Exemptions for IPOs
Published 1 April 2007
IPO class exemption revoked
The Panel revoked the class exemption for initial public offerings (IPOs) on 15 May 2006. The IPO class exemption was contained in clause 7 of the Takeovers Code (Class Exemptions) Notice (No 2) 2001.
Clause 7 was revoked because it was being relied on for transactions involving schemes of arrangement which were not genuine IPOs and where changes of control could occur. The Panel considered that this was not an appropriate use of a class exemption.
The Panel said it would consider exemptions for IPOs on a case by case basis. The approach the Panel will take to exemption applications relating to IPOs or similar public offerings is explained below.
The IPO class exemption
The IPO class exemption provided an exemption from rule 6(1) of the Code for any person who increased their voting control in a Code company as the result of an allotment of shares under a public offer. The IPO class exemption was available to any person, subject to the following conditions:
- the allotment was made within 6 months after, and pursuant to, an offer of voting securities to the public by the Code company;
- the offer complied with the Securities Act 1978;
- the prospectus and investment statement for the offer clearly stated the potential maximum aggregate of the control percentages of the person and the person’s associates after allotments under the offer were completed;
- the company was not, or would not have been (but for having entered into a listing agreement with the exchange in connection with the offer) a Code company before the allotment of voting securities being offered.
Viking Capital Limited IPO Exemption
Soon after the IPO class exemption was revoked the Panel received an application for exemption from the promoters of a proposed float of Viking Capital Limited (“Viking”). The Viking IPO was to have opened on 23 May 2006. After the 15 May revocation of the IPO class exemption, Viking’s legal advisers realised that Viking needed to apply for an exemption from the Code. This gave the Panel an opportunity to review the policy of the IPO exemption and the disclosure requirements in the conditions of exemption.
Viking became a Code company when it entered into a listing agreement with NZX in preparation for the IPO.
Under the minimum subscription threshold that had been set for the IPO, the shares that were to be allotted to the interests associated with Mr Brent King represented potential holdings of around 63% of Viking. The shares to be allotted to interests associated with Mr Grant Baker represented around 21%. The maximum aggregate control percentage that could be held or controlled by Messrs King and Baker and their associates represented approximately 84% of the Viking shares to be issued.
An exemption was required to enable these persons to acquire Viking shares under the IPO without breaching the fundamental rule of the Code, as none of the exceptions to the fundamental rule could be used for the allotments. The exemption was sought on similar conditions to those in the revoked IPO class exemption.
On 2 June 2006 the Panel granted an exemption from rule 6(1) of the Code to various persons associated with Messrs King and Baker relating to the IPO to be undertaken by Viking.
Consistent with the policy as reviewed for IPO exemptions, the exemption required the offer document to disclose:
- the aggregated control percentages that had been required by the IPO class exemption; and
- a breakdown of the prospective holding and potential maximum control percentage, after the allotments were completed, of each of the persons relying on the exemption, without aggregating their holdings with those of their associates.
This breakdown was not required by the IPO class exemption which required only the aggregated percentages of each of the persons relying on the exemption together with the associates of each of those persons.
Adding the disaggregated disclosures, in conjunction with the disclosures of the aggregated control percentages, means the conditions of exemption for individual IPO exemptions match more closely the disclosure requirements for a notice of meeting under rule 16 of the Code. The Viking exemption was subject to conditions that:
- the allotments to the exempted persons are made within 6 months after the date of, and pursuant to, the offer; and
- the offer complies with the Securities Act 1978 as modified by the Securities Act (NZX-NZAX Market) Exemption Notice 2005; and
- the prospectus clearly states-
- the number of voting securities in Viking to be allotted pursuant to the offer to each of the exempted persons; and
- the potential maximum control percentage in Viking of each of the exempted persons after the completion, and as a result, of allotments pursuant to the offer; and
- the potential maximum aggregate of the control percentages of each of the exempted persons and that person's associates after the completion, and as a result, of allotments pursuant to the offer; and
- Viking was not, or, but for having entered into a listing agreement with NZX in connection with the prospectus, would not have been, a Code company before the allotment of voting securities pursuant to the offer.
The Viking exemption’s statement of reasons stated that the Panel considered it was appropriate and consistent with the objectives of the Code to grant the Viking exemption because:
- any person choosing to subscribe for shares in Viking for the first time can be expected to take into account allotments that are notified to them in the prospectus;
- if an offeree subscribes for Viking shares offered under the Viking IPO on the basis of the information disclosed in the prospectus showing the potential maximum control percentages of each of the exempted persons, then the offeree can be taken to approve of the potential maximum control percentages to be held or controlled by the exempted persons; and
- the exemption facilitates an initial public offer by a company that will only become a Code company as a consequence of the offer. The attaching conditions ensure that the exemption applies only to an offer that is effectively a preliminary step to Viking becoming a Code company.
The Panel considers applications for individual exemptions for IPOs in terms of this policy. The Panel may grant exemptions on similar terms and conditions as those of the Viking exemption. However, the terms and conditions may be altered for a particular exemption to better align them with the particular transaction.
It should not be assumed that an exemption will be granted. The Panel is empowered to only grant exemptions that are appropriate and consistent with the objectives of the Code. Full and frank disclosure should be made to the Panel, when an exemption is applied for, about the nature of the transaction and any related transactions, as well as of the relationships of the proposed allottees.