Stock takes: Regulation fatigue

Chapman Tripp's Roger Wallis reckons with all the proposed and actual changes to the financial sector rules going on, relevant agencies and others involved are in danger of being overcome by "regulatory fatigue".

Stock Takes certainly is.

This week has been a particularly busy one with the announcement of an extension to the retail deposit scheme, the NZX's release of a discussion document on market regulation, and a brace of announcements from Commerce Minister Simon Power on finance company regulation and further progress on a streamlined regime for capital raising offer documents.

Wallis and his colleagues at Chapman Tripp came out with some pretty sharp criticism of the proposals for improving information offered to investors around finance company moratoriums and for the apparent unco-ordinated nature of the Government approach.

Power's announcement came just a week after commerce select committee chairwoman Lianne Dalziel said the committee would be conducting an inquiry into issues around moratoriums.

Power's spokesman reckons there is a masterplan and the committee's work would feed into the formulation of the new rules where appropriate.

Meanwhile, Stock Takes believes it's worth taking Chapman Tripp's criticisms with a modicum of scepticism. While we are sure the law firm is at least partly motivated by a desire for a coherent and legal framework for moratoriums, having designed around half of the schemes to date it is surely at least partly concerned with defending its work and its clients' interests.

PREMATURE ELEVATION

Australian company Spotless Group's bid to mop up the remaining shares in locally listed Taylors Group has sent Taylors' shares sharply higher.

The intended offer price is $2.08 cash per Taylors share with shareholders still entitled to receive the 7c a share fully imputed final dividend, implying total value to Taylors shareholders of $2.15 a share, Spotless says.

Taylors' shares were trading at $1.80 at the start of last week but curiously rose 8c on Friday and a further 12c on Monday, the day before the takeover offer was announced.

Insider trading? If it was, said a source close to the Spotless bid, it was by someone with "modest aspirations" - the 12c rise was on turnover of just 250 shares. Hardly worth running the risk of a stiff penalty for.

Taylors shares closed unchanged at $2.10 yesterday.

HERE'S YOUR CHANGE

What's with Nuplex? First they don't have enough cash, then they have toomuch.

Having raised $160 million from shareholders in a far from smooth procedure earlier this year, it's now giving some of it back already.

Along with a better-than-forecast $16.7 million full-year net profit, the company yesterday announced a 3.5c a sharespecial dividend on top of its final 5c payout.

The special dividend represents a $6.65 million return to investors over and above the $9.5 million final dividend.

Nuplex shares were up 19c to $2.35 yesterday.

FIRST, THE GOOD NEWS

Stock Takes imagines holders of private-equity-owned Blue Star Print Group's NZDX listed bonds were cheered when the company announced "Blue Star Print Group Ltd Strengthens Financial Position".

What a relief!

It wasn't that long ago the company said it was in danger of breaching the covenants on its senior debt which would leave it unable to pay interest to the bond holders. As we noted several weeks ago, that caused the yield on the bonds to blow out to as much as 85 per cent.

Now the bad news: the company has suspended interest payments to bond holders owed $105 million.

"This measure is somewhat similarto decisions by many publiclylisted companies, in the currentdifficult economic environment, toforgo or reduce dividend payments,"said the managing director, ChrisMitchell.

Stock Takes is sure Blue Star's investors will regard this as a small price to pay for the company's new level of financial strength.

Blue Star's September 2012 bonds last traded at a yield of 60 per cent.

NOTHING TO DISCUSS: NZX SILENT ON REGULATORY REPORT

The timing of the release of NZX's "discussion document" on "The Allocation of Certain Regulatory Functions Across New Zealand" this week was interesting. It came as the Australian Government announced it was taking the front-line market surveillance role away from the ASX.

While NZX suggested it would be happy to give up some areas of regulation, market surveillance wasn't one of them. Why? Because NZX is setting up its new clearing and settlement system, "which will result in margin and collateral in the risk management system, making it more important than before that the knowledge and supervision of market events are at NZX". Would NZX, we asked several times, like to explain what this means? No, they would not.

"The proper forum for informed discussion on the New Zealand regulatory environment for capital markets is the Capital Markets Development Taskforce," was the response emailed to us.

Having released the "discussion document" publicly, NZX is refusing to discuss it. The clear inference is that regulation of our public capital markets is not a matter for public discussion.

SELF REGARD

I guess we're just going to have to trust NZX and the Capital Markets Development Taskforce to get its behind-closed-doors work on market regulation right.

And why wouldn't you? In terms of client funds protection and confidence, "based on actual outcomes, the NZX Supervision function must be held in high regard", NZX instructs us. For example, "when Access Brokerage failed through fraud, through the swift action of NZX, no client lost a single dollar".

Stock Takes isn't sure BNZ would see it that way. The shortfall in client funds at Access was largely covered by the bank, which has for the past four years been seeking to recover almost $5 million from NZX and auditors Deloitte.

BNZ's former general counsel Mark Dowland said NZX "failed to carry out with reasonable skill and care their duties to inspect Access Brokerage and to ensure that Access was meeting its obligations under the stock exchange's rules relating to the protection and preservation of investors' funds".

The action is ongoing.