via an IPO or by direct listing or even by a foreign exempt listing or a reverse listing,“ Peterson said.
“And then once you’re on the market, you can raise secondary equity.
“Whilst we’ve been a little lean on primary activity, the secondary side has been working for the listed companies.
“Some of those big capital raises have been to fund future growth while others have been to shore up balance sheets.”
On the debt side, Peterson said there are three broad categories.
First, there is standard corporate debt, such as a five-year corporate bond.
Then there is structured and subordinated debt lower down in the capital stack.
Thirdly, there are the regulatory capital instruments – paper issued by banks and insurance companies to fulfil their capital requirements.
Peterson says the level of issuance into the debt market has been consistent over the years.
“The other twist on all of that is the percentage of the instruments that qualify as green bonds, or sustainable debt instruments,” he said.
Rising interest rates favour fixed interest over equity and when they fall, equities tend to win out, Peterson said.
With the Reserve Bank’s Official Cash Rate at 3.5% and widely expected to head lower, the temptation is for borrowers to lock in for the longer term.
“When we think about 2024, as inflation started to get under control and as the Reserve Bank was able to lower rates, we definitely saw a swing back to equities and the trading levels started to rise.
“Through the course of last year, people could see light at the end of the tunnel and they started to get some comfort that exposure to equities was the right thing to be doing.
“That sort of just goes hand in hand with the economic cycle and the interest rate cycle.”
Peterson said there is competition for capital globally and IPOs have generally been less frequent.
“The broader economic environment plays a part as to whether the things come to fruition, and greater levels of certainty always help when you’re wanting to grow as a business and wanting to raise capital.”
It’s been slim pickings for IPOs over the last few years, although the market has high hopes for Fonterra’s Mainland, which the co-op has embarked on a “dual-track” process for an outright sale or a public offer.
Globally, IPOs have become rarer.
In the US, JPMorgan Chase & Co CEO Jamie Dimon has long blamed over-regulation for the drop in IPOs there that began in March 2022.
There is also stiff competition on the debt side.
The Australian Medium-Term Note (AMTN) market is becoming a significant source of funding for the higher-rated New Zealand corporates, Sam Playfair, a Victoria-based director at S&P Global Ratings, said.
“Obviously, there’s a lot of volatility in the capital markets at the moment,” Playfair said.
“There’s definitely a bit of a swing from the New Zealand-based corporates towards the Australian medium-term note market ... What we’ve noticed over the last couple of years is that New Zealand treasurers have had ready access to a reasonably resilient local retail bond market, but issuance on the domestic front is often restricted in terms of its volumes and tenors.
“So in the last few years, what we’ve seen is New Zealand corporates have gone to either the USPP (US private placement) market or the euro MTN market.
“Last year, we saw Auckland Airport, Chorus [and] Contact Energy issue in the AMTN market, along with Mercury and Transpower.”
Fonterra is also understood to be looking to tap into that market.
“The appeal for New Zealand corporates is the geographic proximity to Australia and familiarity with the New Zealand economy means that execution and completion is a lot simpler and cleaner,” Playfair said.
“There can be execution and completion delays when you’re looking at the USPP market, for example.
“What we’ve seen, particularly in this issuance window post half-year results and December year-end results, is volatility in the market – given the uncertain trading environment and what it’s done to issuance windows.
“Highly-rated issuers have been able to get issuance away, but others have had to pause or delay issuance.
“So that’s been a bit of a trend that we’ve been watching in recent times. But we certainly think that there’s a lot of appetite in that market for Australia and New Zealand corporates, particularly.
“Going across the Ditch to Australia means it’s probably a quicker and cleaner process at the end of the day.”
Harbour Asset Management fixed income and currency strategist Hamish Pepper said competition from the AMTN market has been a feature.
“This year, we have seen almost a preference for issuing in the Aussie market, partly because when you look at the all-in cost of funding, once they bring it back into New Zealand dollars, it’s been a favourable thing for them to do.”
Funds raised on AMTN are in Aussie dollars, then hedged back into New Zealand dollars.
“It’s been a little frustrating for us because it’s not always the case that we have access to those deals in Aussie,” Pepper said.
“And even in the case where, for example, we do have access, a decent portion of our funds are not eligible because they’re not issued in New Zealand dollars, which a lot of our mandates require.
“In a perfect world, we would rather see that issuance happen in our local market.
“It’s a challenge for the local market, but the story is really still one that there’s not a whole lot of New Zealand issuance, yet we’ve got retail demand.
“It isn’t helpful in the creation of deeper, capital markets here in New Zealand.
“But you can see it from their [borrowers’] side – that they are looking to get the lowest cost of funding possible.”
Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.
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