As New Zealand's Stock Exchange, Te Paehoko o Aotearoa, we always want to be seen as the natural home for Kiwi companies wanting to access capital to help them grow and realise their ambitions for the future.
I'm also equally conscious of how important local capital markets are in ensuring domestic investors have easy and ready access to the wonderful pipeline of home-grown companies.
EY's Global IPO trends report shows that on a long-term average more than 90 per cent of issuers list on their domestic stock exchanges – with cultural and strategic fit being key considerations, along with brand recognition and familiarity to investors. And, often it's just about DNA — the essence of your business.
New Zealand has a comparatively large base of retail investors, and over the past year we have recorded the most significant re-engagement with equities as an investment class in the past 30 years.
Retail participation has been at levels never seen before in our sharemarket, helped by the growing popularity of online trading platforms – Jarden Direct, Sharesies and ASB Securities – that enable easy and low-cost access for DIY investors.
This is positive for our market, and spurring interest and investment in our issuers.
Keeping it Kiwi
In presenting the Emerging Leaders Best Investor Relations Award to Pacific Edge's CEO, David Darling, at the INFINZ event this month I couldn't help thinking how great it is that Kiwis can have world-leading innovators like Pacific Edge right in front of them, and at their finger-tips, as an investment choice on NZX.
Pacific Edge has jumped sharply in value over the past year to a market capitalisation of around $860 million, breaking new ground with the company's innovative Cxbladder cancer diagnostic tests. While their primary market is in the US, they have been conscious of telling their story and informing local investors about the significance of these diagnostic tests, and educating on how physicians adopt new technology and how the US healthcare market works.
Serko's Darrin Grafton also expressed his passion for NZX at the INFINZ Awards. In accepting the 2021 Leadership Award, the CEO of Australasia's leader in corporate travel and expense solutions was thankful for the recognition of the company's achievements — and set out further ambition for a business that raised $22 million through its IPO in 2014, and is now worth more than $710 million.
Darrin said: "If you think what Serko has achieved today is great, then you better get ready – because I am creating one of the best New Zealand tech stories ever and I am keeping it Kiwi right here on the NZX."
In some cases, there can be important benefits in terms of credibility in global markets or social licence at home.
Former Chief Executive of Pushpay Holdings, Bruce Gordon, says listing on the NZX was an instrumental stepping stone for Pushpay, helping give credibility to "the crazy Kiwis with big ideas", giving their largest customer prospects confidence from their due diligence and creating a sense of transparency.
Grant Rosewarne, Managing Director and CEO of New Zealand King Salmon says they wanted to be "… as Kiwi as we possibly can be".
"At King Salmon, we recognise we will only have the social licence to grow if we connect well with our communities, if we look after our environment, and if we operate at world's best practice. Via our listing on the NZX, we've been able to do all of these things."
Over this past extraordinary year, we have had a unique opportunity to demonstrate to other businesses the value of having access to capital through our public markets.
2020 was a difficult year for many sectors of the economy, but with these challenges the value of having ready access to capital has been so evident for New Zealand businesses — looking hard at their balance sheets, thinking about funding and diversification of funding.
The Covid pandemic reinforced the value of an NZX listing, and the access to equity or debt capital that being listed on NZX provides.
It shows New Zealanders and international investors are ready to back good companies.
The total of more than $5 billion of capital raised on the secondary market in the 90 days from the beginning of April last year dwarfed capital raisings in the early months following the 2008 Global Financial Crisis. This need, and the greater attractiveness of equity funding, is reflected in the total value of capital raised for the year $17.6 billion — more than 50 per cent above our expectations for 2020.
It's fantastic to have been busy ringing the listing bell to welcome a new cohort of companies to New Zealand's Exchange — with nine in 2020 and four so far in 2021, including the latest DGL Group, joining us this week. NZX is seen as the place to come for capital and there are a wide range of opportunities coming to the market in different ways, reflecting the options that we've opened up.
On market liquidity
Since the NZX strategy reset in 2017, there has been an unwavering focus on removing blockages and creating a platform for growth — for NZX and our markets. The introduction of new market participants has opened up access to a broader range of investors while changes to the NZX rules and fee schedules have driven on market activity and delivered improved liquidity to the Exchange.
It is encouraging to see growth in the market across all investor segments with the value of traded liquidity originating from retail and institutional sources accounting for approximately 18 per cent and 82 per cent respectively. Alongside the increase in value traded across the NZX, we continue to observe a rise in on-market activity and execution through the exchange-run central limit order book.
The proportion of on-market trading, last year accounted for 62 per cent ($33 billion) of all value traded, and on-market trading has normalised above 60 per cent. This greater on-market liquidity assists market efficiency and price discovery and has provided price improvement for all investors.
Increased liquidity, with a greater number of lower value trades has further benefits as price spread is constantly being tested — and these benefits flow through to better price formation. This highlights to companies and investors that our markets are healthy, vibrant and attractive.
NZX is seen as the place to come for capital, and our pipeline has never been stronger. This includes the possibility of some equity listings of significant scale — prospects that could have a positive impact on the NZX, and New Zealand's capital markets more generally.
Our efforts continue to focus on promoting the New Zealand market to companies that could benefit from having access to capital or to owners who may want to release capital for other purposes — either now or in the future.
The Capital Markets 2029 report clearly highlighted this broader opportunity for current private companies to use the listed market to access capital, with an estimated 1,200 private companies in New Zealand with annual revenues in excess of $30 million.
We see huge potential to continue to develop the listed market to support the growth of these companies, who are significant employers of Kiwis and collectively large contributors to the New Zealand economy.
What we hear from our engagement with the business owners is that, across the board in New Zealand, companies are thinking about access to capital — in all forms, private, public capital, debt, equity — especially in a world of so much uncertainty.
Opportunity and optimism
Every day we see examples in front of us that the Kiwi can-do and innovative spirit is alive and well in our economy, and much of the appetite for capital is growth-orientated or opportunistic.
We have fantastic talent and optimism here in New Zealand, people doing amazing things — they come to talk to us at NZX when they are thinking: "How can I advance my business?" Whether that's growing and expanding, or selling down, we can help them work through the options.
Some have always had the dream of having their company's ticker on New Zealand's Exchange, others have a scale that means listing makes a lot of sense — and in some cases it is about succession planning.
In those conversations the role of NZX is to listen and understand the objectives and drivers, so that we can support business in the best possible way and connect them with the right partners and advisors.
There is a new edge to these discussions post-Covid, with a sharper focus on planning for major uncertainty and unforeseen events. But there is also a demand for accessing capital to assist in growth while maintaining a strong sense of home, patriotism — that "being Kiwi" is more important than ever, and both investors and businesses want to do good for New Zealand.
That's also at the very heart of what New Zealand's Exchange has always been about, from our origins in the 1860s, where the Dunedin Brokers' Association had a vision for a meeting point that enables equal opportunity and access for local buyers and sellers.
Today, our listed companies continue to provide that vital life-blood, the avenue for New Zealanders to invest and share in the success of businesses they know and trust — productive assets that are creating jobs and fuelling the engine-room in their home country and tax jurisdiction.
The industry-led Capital Markets 2029 report captured the importance of our capital markets.
That's reflected in our vision at NZX to "Help build New Zealand's Tomorrow" — growing the New Zealand economy, and supporting the resilience and long-term success of Kiwi companies as a strength for our country.
Mark Peterson is CEO of the NZX