Next wave: 'Guinea pigs' frustrated at money and time wasted

By PETER GRIFFIN

Companies looking to list on the new capital market are being urged to consider other options, as criticism of the market's processes - aimed at faster listing - continues to mount.

Executives of several listed companies and brokers have vented their frustration at the substantial cost and time needed to prepare and submit information required by the New Zealand Stock Exchange.

Wayne Collins, a broker at DF Mainland, said the information disclosure rules imposed on new market companies came with cost implications that placed too much strain on the firms.

"In theory, the new market is a brilliant idea; in practice, it's been a disaster. It's getting to the stage where we are almost discouraging clients from taking the new capital market route."

Some brokers claim an overhaul of the outdated Securities Act will ease the process for companies wanting to list on the junior market. But Mr Collins believes a change of attitude among exchange executives would do more good.

DF Mainland was one of a group of brokers that voiced their displeasure to the Stock Exchange over the new market rules, but says it has had little by way of response.

Bill Foster, managing director of the New Zealand Stock Exchange, agreed the provisions of the Securities Act were outdated and failed to apply properly to companies that dealt primarily with intellectual property substantial assets and with intellectual property.

"We are demanding the same level of documentation from new market companies as we would from companies wanting to raise $50 million on the main market. As a consequence of that, we are not sufficiently reducing the level of costs for the little companies.

"These businesses can wind up paying a good chunk of the money they are trying to raise just simply in providing information. We are trying to get the balance right," said Mr Foster.

Rocom Wireless, an early lister on the new capital market, spent between $300,000 and $400,000 to raise $2 million and claims it would have been far cheaper for the company to have pursued a main board listing.

Managing director Steve Borich said the company paid the cost of leading the way.

"We understood it was an inexpensive way to list but a couple of other avenues would have worked out a lot quicker and cheaper. We were the guinea pigs and there were a lot of bureaucratic holdups. We've got where we wanted to go, albeit more expensively."

Peter Montgomery, director at marine technology specialist Mooring Systems, said: "Rocom's sacrifice has made it easier for the rest of us."

Mooring Systems undertook a share issue to raise $600,000 in December, a process that cost the company around $60,000.

"We were pleased with that figure and the entire process as a whole. Everyone has learned a lot from the companies that were the first to go through the process."

Ten companies have so far listed on the new capital market, with several soon to carry out a "key transaction," which can be an acquisition of assets or merger with another business worth over $1 million.

The listed companies face differing regulations to those listed on the main board. A junior company must have a minimum of 300 shareholders who are members of the public and resident in New Zealand and, initially, no shareholder may hold more than 2 per cent of total shares on issue. An initial public float must raise between $400,000 and $600,000.

Internet service provider Compass Communications listed last November. Its chief executive, Karim Hussona, said the listing process was often complex and time-consuming but was still an attractive option for small companies facing the alternative of seeking out constrictive bank loans or elusive venture capital.

"Venture capital is hard to get hold of and you end up with potentially a large and very influential shareholder who may take the company in a direction you don't want it to go.

"There's a handful of brokers now who have taken companies to market. Their learning curve has been considerably steep. Once they've got the first few out of the way, the process should be simpler."