Year a mixed bag for baby bourses

Geoff Brown (left) and Bruce Cossill

Arguably one of the more entrepreneurial nations, New Zealand is teeming with small and medium-sized enterprises so it would be easy to conclude that the two sharemarkets aimed at such companies would be on to a winner.

But, unfortunately, 2005 was a year of mixed results for unregistered market Unlisted and sharemarket operator NZX's baby bourse, the NZAX. Unlisted manager Bruce Cossill said he was just "relatively pleased" with the market's performance while NZX head of markets Geoff Brown said he was merely "reasonably happy" with a "satisfactory" year on the NZAX.

Unlisted began last year on the back foot after former Commerce Minister Margaret Wilson instituted a review of the unregistered exchange's status and appeared keen on regulating it.

Cossill said Unlisted was diverted for much of the year by the energy and expense required to persuade the Government to leave it alone. Furthermore, the threat of regulation hanging over the exchange appeared to spook potential new listings, with the exception of Syft Technologies.

Cossill said Unlisted was "quite lucky" to get even one new listing during the period.

"We probably underestimated the impact the review had on our growth prospects and it's taking a little while longer to get issuers on board."

In August, Wilson's successor, Pete Hodgson, let Unlisted off the hook, saying there was not sufficient evidence that it would harm New Zealand's securities markets, but he warned regulation might be reconsidered if Unlisted's trading volumes increased significantly or if there was evidence that investors were mistaking it for a registered exchange.

During the review, Cossill said Unlisted was aware of "a considerable amount of lobbying that was done behind the scenes by parties in whose interest the exit of Unlisted would suit".

There were 25 submissions to the minister during the review and all but two - from the Securities Commission and NZX - were supportive of Unlisted. Although saying the NZX's submission was based on "self-interest", Cossill was reluctant to play up any rivalry with NZAX because "they provide a different range of services".

"Unlisted aims to provide a trading facility for companies that have historically been over-the-counter traded whereas the registered exchanges offer a full suite of support for capital raising and listing and all that goes with it," he said.

"We are different but there can be an overlap in our potential clients.

"We would regard Unlisted as a stepping stone for a lot of companies out of over-the-counter trading to the AX or SX."

Comparing the two, Unlisted is the bigger by market capitalisation but has not grown in the past year.

A 50/50 venture between electricity market operator M-Co and 12 individual investors, Unlisted quotes 25 securities for 21 issuers and has a combined market capitalisation of about $940 million.

Cossill said Unlisted's market cap was skewed somewhat by the presence of South Island businessman and Unlisted shareholder Barry Thomas' $205 million Skyline Enterprises.

Meanwhile, the NZAX has 25 issuers, three more than the preceding year, and has a combined market cap of $639 million - up 35 per cent on the previous year.

A significant difference between the two markets is the far greater activity and liquidity on the NZAX. Last year, there were 1581 trades with a combined value of $16.4 million on Unlisted, against 7635 trades on the NZAX with a combined value of $58.4 million - however, a considerable portion of that was trading in just one company, Plus SMS.

Brown described the NZAX's progress last year as "reasonably successful". Apart from its rising market capitalisation and trading volumes, he pointed to the $65.5 million raised by 10 NZAX companies in IPOs and subsequent capital raisings.

"The increases that we saw in the metrics for the full year are pretty encouraging ... They are all things that we would regard as being satisfactory."

However, NZX wanted to see the NZAX do a bit better.

"It's timely at this point that we take stock of what we've done ... We're reasonably happy with where things have gone but that's not to say that there are not areas that we'd like to review, refine or change.

"There is room for continuing to look at how this market might continue to grow. Clearly, we'd want to be targeting a larger number of companies to be listed on this market."

NZX was talking to several organisations about potential NZAX listings and was working more closely with its network of NZAX sponsors - the brokerages, banks, and law and accountancy firms that are able to bring new companies to the market.

Meanwhile, with the threat of regulation in abeyance, Unlisted is also hoping to attract more listings this year.

Cossill said: "We're speaking to several who are considering the option and I'm sure there are a few that are looking at us that we don't know about.

"We would be comfortable if we picked up half a dozen during the calendar year.

"Like any business, we want to grow and I think this year will show the result of providing a credible, stable, suitable service to our target customers."