Brian Gaynor: New NZSE chief will need a tough approach

By BRIAN GAYNOR

The appointment of Mark Weldon as the new chief executive of the New Zealand Stock Exchange has been greeted with widespread enthusiasm.

Weldon, 34, has impeccable credentials but he faces a huge challenge. The Stock Exchange is an efficient organisation but it has had no growth strategy and has dropped well behind its international competitors.

The new chief executive will have to take an aggressive approach towards attracting new companies to the exchange and to encourage individuals to put more money into the sharemarket.

Blis Technologies, Briscoes, Fisher & Paykel Appliances, Kirkcaldie & Stains, Rubicon, Wakefield Hospital and Wellington Drive Technologies have been the only new main board listings in the past 15 months and New Zealanders continue to show a reluctance to invest in productive enterprises through the stock exchange.

Many commentators lay the blame for this on the poor performance of New Zealand companies but it goes deeper than that. There seems to be an aversion to good as well as bad and overseas as well as New Zealand companies.

In the late 1990s AMP, AXA, Colonial and Tower were demutualised and shares were issued to their policyholders, mainly in Australia and New Zealand.

A shareholding analysis of these four blue-chip companies shows that New Zealanders have been far bigger sellers than their Australian counterparts.

Early sellers of Colonial shares have lost out in a big way because its share price has increased nearly four-fold after taking into account its takeover by Commonwealth Bank of Australia.

Weldon and the Stock Exchange will have to start convincing New Zealanders that the Stock Exchange plays a vital role in a free enterprise society and they should take a more positive approach towards sharemarket investments.

* Don Brash & Ralph Norris

Just 24 hours after Weldon's appointment, Reserve Bank Governor Dr Don Brash made the shock announcement that he had resigned and was going into politics. Brash is highly regarded but appears to be too much of a gentleman for the cut and thrust of politics.

There was a similar air of disbelief when Ralph Norris gave up the relatively easy life as a company director to become chief executive of Air New Zealand. But Norris has been a huge success and the national carrier's sharemarket value has increased by $715 million to $2.06 billion since he stepped into the hot seat on February 18.

The Government's $885 million investment is worth $1689 million and Norris, who was a fierce opponent of Government intervention when he was chairman of the Business Roundtable, has turned Finance Minister Michael Cullen into an astute investor.

Brash will have to wait in the wings if National loses the general election but his party will be hoping to convince the electorate that he could have the same positive impact on the New Zealand economy as Norris has had on Air New Zealand.

* Compass Communications

What is going on at Compass Communications?

The company, chaired by John Fernyhough, was listed on the New Capital Market (NCM) on November 29, 2000, with a stated objective to acquire the telecommunication and internet services operations of Compass Communications. This is called the key transaction.

On October 10 last year, the listed entity reported that the key transaction had been deferred until early this year but no further announcements have been made.

Under the NCM rules Compass has 18 months, or until May 29, to complete the key transaction. If the transaction is not completed by that date then the following provisions of Listing Rule 12.8.2 come into force:

(a) The quoted equity securities of the NCM issuer may be suspended from trading; and

(b) If required by the exchange, the NCM issuer shall put forward a special resolution to place the NCM issuer into liquidation for consideration at the next annual meeting of shareholders.

These options are not attractive to shareholders because Compass has a net asset backing of only 33c a share compared with the issue price of 50c.

The onus is now on the company's directors to find another key transaction if the original proposal is no longer viable.

* The Lord of the Rings

The 71-page report on The Lord of the Rings by the Institute of Economic Research (NZIER) is an incredibly disappointing document.

The study, which cost an estimated $100,000, was prepared for the Film Commission.

Its chief executive, Ruth Harley, has used the report to gloat about her organisation's involvement in the international blockbuster.

The purpose of the report was to enable the Film Commission to make an informed assessment of the effects of The Lord of the Rings on the domestic film industry and on selected areas of the economy.

Peter Jackson told the NZIER that $353 million was spent on the movie in New Zealand between mid-1998 and last month. The report then draws a number of vague conclusions, particularly on the movie's impact on inbound tourism.

Unfortunately, the study makes no mention of the substantial cost of the project in terms of tax breaks, estimated at $217 million.

The only costs identified by the NZIER are an increase in house prices in Wellington's eastern suburbs, wage rises, an adverse environmental effect in some locations and parking congestion in Miramar.

Any credible economic analysis of the project should look at all the costs as well as the benefits.

* Shareholding disclosures

A frustrating aspect of most annual reports is the largest 20 shareholders' list because many of the larger shareholdings are consolidated in nominee holdings and there is no way of knowing who are the beneficial owners of these shares.

The issue is complicated because New Zealand Central Securities Depository (NZCSD) provides a custodial depository service to institutional shareholders and does not have a beneficial interest in the shares it holds. Included in the NZCSD holding are several nominee companies that hold shares on behalf of other parties. These companies offer management facilities, including proxy and dividend services.

All the NZSE-10 index companies, with the exception of Sky Network Television, give a breakdown of the shareholdings within NZCSD.

National Nominees is a large shareholder in several NZSE-10 index companies including Auckland International Airport (4.7 per cent), Carter Holt Harvey (14.6 per cent), Contact Energy (4.9 per cent), Fletcher Forests (9 per cent), Telecom (25.3 per cent) and The Warehouse (8.7 per cent).

National Nominees owned 14.9 per cent of Fisher & Paykel before the split and it now holds 13.7 per cent of Appliances and 12.4 per cent of Healthcare. As both the Fisher & Paykel companies have relatively open share registries it would be interesting to identify the beneficial owners behind National Nominees and the other nominee companies.

Investors cannot hide behind nominee companies in the United States as there is a requirement to disclose all major holdings, including purchases and sales. New Zealand investors do not have the same information.

* Disclosure of interest: none

* bgaynor@xtra.co.nz