The NXT step for New Zealand's capital markets
02 June, 2015
Let's talk about NZX's NXT Market - what is it?
The NXT market is a new initiative by the NZX aimed at companies that have estimated market capitalisations of between $10m and $100m who want access to capital markets, but in a simpler, more cost effective way than a main listing on the NZX.
The NXT market is designed especially for small to medium sized businesses, by making it easier and simpler for these companies to list by using shorter and simpler listing rules. For instance, companies don't have to provide expensive-to-prepare earnings forecasts, and just need a minimum of 50 individual shareholders to list, compared to the 500 shareholders required for the main board.
That is not to say that the listing rules won't still be rigorous, it's just that the barriers to entry are lowered to make it more attractive for small companies to list and to raise capital.
Importantly, the NXT market will help companies after they have listed by providing on-going independent research on these companies that will be made freely available to the public, provide market-makers in each of the stocks so that that there will be good liquidity and the companies will have on-going advice from a dedicated NZX participant for a minimum of three years after listing. So they are going to be looked after in the after-market as well.
Who's going to be interested in it?
This market will appeal to companies that see the NXT market as a stepping stone to ultimately achieving a main board listing, but are currently too small and don't have the budget for expensive in-house lawyers, accountants etc.
These companies may have capital requirements that are too high for crowd-funding for instance, but too small to consider a full NZX listing. They land in-between.
For potential investors, the NXT market will appeal as a marketplace where some of tomorrow's leading companies may come from - a potential acorns-into-oak trees opportunity. A2 Milk is a good example of a company that has successfully transitioned to the main board and more recently also listed in the ASX in Australia. From small beginnings, A2 is now widely held by institutional fund managers here and to a lesser extent, also in Australia.
The NXT market will appeal to investors seeking high returns, but with commensurate higher risk.
How successful do you think the NXT market be?
That's the $64,000 question. The NZX formed the NZAX market for medium sized companies over a decade ago, and this has had limited success.
The key difference this time with the NXT market is that things have definitely been made simpler and more cost effective to list and to raise capital - through lower barriers to entry. In addition, the NZX is ensuring that after listing these companies will be provided with on-going advice from leading investment banks, a guaranteed market for the shares through market-makers, and free independent research.
The National Business Review last week ran an article that named five companies from a range of industries that are preparing to list on the NXT market over the next couple of months or so, and one company that wants to transition from the NZAX market. This would be a good start.
It's an innovative undertaking by the NZX and we certainly hope it is successful.