The last 3 months has seen an unprecedented flurry of corporate actions (capital raisings, corporate sell downs, mergers and take overs) on the NZ stock market that has not been seen since the flood of capital raisings driven by the GFC in 2009. However, the rational for the current deals illustrates the clear differences in the market between 2009 and now.
The spate of capital raisings undertaken during 2009 were ‘defensive’, generally in the form of deeply discounted rights issues. Company’s such as FBU, FPA, NPX and SKC sort to strengthen balance sheets in the face of a rapidly declining global demand and declining operating cashflows.
Current capital market activity is much more positive, in our view. It is focused on the positive aspects of the stock market – either providing new capital, or in a number of cases restructuring the current shareholder and capital base, to provide a more appropriate capital structure to enhance future growth opportunities for the participating companies.
We consider this illustrates the current strength of the NZ stock market, which is in part due to the growth of KiwiSaver, and the low interest rate environment increasing the relative attractiveness of the stock market.
- Fonterra – Launched the Fonterra Shareholders Fund (FSF) and Trading Amongst Farmers (TAF).
- A2 Corporation – completed a combined $20m capital raising and $70m sell down.
- Tourism Holdings Limited – $69.5m merger of three campervan companies.
- Goodman Property Trust – Raised $80m to purchase 50% of the Highbrook Development.
- Steel & Tube – Arrium sold 50.3% for $91.2m.
- Sky Television – The Todd Family sold 11.1% for $218m.
- Fisher & Paykel Appliances – The business was sold to Haier for c$740m. Interestingly, FPA was involved in the 2009 activity as well, raising gross proceeds of $200.5m.
The success of relative new comers to the NZ stock market, companies such as Diligent (+146%*), Xero (+194%*), Trademe (+46%*), DNZ (+32%*) and Summerset (+71%*) also add to the sense of vibrancy around the NZ market at present. With 2013 fast approaching the success of this group of companies to raise capital and deliver strong share market performances in the secondary market should pave the way for more quality companies to follow in their footsteps.
*= over last twelve months to 7th December.
Disclosure: Milford Funds own shares in A2 Corporation, Fonterra, Tourism Holdings, Goodman Property Trust, Steel & Tube, Sky Television, Diligent, Xero, Trademe, and Fisher & Paykel on behalf of clients.