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What is a new issue of debt or hybrid securities?

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The process for raising funds via a new issue of debt or hybrid securities on the New Zealand Debt Market (NZDX) involves an issuer working with an investment bank or NZX market participant (HHG).

The investment bank or NZX market participant is responsible for organising the issue of securities, along with distributing the securities amongst NZX participants and their own clients. This organisation will be referred to as the lead manager. Some new issues will have multiple organisations assisting the issuer with distributing the securities, these organisations are collectively called Joint Lead Managers.

When an issuer is intending to issue a new security, they will often release an announcement to the market that they are considering issuing a new security. Concurrently, or soon afterwards, the lead/joint lead manager will reach out to the NZX market participants they have a relationship with to communicate brief details on the potential new issue of securities. These details often include the name of the issuer, nature of the securities that may be issued, amount on offer, and the terms of the issue. This is often accompanied by an invitation to an investment roadshow.

The investment roadshow is either an in-person session organised by the lead manager/joint lead managers with the CEO and CFO of the issuer at the lead manager’s offices, or a conference call with the CEO and CFO. Our advisers routinely attend roadshows to better understand the issuing company’s business and to express our interest or lack of interest in the securities to be issued.

Following the roadshow, an indicative terms sheet, and if necessary, a PDS will be published and communicated to the NZX Participant firms by the lead/joint lead managers. The lead/joint lead managers will then make contact with NZX Participant firms to gauge their interest, on behalf of their clients, in the securities to be issued. This is called an indicative bid, which is lodged with the lead or one of the joint lead managers. The following day, the lead or one of the joint lead managers will request a firm bid in dollar terms from the NZX Participants. This will be the maximum amount of the new issue the NZX participant will receive.

If the lead/joint lead managers receive firm bids from NZX Participants for an amount that exceeds the size of the issue, they reserve the right to scale applications. For example, if an NZX participant makes a firm bid for $10m of a new issue of bonds from Infratil Ltd, the overall size of the issue is $100m, and the lead/joint lead managers receive total firm bids for $200m, the lead/joint lead managers may decide to scale the number of securities the NZX Participant receives by 50% to $5m of securities.

Once the NZX Participants have been informed of their allocation of new securities by the lead/joint lead managers, they will then communicate the offer to their clients, along with the appropriate legal documents and provide recommendations where appropriate.

An NZX Participant has a legal obligation to the lead/joint lead manager to satisfy their allocation of securities by the closing date of the offer. This is why the time frame for confirming whether you wish to take up a new issue of securities is often very short. The securities will be allocated to clients by the issuer on the ‘issue date/allotment date’ recorded in the terms sheet and PDS.

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