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Investors look forward to easy-to-follow IPO offer documents

30 April 2014

Survey shows investors look forward to easy-to-follow IPO offer documents

A New Zealand investor survey conducted on behalf of the Financial Markets Authority and NZX shows there is good support for companies making initial public offerings (IPOs) among those who have invested in recent IPOs.

The survey indicates that New Zealanders who have invested in recent offers continue to have a relatively strong appetite for IPOs.

Among respondents to the survey, two-thirds (66%) of investors who had bought shares in an IPO, or considered buying, said they would consider buying shares in a future one.

The survey, conducted by Colmar Brunton for the FMA and NZX, also paves the way for new easy-to-follow product disclosure statements (PDS) that will be required from 1 December 2014.

The survey results released today show that few people are reading all of the information that has been included in previous IPO offer documents.

The survey was targeted at investors who had seriously considered investing in IPOs, and people who considered investing, and then did invest in an IPO, in the preceding 12 months. It was conducted between 7 November 2013 and 2 December 2013.

The results show that of those who reviewed an offer document, only 15% read the document all the way through. Just over half (52%) said they read most of it. Only 7% of those who looked at an offer document found it very easy to understand; 63% said they found it fairly easy to understand.

People who decided not to invest in an IPO showed a tendency to find the information in offer documents too much to digest, compared to people who did invest; 66% of considerers found the offer documents very easy to understand or fairly easy to understand, versus 71% of those who did invest .

That response suggests IPO documents - prepared under previous legislation - may have been an obstacle in decision-making for some investors.

The Ministry of Business, Innovation and Employment will shortly begin its consultation on the proposals for easier-to-follow disclosure statements which will be available for issuers to use from December 2014.

The FMA’s Acting Head of Primary Regulatory Operations, Simone Robbers, said the FMA was already seeing significant improvements in the quality and presentation of investor information in offer documents.

“We are seeing issuers take a strong lead in this area, including for the recently-completed Genesis Energy offer.

“We anticipate support, among investors and issuers, for the new product disclosure statements.

“The PDSs will be short retail-investor focused documents, much shorter than the prospectus and investment statements we have seen in the past. The information must be presented in a clear concise and effective manner.

“Issuers will need to include clear and succinct information about the offer, such as key risks to the business. Long lists of generic risks will no longer be permitted. Overall, the PDSs will assist retail investors to make better-informed decisions.”

Ms Robbers said the survey also highlighted the need for investors to take professional financial advice on investments.

Overall, 34% of respondents had sought the advice of at least one professional regarding investing in an offer.

“These results show a third of those looking into an investment took advice – from a professional of some sort - on an IPO. That’s less than ideal,” Ms Robbers said.

“We would like to see a greater willingness by consumers to take financial advice before they make investment decisions such as investing in a public company.”

NZX Head of Markets, Aaron Jenkins, commented: “NZX supports the introduction of shorter, clearer PDS documents for investors.

“The research is also timely because of the work underway for the upcoming launch of NZX’s new growth market aimed at small and medium-sized enterprises. A key principle of the new market is simplicity. NZX intends to streamline the investment process by providing simpler rules and disclosure practices for listed businesses, subsequently reducing complexity for investors.”

The survey included an online questionnaire and in-person interviews. In all, 303 people responded to the online survey; 12 were interviewed in detail for the qualitative aspect of the survey.

Of the respondents, 201 said they had invested in a recent IPO. The balance said they had seriously considered doing so.

When asked about making a decision on an IPO, nearly three-quarters (73%) of respondents first heard about the IPO on television. The offer document was the top source of information used to find out more about an IPO (51%), followed by the company website (48%). A sizeable majority of respondents (83%) felt informed in making their investment decision.

However, when it comes to looking at an offer document, those who decided to invest were more likely to have looked at the document than those who decided not to (93% c.f. 72%).

Other findings are:
• 75% of respondents expressed confidence in New Zealand’s financial markets
• Confidence is higher among those who invested in a recent IPO (81%) than those who decided against the investment (63%)
• The main reasons for investing in an IPO were in order to diversify a portfolio (48%), or the desire to invest in a New Zealand firm (46%); and 47% of respondents mentioned the likely returns, dividends or growth as a reason to invest
• About half (48%) of those who bought shares in an IPO, invested between $1,000 and $5,000. Another 21% of respondents invested $5,001 - $10,000

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