Simpson Grierson - Catalist - Another attempt at helping smaller companies access public markets

30/06/2021·2 mins to read

Catalist - Another attempt at helping smaller companies access public markets

Catalist’s “Public Markets” officially launched last week as a new trading platform targeted at smaller companies. It features a lighter compliance framework and fewer disclosure obligations and could well prove to be an attractive option for small-to-medium cap companies, for whom an NZX listing is not feasible.

We outline below the platform’s key features and our initial thoughts on whether or not it meets the gap in NZ’s capital markets.

Key features of Catalist

Catalist can only list companies with a market capitalisation of between NZ$6 million and NZ$60 million (no Catalist issuer may exceed $100 million market capitalisation).
Once listed, securities are issued/transferred during prescribed “auction” windows.[1] Issuers determine when auctions are available and inform the market (including current shareholders as to when they will be allowed to sell their shares).
Subject to the satisfaction of certain conditions (including the issuer having been listed for 3 months and having conducted at least 3 public auctions) an issuer may raise up to $20 million on Catalist in any 12-month period without compliance with the strict disclosure requirements of the Financial Markets Conduct Act (FMCA).
In lieu of compliance with the disclosure obligations of the FMCA, Catalist requires market participants to make an “Information Memorandum” available to the public providing disclosure of material matters in advance of each “auction”.[2] All material information including auction details (such as expected auction schedules) is expected to be included in the Information Memorandum.
Catalist recommends that an auction process runs for two weeks. The first week provides a window for investors to review the Information Memorandum and to assess the auction price. Trading would occur in the second week. Issuers must continue to disclose any material information that arises during the two-week auction period.

Will this succeed where other small cap markets have failed?

We hope so, for the sake of the smaller companies who are looking for capital, and for investors looking for new companies to invest in.

The Catalist model is focused on giving retail investors access to a wider pool of investment opportunities. The regulatory and disclosure framework will likely attract companies which might otherwise avoid public capital raisings, and all the cost, time and on-going compliance that goes with that.

But will investors get on board with Catalist’s limited trading windows? Liquidity is generally a hallmark of public markets but there are a number of NZX-listed companies that do not regularly trade, with liquidity in those shares very limited as a result. Catalist’s periodic trading model concentrates demand and is therefore intended to create liquidity when it is needed, but this is a new model which investors will need to get used to.

We understand that the first group of issuers will be announced in the coming weeks and will be watching the progress of these companies, and Catalist, with interest.

Get in touch

Contact any of the experts noted if you would like to talk through fund raising options, whether through listing on a stock market (whether on Catalist or the NZX) or through alternative means.

Special thanks to Yemo Guo for writing this article.

[1] Off-market trades are permitted but key details relating to the trade must be disclosed to Catalist, including the price of the securities traded.

[2] Catalist offers are not subject to the usual FMCA disclosure obligations eg product disclosure statement.