Accessing a larger capital pool through an ASX listing

Wed 11 August 2021

Lysa McKenna and Hugh Falcon

Link Group, and Macquarie Group

Lysa McKenna of Link Group and Hugh Falcon of Macquarie Group discuss the benefits of NZ companies listing on ASX.

Australia’s status as the world’s fourth-largest pension pool – and the expected growth in its superannuation assets – are compelling arguments for New Zealand companies to list on ASX.

Less considered is the make-up of Australia’s investable capital base and how that affects the reach of NZ companies with institutional investors in global capital markets.

As part of its content series on NZ listings, ASX asked two leading experts in their field about the benefits of NZ companies listing in Australia.

Lysa McKenna is the CEO of Corporate Markets APAC at Link Group. Link is a global provider of share-registry services and, through Orient Capital, a provider of share-ownership analysis, market intelligence, investor communications and shareholder-management technology.

Hugh Falcon is Head of Capital Markets, Australia & New Zealand, at Macquarie Group. Macquarie is a leading investment bank in dual listings and Initial Public Offerings (IPO).

Here are their comments:

Lysa McKenna
Link Group

Orient Capital’s analysis of ownership data of more than 70 per cent of companies in the S&P/ASX 300 index shows the benefits for NZ companies when dual listing on ASX.

Our research found there are 2,200 global institutional investors (of which about 400 are Australian institutions) that invest $1.3 trillion in the ASX 300. Our analysis of companies on NZX identifies about 800 global investors that invest about $50 billion in that market.

Simply put, a NZ company that dual lists on ASX is potentially tapping into a global base of 2,220 institutions, versus 800 if they are only listed on NZX. Clearly, NZ companies that want maximum impact in global capital markets should consider a dual listing on ASX.

Orient Capital research finds much commonality between investors on ASX and NZX. About 80 per cent of global institutions that hold equities on NZX also hold equities on ASX. A dual listing on ASX enables NZ companies to target institutions that invest through both exchanges.

Geographically, it’s easier for global investors to meet dual-listed companies on their roadshows. Australia and New Zealand are in a similar time zone for global investors and a travel ‘bubble’ between the two countries has opened, facilitating travel. It’s convenient for a global institution to visit ASX and NZX dual-listed companies in the one investor meeting.

Also, dual-listed companies see a higher benchmark around use of technology with e-communications being embraced. Our research shows up to 70 per cent of dual-listed companies in NZ use digital tools for shareholder communication, compared to about 50 per cent of companies solely listed on NZX.

Over the years, we’ve seen retail investors in both markets occasionally excluded from printed shareholder communications because a letter went missing when mailed or took too long to arrive. Moving to electronic communication during the dual-listing process overcomes this problem and is a lot cheaper and efficient.

Since 2012, New Zealand companies have had the ability to conduct virtual shareholder meetings. That has benefited all NZ companies including those with a primary listing on NZX and ASX, particularly during Covid. Australia implemented temporary measures to allow virtual meetings during Covid, however Australia legislatively still lags behind NZ in the adoption of this format. No doubt, NZ dual-listed companies enjoy the benefit of being able to offer a range of ways to engage with shareholders during AGM time.

Higher share liquidity is another potential benefit for NZ companies with dual listings. By giving foreign investors the opportunity to buy shares on NZX or ASX, the NZ company is aiding investor choice, appealing to a larger capital base and potentially boosting its liquidity.

NZ outdoor-wear retailer Kathmandu Holdings (ASX: KMD), for example, increased its investor base by 34 per cent from May 2000 to May 2021, according to Link Market Services research. (Kathmandu is listed on NZX and ASX.).

Overall, we expect continued growth of NZ companies dual-listed on ASX. The ASX has a strong IPO pipeline and NZX’s IPO pipeline, by contrast, has been subdued for some time. There’s a lot of capital looking to support NZ companies through the Australian IPO market.

Hugh Falcon

Macquarie Group

Macquarie generally recommends a dual listing on NZX and ASX when advising New Zealand companies on an IPO. Over the last decade, we have seen dual listings at IPO become the ‘norm’ for many mid-large-sized NZ companies because it makes sense to benefit from being listed on two exchanges from the start of the listed company’s life.

The main benefit is access to a greater number of potential investors. Not all Australian fund managers have a mandate allowing them to invest directly in companies listed only on NZX. A dual listing, however, enables NZ companies not only to access Australian fund managers that have ASX-restricted investment mandates but also a broader base of international investors as well. NZ companies can benefit significantly from access to the large, growing pool of institutional capital in Australia, and the best way to get that is by listing on both exchanges.

The most popular dual-listing option adopted by NZ companies is a ‘primary’ NZX listing with a ‘foreign exempt’ listing on ASX. With this model, the greatest incremental IPO demand tends to come from Australian institutions. There are some limited examples of NZ companies having a full dual listing on NZX and ASX, with the main benefit of this being the potential for incremental index fund demand as a result of Standard & Poor’s index inclusion rules.

Maximising retail ownership is another consideration. Australian retail investors typically buy ASX-listed stocks through an Australian broker as opposed to investing directly in NZ stocks. A dual listing makes it possible for NZ investors to buy NZ companies on NZX and for Australian investors to buy NZ companies on ASX. This can provide issuers with a “best of both worlds” opportunity through gaining access to retail as well as institutional investor ownership on ASX while also being able to tap high-quality, NZ-based, long-only funds and NZ’s high levels of ‘sticky’ retail investor ownership.

Also, the Australian retail investor base can be an additional source of incremental demand over time for dual-listed NZX / ASX companies, particularly those with brand recognition in Australia.

We expect an increasing number of NZ companies to consider a primary or secondary listing on ASX in the coming years. Macquarie continues to see strong interest from Australian institutional investors in high-quality NZ companies with strong domestic market positions and/or growth potential in international markets, particularly since NZ has been the source of some successful companies over recent years.

Of course, there are some incremental costs for NZ companies with a dual listing, but these costs are often outweighed by the benefits of increased investor access.

Australia has a vibrant IPO market. Over the last decade, 115 companies have raised A$50.6 billion in IPOs (greater than A$100 million) on ASX compared to 20 companies raisings NZ$8.6 billion in IPOs (greater than NZ$100 million) on NZX - 15 of which were NZX-ASX dual listings. That is another reason why NZ companies looking to raise capital through an IPO should consider a dual NZX / ASX listing.

Macquarie has acted on a number of dual listings, notably the two largest in NZ: the NZ$1.7 billion Mighty River Power (now Mercury NZ. ASX: MCY) listing and the NZ$1.9 billion Meridian Energy (ASX: MEZ) listing, and several other dual listings for small and mid-cap NZ companies.

Macquarie also worked on the largest-ever block trade in NZ: the NZ$1.8 billion Origin Energy sell-down of its stake in dual-listed Contact Energy (ASX: CEN).

That experience has reinforced for us the benefits of NZ companies, large and small, pursuing a dual listing on ASX and NZX at IPO.

Where to now?

For more information contact ASX Listings Business Development