Educational Articles ~~~~~~~~~~~~~~~~~~~~~~WHAT IS THE UNLISTED MARKET? The Unlisted market is operated by Stock Brokers for companies that do not meet the requirements for full listing on the New Zealand Stock Exchange. Unlisted Companies are not subject to the same Rules and Regulations as Listed Companies, and as such risks are greater (but then so can the rewards of getting onboard a company prior to a full NZSE listing!). Click here for further information from the NZSE. ~~~~~~~~~~~~~~~~~~~~~~ HOW DO I TRADE UNLISTED SHARES? You buy and sell shares on the unlisted market through your broker, just like any other share on the NZSE. Orders may take longer to be fulfilled, due to lower liquidity on the unlisted market. Registration of your purchases with the appropriate Share Registry can also take longer. Prices are available from Direct Broking:~~~~~~~~~~~~~~~~~~~~~~ Friday 7th September 2001 - NBR Personal Investor, by Peter V O'Brien There is a thriving market in unlisted equity securities for companies requiring additional capital to expand existing activities in areas as diverse as wine, cheese, rural services and finance. Mention of "unlisted" could raise fears of little liquidity for investors wishing to sell, small size and relatively high risk. That could be so in some cases, but the unlisted market included such companies as apple exporter Enza, rural services group Pyne Gould Group (whose wholly-owned subsidiary Pyne Gould Guinness is merging with main board-listed company Reid Farmers), Turners & Growers (of which Sir Ron Brierley's Guinness Peat Group owns 45%) and until its recent listing on the main board, biotechnology company Blis. Blis is one of a stable of biotech companies associated with South Island entrepreneur Howard Paterson, who has linked into the commercial activities of the University of Otago. Wine companies have a long history of raising capital from a relatively small group of investors, who are usually wine enthusiasts, to expand production and sometimes move to Stock Exchange listing. Returns from non-listed companies can be good in terms of capital gain. Given the status of some unlisted companies and their size, the NCM system has solid competition for money from equity investors who have an entrepreneurial streak. Such people could do worse than follow the investment steps of Mr Paterson and Sir Ron. Prices for unlisted stocks are published at intervals in daily newspapers, usually supplied to the publication by a broking firm. Computershare's Sharemart stocks are published weekly in The National Business Review. There is nothing new about brokers dealing in "unlisted" securities. Apart from the fact they are able to deal in virtually anything, the unlisted market is a direct descendant of the "unofficial list" of days gone by. People who have a penchant for the unlisted market (and possibly for NCM companies) may also follow the counter-cyclical view of investment. It is a hard view to follow, because it requires investors to back themselves against the bulk of the market, a situation that requires mental toughness and possibly a fair amount of self-confidence, bordering on arrogance. While buying a stock everyone else is selling, or investing across the market when other people, including the professionals, are getting out, can lead to a short-term gain, the profits usually arise from the patience to hold on until the turnaround. Companies often hit problems, an example being rural services company Wrightson. The share price was 43c at the end of 1999, having been down to 32c that year. It closed on August 24 this year at $1.12, an increase of 183.7% in 20 months, a movement that should satisfy the busiest of investors. Much of the improvement came from the surge in commodity prices and farm incomes, but the company's profitability also gained from internal reorganisation, including disposal of earlier corporate policies. Betting against other investors regarding an individuals stock is one thing; betting against them regarding the whole market in a general slump is another. The counter-cyclical approach still has merit, because the cycle eventually turns, but the time during which patience is required is longer, as is the need for deep pockets. Counter-cyclical investing should be confined to companies with solid balance sheets and cash flows that allow them to weather the tough times. Organisations with shaky financial structures should be avoided because they usually fall over when the jolts come. Other choices include interest-bearing capital securities, such as convertible preference shares, convertible capital notes and similar products of fertile corporate minds. Convertible, interest-bearing securities have benefit investors through providing reasonable income while allowing them to participate in any capital appreciation in the head shares. (Conversely, they participate in any deterioration in the head shares.) The substantial success of GPG's recent $250 million capital notes issue showed there is still life in convertibles, irrespective of how much of the success could be put down to Sir Ron's image among New Zealand investors. ~~~~~~~~~~~~~~~~~~~~~~ FOUR KEY QUESTIONS Sunday, 1 October, 2000 - UnlimitedNET How does it fit in? Unlike publicly listed stocks, shares in secondary board companies are issued directly from the company as opposed to a share registry. When stocks like Genesis move up to the main board of the NZSE, their shares automatically transfer over. Up until the launch of the NZSE's New Capital Market (NCM) the secondary board was the only way corporate minnows could ever hope to either raise capital and/or give shareholders better means of selling down their holdings. Ironically, there have been at least two additions to the secondary board since the NCM started in early May. Only about 40% of the shares are traded. Where do you find out about these stocks? The NZSE does not provide any public information on secondary board listings. "You're most likely to be introduced to these stocks either by a broker or through a network of family, friends and staff who work for these companies. And the best way to find out about these companies is to go directly to their management," says Direct Broking's Edwin Sutherland. However, some brokers like Tauranga-based Craig & Co do provide fundamental research on some of these stocks (www.craigco.co.nz). Investors can also track share price performance through Direct Broking's Web site (directbroking.co.nz) or via Teletext. How do these stocks get on to the secondary board? They do not have to apply to the NZSE for approval. The onus is on the sponsoring broker to request a stock be listed on the secondary board. Larger brokers like UBS Warburg and Deutsche Securities have sponsored companies on to the secondary board. But this is typically the domain of smaller brokers like Craig & Co. How do I trade these stocks? Any broking house can buy and sell secondary board shares for you. But owing to limited liquidity on some stocks, selling down may not always be a swift affair. With access to the NZSE's electronic FASTER service, secondary board trades are as accessible as stocks listed on the main board. However, investors should note that when it comes to transfer and settlement the FASTER service is not available to these stocks. ~~~~~~~~~~~~~~~~~~~~~~