Looking ahead: the investment boom of 2003

By BRIAN GAYNOR

Auckland, November 28, 2003

Police yesterday dispersed thousands of excited investors besieging stockbroker offices in Auckland's financial district.

The latest developments occurred after weeks of hectic activity on the New Zealand sharemarket that has seen the NZSE40 Capital Index soar from 1945 at the end of 2002 to 2987.

At one stage police erected crash barriers outside stockbrokers JB Reward in Shortland St as investors swarmed its office to apply for shares in Infrastructure Auckland's selldown of Ports of Auckland shares.

One eager investor told the Business Herald, "I haven't bought any shares since I lost my shirt on Equiticorp in 1987, but when JB Reward announced that it would give priority to New Zealand investors over international institutions, I decided I was in. This is a great move for the sharemarket and for New Zealand."

A senior police officer said it was the third time central Auckland had been inundated with huge crowds this year. The others were when Dean Barker beat Russell Coutts in the dramatic ninth race of the America's Cup and when the All Blacks arrived from Sydney after their decisive 36-to-19 World Cup final win over England.

The huge interest in share issues can be attributed to a number of decisions made this year. In late January, JB Reward's chief executive announced that it had adopted two new policies towards Initial Public Offerings (IPOs).

First, the main objective of any JB Reward float would be to protect the interests of the investing public and, second, New Zealand investors would have priority.

This was greeted with great scepticism, but in the following three months JB Reward organised four new floats, all of which were distributed widely, were fairly priced and are trading in excess of 50 per cent above their issue price.

The partial sale of Vector was particularly successful. Brokers were overwhelmed with applications, shares were allotted to 215,000 new shareholders and not one overseas institution was given an entitlement.

Overseas institutions were furious. A spokesman for the huge International Income Fund told the Wall Street Journal: "We cannot understand what has happened in New Zealand. We used to get great deals there. In fact we were given priority over local investors. It's a great pity from our point of view because New Zealand was the only country that put our interests ahead of local investors."

The adoption of an active approach by big institutions towards corporate governance has been another important development.

A group of them led the charge to dump Colin Beyer and a number of other directors at the Tower annual meeting.

A spokesman for the Shareholders Association told the Business Herald that the Tower meeting was a watershed event.

"We started the campaign to change the Tower board, but when the big institutions joined in it gathered real momentum," he said.

"We now find when we visit a company a number of institutions have been there before us, whereas in the past most companies were able to argue that they were doing nothing wrong because their institutional shareholders had not complained."

When association chairman Bruce Sheppard stood up at the Rubicon annual meeting, four fund managers had already spoken and Simon Botherway wasn't even in attendance.

Those institutions were responsible for the appointment of Tony Gibbs as chairman and the substantial improvement in Rubicon and Fletcher Challenge Forests share price performances.

Institutions also initiated the campaign that has led to major changes at Telecom.

Sheppard says he is happy to take a back seat to the big shareholders. He told the Business Herald that there was still an important role for the Shareholders Association and a joint committee had been set up with the big institutions to work on a number of issues including executive remuneration, options schemes, independent directors and the call for fund managers to disclose their voting decisions.

Another important development has been the more rigorous approach by the Market Surveillance Panel and Securities Commission towards enforcement. The panel has granted far fewer waivers this year and the commission's report on the 2002 Vertex IPO was widely acclaimed.

The sharemarket has also benefited from the quick resolution of the Iraq conflict, President George W. Bush's decision to abolish all restrictions, tariffs and quotas on agriculture and primary imports and the excellent performance of a large number of New Zealand companies.

Fisher & Paykel Appliances finally capitalised on its huge research and development; The Warehouse and Fletcher Building achieved excellent returns in Australia; Carter Holt Harvey and Fletcher Forests benefited from an improved forestry outlook; Auckland Airport and Sky City continued to produce outstanding results; Sky Network Television was on the verge of becoming a huge cash cow; and Telecom gained from its decision to focus on its core business.

Air New Zealand also went from strength to strength. The huge worldwide interest in the spectacular nine-race America's Cup gave a big boost to the tourism industry and the airline had a highly successful rights issue after the Commerce Commission's rejection of the proposed Qantas deal.

The congestion in central Auckland yesterday was caused by the requirement for investors to apply in person for Ports of Auckland shares, which are being sold to the public at a discount of 7.5 per cent by Infrastructure Auckland.

At 5am hundreds were queuing outside brokers' offices in Shortland St and Albert St, and by 8.30am police estimated there were tens of thousands lined up. A veteran policeman said he had not seen queues like this since the 1956 Springbok tour.

A spokesman for JB Reward, the organising broker, said that the next issue would have to be done differently because the firm had not anticipated the overwhelming demand. But JB Reward was delighted with the renewed interest in the sharemarket.

The spokesman told the Business Herald that at the beginning of the year JB Reward's senior executives had a weekend retreat to analyse their disappointing performance in 2002.

The general conclusion was they could continue to do business the same tired old way or take a leadership role and genuinely promote the interests of retail investors ahead of overseas interests and vendors in IPOs and major share placements.

They took the latter course and their only regret now was that they hadn't done so years ago.

The JB Reward spokesman said: "The only trouble now is that we have a shortage of advisers, analysts and office space. Most of us will have to work through the Christmas-New Year break as seven IPOs are planned for January and a further 10 in February."

Meanwhile, the market had another excellent day as the NZSE40 Index closed up 28 points at 2987, its highest level since October 22, 1987. Volume was $187 million, the 43rd day in a row it has exceeded $150 million.

Fisher & Paykel Appliances, The Warehouse, Sky Network Television, Vector and the NZ Stock Exchange all closed at all-time highs.

The Stock Exchange, which issued shares to the public in August, has nearly doubled in value since listing.

Telecom had another good day as investors responded positively to the sale of its 11.9 per cent Sky TV stake.

Brokers report that they expect a strong showing from Tru-Test when it lists tomorrow. Investor interest has increased since a number of board members were replaced at the insistence of institutional shareholders.

The overall outlook for the market remains positive, according to an analyst at JB Reward.

Overseas interest in the New Zealand sharemarket was unprecedented, he said.

"These investors accept that they no longer receive priority treatment in New Zealand but they are now attracted by the strong performance of our companies, their relatively cheap valuations and the large number of new and exciting IPOs."

* bgaynor@xtra.co.nz