In the next five years, 25-50 New Zealand companies could list on ASX to access Australia’s capital pool and potentially achieve higher share liquidity and index inclusion.
That is the view of Max Cunningham, ASX Executive General Manager Listings, Issuer Services and Investments, and the leader of ASX’s listing strategy for NZ companies.
“An ASX listing is a pathway for NZ companies to a pool of investable capital in Australia that is over four times larger than that in NZ[i],” says Cunningham. “Through ASX, NZ companies can target Australian and global capital markets.”
Cunningham adds: “ASX wants to help NZ companies increase their liquidity, which in turn can lead to index inclusion and more investors owning their shares. Most of all, we want NZ companies to have a great experience being listed on ASX.”
Seven NZ-based companies listed on ASX in 2020, taking the current total to 63.[ii] Cunningham expects faster growth in NZ listings on ASX this decade, with 5-10 listings annually. Almost one in four foreign listings on ASX is now an NZ company.[iii]
New Zealand companies listed on ASX include The a2 Milk Company (ASX: A2M), Auckland International Airport (ASX: AIA), Air New Zealand (ASX: AIZ), Fisher & Paykel Healthcare Corporation (ASX: FPH), Kathmandu Holdings (ASX: KMD), Laybuy Group Holdings (ASX: LBY), Pushpay Holdings (ASX: PPH), Spark New Zealand (ASX: SPK), and Xero (ASX: XRO).
More dual listings will occur through an Initial Public Offerings (IPO) on ASX, says Cunningham. “Dual listing on ASX from day one makes sense for NZ companies. Starting life as a dual-listed entity creates economies of scale and means the company immediately targets a larger potential shareholder base through their investor relations activities.”
ASX has a vibrant IPO market. There were 113 new listings on ASX in 2020, making it one of the world’s most active exchanges by listing volumes. NZX had five listings in 2020.[iv]
Just over US$25 billion was raised in IPO capital on ASX in 2016-20. By contrast, US$539 million in IPO capital was raised on NZX during this period.[v]
“Australian investors are supportive of emerging and established NZ companies dual listing on ASX,” says Cunningham. “That’s based on long-term growth in NZ listings on ASX, increases in average share turnover, and index-inclusion trends.”
He says Australian investors recognise the strength of New Zealand’s economy and the quality of its companies in technology, agriculture, and other sectors. Similar regulatory, reporting and accounting frameworks between Australia and NZ are other benefits.
Strong commitment to NZ companies
In September 2015, ASX introduced a new category of streamlined dual listings: “NZ Foreign Exempt” – ASX’s first country-specific foreign exemption. This change made it easier and cheaper for NZ companies listed on NZX’s main board to dual list here.
NZ companies, such as Spark, Fletcher Building (ASX: FBU), and Air New Zealand, have their primary listing on NZX and are listed on ASX as a “Foreign Exempt Issuer”. Such companies must comply with NZX Listing Rules and have exemptions to several ASX Listing Rules.
a2 Milk, EBOS Group (ASX: EBO), Sky Network Television (ASX: SKT), and other NZ companies are dual-listed on ASX and NZX, meaning they have a primary listing on both exchanges and must comply with each exchange’s listing rules, which are generally aligned.
A nascent trend is sole listings of NZ companies on ASX. In early 2018, accounting software star Xero transitioned from a dual listing on NZX and ASX to a sole listing on ASX.
In 2019, ASX opened an Auckland office and appointed Blair Harrison, a New Zealander who had worked at ASX since 2013, to run its NZ issuer services. “Opening an NZ office and appointing Blair was a natural evolution for ASX,” says Cunningham. “ASX’s research and regular visits to NZ highlighted the need for a strong on-the-ground presence.”
Additional support for NZ companies comes from the ASX Evolve program. It includes the semi-annual ASX Small and Mid-cap Conference and the ASX CEO Connect program, which showcases large-cap companies to Self-Managed Superannuation Funds and retail investors.
The ASX Equity Research Scheme, among the most successful of its kind in the world, subsidises equity research on eligible companies by partnering with a number of well-established research brokers working in the small- and mid-cap space. This research can help raise awareness and liquidity and awareness of smaller companies, including those based in NZ.
Cunningham is pleased with the results of ASX’s NZ strategy. ASX’s market share of NZ equities trading was 56 per cent in 2020, more than double the 2014 figure.[vi] The average daily value turnover of ASX-listed NZ companies is now higher than that of the total NZX market.[vii]
The volume and value of NZ listings on ASX continue to increase and there is rising awareness of the benefits of an ASX listing among NZ IPOs and technology companies. “This is a long journey for ASX,” says Cunningham. “Helping NZ companies access a larger pool of investable capital in Australia is good for investors, the NZ economy, and ultimately both exchanges.”
Cunningham says growth in NZ listings on ASX is due to three main factors: access to a larger investable capital pool, the potential for higher share liquidity, and index inclusion.
ASX is attractive for NZ companies because Australia has the world’s fourth-largest investable pension pool.[viii] Australia’s superannuation sector is projected to be worth $10 trillion in 2038, from $2.7 trillion in 2020.[ix]
However, most Australian fund managers have a mandate that requires them to invest only in ASX-listed entities. A dual listing on ASX for NZ companies overcomes that issue.
The fund mandate available to ASX-listed NZ companies was $254 billion in June 2019. The mandate available to NZX-listed NZ companies was $61 billion. [x] “NZ companies that list on ASX are being exposed to almost $200 billion of additional investable capital,” says Cunningham.
He says access to Australian retail capital is another consideration for NZ companies. “Retail investors are far likelier to invest through their home exchange than via a foreign exchange. There is a natural synergy for NZ companies that have well-known brands in Australia, or are building a presence here, to list on ASX and appeal to retail investors who know their offering.”
Access to additional Australian institutional and retail capital has, on average, driven a significant uplift in the liquidity of NZ companies listed on ASX.
NZ companies had a median 93 per cent increase in trading volumes in 12 months of their ASX listing (over 2010-19) on their home exchange.[xi] For NZ companies where no additional capital was raised, volumes on their home market increased 64 per cent.[xii]
The average daily traded value of NZ companies listed on ASX is $254 million.[xiii] About $8 billion of equities are traded daily on ASX.[xiv]
“There’s been a clear trend over the past 10 years,” says Cunningham. “NZ companies that dual list on ASX on average achieve significantly higher liquidity in their ASX-listed and NZX-listed shares. Far from ‘splitting’ liquidity across two exchanges, a dual listing tends to increase a NZ company’s overall share turnover. Institutions trade where the liquidity is.”
Higher liquidity can lead to index inclusion for NZ companies via ASX. Early entry into a globally recognised index, such as the S&P/ASX 300 index, can attract institutional capital to a company sooner, which, in turn, can further boost share turnover and amplify share demand.
Fund managers, for example, might build a position in companies in their benchmark index (against which their fund’s performance is compared). Not holding a share in an index means an active manager is taking a deliberate “underweight” position in that stock.
Exchange Traded Products (ETPs) – a strong growth market on ASX – replicate the weighting of shares in an underlying index to mirror the index’s performance. The ASX ETP market was worth $106.6 billion at end-April 2021, up 75 per cent on a year earlier.[xv]
About one in three NZ dual-listed companies is now included in an index on ASX.[xvi] Xero is part of the S&P/ASX 50 index; Fisher & Paykel Healthcare is in the S&P/ASX 200 (ASX: FPH) and 22 NZ companies are in the S&P/ASX All Ordinaries index.
Launched in February 2020, the All Tech index has been an important development for ASX-listed tech companies seeking index inclusion. The index has 75 constituents from the information technology and other sectors on ASX.[xvii] The All Tech index rose 64.8 per cent over one year to end-April 2021.[xviii]
A technology company with a minimum market capitalisation of $120 million will gain entry to the All Tech index.[xix] By contrast, a company needs a minimum size of $7 billion to be included in the FTSE 100 index in the United Kingdom. Or $21.8 billion for inclusion in the S&P 500 index and $31.1 billion for inclusion in the NASDAQ 100 index in the United States.[xx]
“New Zealand has some great technology companies,” says Cunningham. “Small- and mid-cap NZ tech listings on ASX have more potential for index inclusion compared to larger global exchanges because the minimum requirement to enter an index on ASX is lower.”
Cunningham says ASX is optimised for emerging NZ tech companies. “Inclusion in the All Tech index means a NZ tech company will be exposed to Australian and global investors at a much earlier stage of its development. That can potentially enhance its liquidity and ability to raise secondary equity capital on ASX and fund growth.”
[i] Orient Capital (June 2019), “Australian Institutional Investor Survey,”.
[ii] At May 17, 2021.
[iii] Based on more than 260 foreign listings on ASX at June 2020.
[iv] Selected exchanges at 31 December 2020. Source: new listings data sourced from exchange website. NZX data from Business Desk. ASX includes stapled securities and debt listings; Includes junior markets where applicable. SPAC data sourced from Dealogic.
[v] Dealogic, 31 December 2020, figures include junior markets where applicable.
[vi] Bloomberg, ‘ASX Listed’ includes ASX and Chi-X trading, 31 December 2020. Excludes delisted companies and ETFs
[viii] Source: Willis Towers Watson Global Pension Assets Study 2020.
[ix] Source: Deloitte and APRA, November 2019. 2019 ^ Projected to 31 December 2038.
[xi] Bloomberg, median trading volumes traded. Based on selected NZ companies. Excludes positive outliers A2Milk, and Contact Energy (50% sell-down before listing) and since de-listed companies. Includes companies that undertook ASX listing from 2010 to 2019.
[xiii] ASX, “ASX New Zealand – bringing global capital markets to New Zealand Companies.” At May 2021.
[xiv] *12-month rolling average across ASX& Chi-X. At May 2021.
[xv] ASX, “ASX Investment Products Report,” April 2021.
[xvi] S&P Rebalance Announcements, 31 March 2021
[xvii] At March 2021 rebalance of Index.
[xviii] Source: BetaShares.
[xix] Market cap levels at which companies enter and exit indices vary from time to time depending on overall market cap and liquidity levels. These numbers are indicative based on recent historical rebalances.
[xx] Indicative values based on eligibility criteria or inclusions at last rebalance. “Company size” is total market cap. Exchange rates at 16 July 2020.