NZX reviews weightings rules for benchmark indexes as SOE floats loom
by Jonathan Underhill
Dec. 21 (BusinessDesk) – Stock exchange operator NZX is seeking feedback on possible changes to its rules for the weightings companies are given in its benchmark stock indexes to ensure the sell-down and listing of state-owned enterprises doesn’t result in a “less investable” market.
New Zealand’s stock exchange manager uses what it calls ‘modified free float rules’ for the benchmark NZX 50 Index. That means it subtracts so-called strategic holdings from the total number of shares on issue to determine a company’s number of indexed shares. It then makes a further adjustment based on the company’s six-month average free-float market capitalisation.
The methodology was introduced in 2003, with the further adjustment aimed at ensuring no single company dominated the index. While the full details of the adjustments are more complex, it boils down to approximately $3.5 billion, or 9 percent, of the NZX 50’s market value of $38 billion being due to the modifications.
Were the NZX to switch to a ‘pure free float’ model, the market value of the NZX 50 would shrink to about $34.9 billion.
The two new options proposed by the NZX are a pure free float or adjustments to the middle and upper thresholds.
NZX assumes the sale and listing of 49 percent each of Genesis Energy, Mighty River Power. Meridian Energy and Solid Energy, together with the partial sell-down of already-listed Air New Zealand, would add $4.8 billion to the NZX 50’s free float market capitalisation. That’s made up of $750 million for Genesis, $1.25 billion for Mighty River Power, $1.75 billion for Meridian, $750 million for Solid Energy and a $300 million increase for Air New Zealand.
Under the existing methodology, the NZX 50’s market value would rise to $46.6 billion. But on a pure free-float methodology, the increase would be back up to $39 billion from $34.9 billion.
NZX is reviewing its NZX 10 Index of the biggest companies on the same basis and also mulling the launch of a new NZX 20 Index, which would be used as the basis for the launch of a new futures contract in the first half of 2012.