Crisis no time for lighter regulations

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If Finance Minister Simon Power gives the money industry an even looser rein, he may alienate hundreds of thousands of New Zealanders burned in the finance companies disaster.

The “Capital Market Development Task Force”, appointed by Labour’s Lianne Dalziel, in its interim report suggests freeing NZ Exchange-listed debt issuers from having to produce a prospectus and investment statement.

This while the world is in a crisis brought about by too lightly regulated financiers. This when up to $4 billion of Kiwis’ savings are lost or locked up in failed or seriously sick finance companies, some of which may have lied to investors.

Instead of a prospectus, a listed debt issuer would provide a simple sheet of issue terms and a warranty from management and directors that the company has complied with NZX continuous disclosure requirements.

“I was amazed with this,” respected analyst and commentator Brian Gaynor told BizScene. “The one thing we need is prospectuses and better prospectuses.”

Investors can fall back on prospectuses for court action when directors lie.

Investors planning to sue directors over the Feltex float are using the prospectus. Charges are also in the pipeline against Bridgecorp directors for misleading investors in a prospectus.

For years, experts have advised investors to study prospectuses. One Securities Commission chief used to recommend hunting for the smallest type at the back of the prospectus to work out how much the “buggers” [the issuers] are getting out of it.

Relying on NZX disclosure presumably means a two-tier prospectus regime, one for the 0.1 per cent or so of companies listed on the NZX and another for the rest, including those whose shares trade on the Unlisted market.

Corporate law firms such as Chapman Tripp and Bell Gully welcomed the task force’s interim report. Private-sector task force members seem exclusively from the finance sector – issuers, corporate lawyers, fund managers.

They liaise with Treasury, the Reserve Bank and Ministry of Economic Development staff.

Bruce Sheppard, Shareholders Association chairman, did much spadework that led to the task force being set up – but Dalziel pointedly left him off it.

Expressing surprise at this, Sheppard said: “I actually tell people they are dickheads if they are, and politicians don’t like that.”

In an open letter to Dalziel, Gaynor expressed dismay at the establishment of the task force, and especially in its composition.

Gaynor asked: “Why have you stacked the task force with dries and representatives of the sell side of the market and appointed no genuine representative from the investor or buy side?”

He pointed out members included the chairman of the Business Roundtable and the chief executive of the broker that brought Feltex to market.

Investor group EUFA is sceptical about the task force. Spokesman Gray Eatwell accused Dalziel and Power of playing “pass the parcel”.

“‘Relax’ is the opposite action to that required for prospectuses,” Eatwell said.

BizScene suggested electronic prospectuses as a compromise. Gaynor countered that many investors have dial-up connections if they have internet at all, and it’s difficult to read prospectuses on screen.

He’s right. Retail investors – a large block of National voters – need printed prospectuses.

We should demand them.

Neill Birss will chase up your biz tips: neillb@maxnet.co.nz