“To deliver wealth and jobs, New Zealand firms need ready access to affordable capital.” That was the view of the then Commerce Minister, Lianne Dalziel, back in 2008 when she launched the Capital Markets Development Taskforce, a wide-ranging review of the health of our capital markets. That review eventually led to a complete overhaul of our securities legislation - yet over a decade later, many businesses still struggle to access the capital they need to grow.
For startups and small businesses, popular capital-raising options include crowdfunding, bank loans, government grants and angel investment. At the other end of the scale, large businesses can look to list on a public market, such as the NZX. A public listing can offer many benefits, including better access to capital, increased public profile and improved liquidity - which can help businesses grow and achieve their strategic objectives.
However, small and medium-sized businesses (SMEs) that are already well-established, but are still smaller than $100 million in value, can’t often justify the significant costs involved with a traditional stock exchange listing. Consequently, New Zealand SMEs face a funding gap, when trying to raise capital of between $2m to $20m.
Due to this funding gap, the Capital Markets Development Taskforce concluded that they would like to see more “steppingstones” to help companies fund their growth. In the words of its chairman, Rob Cameron, “For some firms it's a big move to list on the stock exchange, and we'd like to see more choices to allow companies to fund what they need at each stage of their growth.” Based on these recommendations, the new securities legislation provided flexibility for the establishment of more stock exchanges, designed to meet the needs of smaller businesses. This is what we call a ‘steppingstone market’ – and this is where Catalist comes in, giving SMEs the benefits of a stock market, at a lower cost and administrative burden.
Catalist will be New Zealand’s only licensed and regulated stock exchange designed specifically for SMEs to raise new capital and facilitate trading between investors. Differing from a traditional stock exchange, Catalist uses the flexibility of the legislation update to deliver fairer pricing for SME investments, simplified administration, lower fees and the ability for businesses to publicly raise up to $20 million per year - without the usual associated costs and regulatory upkeep of an NZX listing.
Rather than trading continuously (as with the NZX), Catalist uses a periodic trading model, with trading occurring at regular auctions. This allows for periodic information disclosure, providing the ability for businesses to focus on their day-to-day operations between auctions and helping keep costs down. Catalist provides a regulatory environment that balances the needs of both businesses and investors, but in a way that’s more realistic for businesses at an earlier stage in their growth journey.
Business growth, however, is the name of the game. When businesses get to a $100m market capitalisation, Catalist will help with their transition to a more traditional market, such as NZX (or ASX).
For more information about using Catalist as a ‘steppingstone’ market to take the next step on your growth journey, get in touch with our team.
By Michelle Polglase