Following market consultation last year, NZX has released the outcomes of its review of capital raising settings.

The key question considered was whether accelerated non-renounceable entitlement offers (ANREOs) should be permitted as of right under the NZX Listing Rules and, if so, how to ensure existing shareholders are appropriately protected.

We were pleased to see NZX conclude that ANREOs should be permitted as of right, subject to certain investor protections.

What is an ANREO?

An ANREO is a pro-rata rights offer to all eligible existing institutional and retail shareholders. ANREOs are usually conducted at a discount to market price, and therefore the entitlement to participate has inherent value if exercised.  ‘Non-renounceable’, in context, means shareholders receive no value for the entitlements under the offer if they do not exercise them.

Why change required

Currently, ANREOs are not permitted under the NZX Listing Rules as of right.  Instead, a waiver from NZ RegCo is required.  

A class waiver was temporarily introduced by NZX in 2020 to facilitate capital raising in the wake of COVID-19, which was utilised by a number of issuers, including Sky, Augusta, Vista and Kathmandu.  The class waiver has since expired.

By comparison, ASX, LSE, NYSE, SGX and HKeX all permit non-renounceable structures in some form via their rules (as opposed to needing a waiver).

Competing views

In its review, NZX had to balance two competing perspectives.  

One view is that the right to subscribe for new capital in a capital raising should belong to shareholders, as the owners of the issuer, either to be exercised or sold.  Non-renounceable structures, such as ANREOs, place shareholders in the position of either participating in the offer, or facing dilution if they elect to not participate, or are unable to participate (without the potential to receive any compensatory value for their forfeited rights).  

The competing view is that issuer boards should be given the flexibility to deliver outcomes in the best interests of the company, and thus shareholders as a whole.  In some circumstances, ANREOs may be the best option for an issuer and should thus be permitted under the Rules.

On balance, NZX did not consider it appropriate to rely on waivers to permit ANREOs as it would likely require NZ RegCo to make a merits assessment of the proposed offer structure, a question best reserved for an issuer’s board.  

Outcomes of NZX review

NZX concluded ANREOs served a useful purpose and should be permitted by default under the Rules if doing so is in the best interests of the issuer.  To offer protection to shareholders, NZX has proposed a dilution limit of 1:3 and required additional disclosures within the offer documentation.  These disclosures will address:

  • The reasons why a non-renounceable structure has been selected by the board;
  • Why the proposed structure is in the best interests of the company; and
  • The expected impact on the non-participating shareholders.

NZX stressed its expectation that any diligent board would receive independent external advice on the merits of the proposed capital raising structure, although it decided against mandating it.  

Next steps

The proposed amendments to the Listing Rules will require formal approval from the FMA.  NZX will publish further guidance on the new requirements prior to the amended Listing Rules taking effect, which is not expected prior to 1 October 2023.

NZX is also considering options for delivering additional training and guidance for boards to increase capability in relation to capital raisings more generally.

Other changes

The response paper also addressed various other capital raising matters.  Notably, the Share Purchase Plan (or SPP) thresholds have been increased from $15,000 to $50,000 per shareholder and from 5% to 10% of existing equity in aggregate.  The increased thresholds bring it into line with the market practice which developed in recent years, with issuers supplementing SPP cap via placement capacity.  Under the current proposal, issuers will also be able to ratify issues made under an earlier SPP to replenish capacity.  

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