- Release Date: 20/09/13 14:13
- Summary: WAV/RULE: MEL: MEL - Application for Waivers under NZSX Listing Rules
- Price Sensitive: No
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MEL 20/09/2013 12:13 WAV/RULE REL: 1213 HRS Meridian Energy Limited WAV/RULE: MEL: MEL - Application for Waivers under NZSX Listing Rules NZX Regulation Decision Meridian Energy Limited ("MEL") Application for Waivers, Rulings and Approvals from Listing Rules 7.9.1, 10.5.2, 11.1.1, 11.1.3, 11.1.5 and 11.1.6 18 September 2013 Background 1. Meridian Energy Limited ("MEL") is a New Zealand incorporated mixed ownership model ("MOM") company within the meaning of section 45P of the Public Finance Act 1989 ("PFA"). MEL is currently Listed with two series of bonds ("MEL Bonds") Quoted on the NZX Debt Market. 2. The Crown is proposing to make an offer to the public of fully paid ordinary shares in MEL. The offer is comprised of Retail, Institutional and Participating Iwi offers and will be the second in the New Zealand Government's MOM programme, in which the Crown intends to offer to the public up to 49% of the shares in certain companies which are currently 100% state-owned ("MOM Programme"). 3. The purchase price for MEL shares under the offer is to be paid in two instalments. The first instalment is payable on application, and the final instalment is payable on 15 May 2015. 4. Successful applicants will be issued with instalment receipts ("Instalment Receipts") with each Instalment Receipt evidencing a beneficial interest in one underlying MEL ordinary share. The Instalment Receipts will be issued by The New Zealand Guardian Trust Company Limited ("NZ Trustee"), who will also act as the New Zealand trustee. 5. The Crown will transfer ordinary shares that relate to the Instalment Receipts to the NZ Trustee or to The Trust Company (Australia) Limited as the Australian Trustee ("Australian Trustee", together with NZ Trustee are referred to as the "Trustees"). The NZ Trustee will hold the Shares that relate to Instalment Receipts issued to all investors other than investors who are resident in Australia on trust under a New Zealand Instalment Receipt trust deed ("NZ Trust Deed") and the Australian Trustee will hold the Shares that relate to Instalment Receipts initially issued to Australian resident investors on trust under an Australian instalment receipt ("Australian Trust Deed", together with the NZ Trust Deed are referred to as the "Trust Deeds"). After the issue date, each Trustee will complete a weekly reconciliation of the number of Shares it actually holds against the number of Shares it should hold having regard to its trust obligations so that the Australian Trustee holds in trust ordinary shares that correspond, in number, to the number of Instalment Receipts held by Australian resident investors. If a Trustee holds a greater number of Shares than it requires based on the place of residence of each holder of Instalment Receipts, it will transfer the appropriate number of Shares to the other. 6. The holder of an Instalment Receipt must pay the final instalment on the final instalment date, and the underlying ordinary share will be subject to a security interest in favour of the Crown securing payment of the final instalment and certain other amounts. Upon receipt of the final instalment, holders of Instalment Receipts will receive the ordinary shares represented by their Instalment Receipts from the relevant Trustee, and the Instalment Receipts will be cancelled. 7. Subject to MEL's constitution ("Constitution") and the Trust Deeds, holders of Instalment Receipts will receive full dividends on the underlying ordinary shares represented by their Instalment Receipts and have the right to direct voting by the relevant Trustee with respect to those underlying ordinary shares. 8. MEL has applied for the Quotation of initially the Instalment Receipts, and subsequently its ordinary shares, on the NZX Main Board. 9. As MEL is a MOM company, it is subject to various restrictions under Part 5A of the PFA. These restrictions include: a) Under section 45R of the PFA, the Crown must hold at least 51% of MEL's ordinary shares and will be prohibited from reducing its holding below that level. The Crown must also hold at least 51% of any other class of shares (voting or non-voting) and any other class of securities in MEL that confer voting rights (together the "51% Holding Restriction"); and b) Under section 45S of the PFA, no person, other than the Crown, may have a relevant interest in more than 10% of any class of shares in MEL (including the MEL ordinary shares), or of any other class of securities in MEL that confer voting rights (the "10% Limit"). (together the "Ownership Restrictions") 10. The Instalment Receipts confer a relevant interest in the underlying ordinary shares represented by the Instalment Receipts, but do not confer voting rights that are independent of those underlying ordinary shares. Accordingly, provided the Crown maintains its holding of at least 51% of the ordinary shares, it is not required to hold Instalment Receipts. However, the 10% Limit will apply to prohibit any holder of Instalment Receipts from holding or having an interest in Instalment Receipts that confer a relevant interest in more than 10% of the underlying ordinary shares. 11. If a person has a relevant interest in the ordinary shares in breach of the 10% Limit (including by holding or having an interest in Instalment Receipts that confer a relevant interest in more than 10% of the underlying shares), then under sections 45T(1)(c) and 45T(2) of the PFA that person will lose the right to be paid a dividend in respect of the ordinary shares in which a relevant interest is held in excess of the 10% Limit ("Excess Shares") and will lose the voting rights attaching to the Excess Shares. 12. In addition, section 45T(5) of the PFA provides that the Constitution may provide for the 10% Limit and the consequences of a person exceeding it, including provisions for the implementation of those consequences or which add to the consequences set out in section 45T. 13. The Crown proposes to include the following provisions in the Trust Deeds that will restrict the rights of Instalment Receipt holders to transfer their Instalment Receipts and allow MEL to require certain documentation and/or information in relation to a transfer of Instalment Receipts: a) clause 18.1(a)(i), which binds Instalment Receipt holders to the terms set out in the Fifth Schedule to the Constitution, including clause 10 of the Fifth Schedule described in paragraph 14 below; b) clause 18.2, which binds Instalment Receipt holders to provisions set out in the Fifth Schedule to the Constitution, which allow MEL to require an Instalment Receipt holder to give a statutory declaration regarding its relevant interests in Instalment Receipts (including clause 8 of the Fifth Schedule); and c) clause 18.3, which permits the Instalment Receipt registrar to refuse to register a transfer of Instalment Receipts where: i. the holder has not provided satisfactory documentary evidence where required; or ii. MEL has actual knowledge, or believes, that the transfer of those Instalment Receipts will result in a contravention of the 10% Limit; and d) clauses 18.7 to 18.12, which provide that the Crown may cancel the sale of ordinary shares and the issue of Instalment Receipts to a person if that person is found to have misrepresented his or her or its status as a "New Zealand Applicant" as defined in the Offer Document. In order to exercise this power of cancellation, the Crown must issue a cancellation notice. Following the issue of that notice, the relevant holder will cease to have the right to sell, transfer or otherwise dispose of the affected Instalment Receipts and the relevant Trustee will arrange the sale of those Instalment Receipts. 14. MEL proposes to include clause 10 of the Fifth Schedule in its Constitution, which permits MEL to request the Instalment Receipt registrar to refuse to register a transfer of Instalment Receipts where: a) the holder has not provided satisfactory documentary evidence where required; or b) MEL has actual knowledge, or believes, that the transfer of those Instalment Receipts will result in a contravention of the 10% Limit. 15. MEL proposes to include the following provisions in its Constitution that restrict the issue, acquisition or transfer of MEL ordinary shares: a) clauses 12 and 14.2, which provide that any further issues of ordinary shares or classes of shares must be made in accordance with Part 5A of the PFA; b) clause 24, which requires the board to refuse to register a transfer of ordinary shares where it has actual knowledge, or believes, that the transfer of those shares would, or would be likely to, contravene Part 5A of the PFA; c) clause 25, which provides that the board may refuse to register a transfer: i. for so long as the board or MEL are in the process of exercising powers under the Fourth Schedule; or ii. for certain other customary reasons for refusing share transfers; d) clause 4 of each of the Fourth Schedule and the Fifth Schedule, which restricts MEL from issuing, acquiring or redeeming any ordinary shares where it would breach either the 51% Holding or the 10% Limit; and e) clause 10 of the Fourth Schedule, which permits the board to refuse to register a transfer of ordinary shares where: i. the holder has not provided satisfactory documentary evidence where required; or ii. the board has actual knowledge, or believes, that the transfer of those shares will result in a contravention of the 10% Limit; and f) clauses 23 to 28 of the Fourth Schedule, which provide that the Crown may cancel the sale of ordinary shares to a person if that person is found to have misrepresented his or her or its status as a "New Zealand Applicant" as defined in the Offer Document. In order to exercise this power of cancellation, the Crown must issue a cancellation notice. Following the issue of that notice, the relevant holder will cease to have the right to sell, transfer or otherwise dispose of the affected ordinary shares and MEL will arrange the sale of those shares. 16. It is proposed that the following provisions will be included in the Trust Deeds and the Fifth Schedule of the Constitution which provide consequences in relation to benefits and rights attaching to Instalment Receipts, if a person has a relevant interest in MEL ordinary shares in excess of the 10% Limit: a) clause 7 of the Fifth Schedule, which provides for the automatic suspension of the right to direct voting by the relevant Trustee and the entitlement to dividends or other distributions in respect of Excess Shares; and b) clauses 12 to 21 of the Fifth Schedule and clause 18.4 of each Trust Deed, which provide for a holder of Instalment Receipts that relate to Excess Shares to have no right to direct voting by the relevant Trustee and no entitlement to dividends or other distributions: i. if a breach of the 10% Limit is determined by the board to be inadvertent, in respect of those Instalment Receipts which relate to Excess Shares (clauses 14(a) and (b) of the Fifth Schedule); and ii. if a breach of the 10% Limit is determined by the board to be not inadvertent or there is insufficient information to determine if the breach was inadvertent, in respect of all ordinary shares in which the holder of the Instalment Receipts has a relevant interest (clauses 15(a) and (b) of the Fifth Schedule). If the registered holder does not remedy the breach within the period specified in section 45T(1)(b) of the PFA MEL must give notice of this to the Crown and the Crown shall direct the relevant Trustee to sell the Instalment Receipts corresponding to the underlying Excess Shares and the proceeds of the sale (less any costs of sale) will be paid to the registered holder. An exception applies if the registered holder is an "Approved Nominee" for the purposes of section 45U of the PFA, in which case clauses 15(a) and (b) of the Fifth Schedule only apply in respect of those ordinary shares held by the Approved Nominee on behalf of a person who has a relevant interest in ordinary shares in contravention of the 10% Limit. In each case, there is a process to be followed when determining whether there has been a breach of the 10% Limit, including giving the holder notice and explaining the consequences of breaching the 10% Limit. 17. MEL proposes to include the following provisions in its Constitution which provide consequences in relation to the benefits and rights attaching to ordinary shares if a person has a relevant interest in MEL ordinary shares in excess of the 10% Limit: a) clause 7 of the Fourth Schedule, which provides for the automatic suspension of voting rights and the entitlement to dividends or other distributions in respect of Excess Shares; and b) clauses 12 to 21 of the Fourth Schedule, which provide for a registered holder of Excess Shares to have no voting rights and no entitlement to dividends or other distributions: i. if a breach of the 10% Limit is determined by the board to be inadvertent, in respect of those Excess Shares (clauses 14(a) and (b) of the Fourth Schedule); and ii. if a breach of the 10% Limit is determined by the board to be not inadvertent or there is insufficient information to determine if the breach was inadvertent, in respect of all ordinary shares held by that registered holder (clauses 15(a) and (b) of the Fourth Schedule). The board has the power to require the sale of Excess Shares if the registered holder does not remedy the breach within the period specified in section 45T(1)(b) of the PFA and the proceeds of the sale (less any costs of sale) will be paid to the registered holder. An exception applies if the registered holder is an "Approved Nominee" for the purposes of section 45U of the PFA, in which case clauses 15(a) and (b) of the Fourth Schedule only apply in respect of those shares held by the Approved Nominee on behalf of a person who has a Relevant Interest in shares in contravention of the 10% Limit. In each case, there is a process to be followed when determining whether there has been a breach of the 10% Limit, including giving the holder notice and explaining the consequences of breaching the 10% Limit. 18. MEL has approached NZX Regulation ("NZXR") seeking approval to permit the inclusion of provisions in MEL's constitution and the Trust Deeds that restrict the issue, acquisition and transfer of Instalment Receipts or MEL ordinary shares and which enable the MEL Board to suspend any benefit or right attached to Instalment Receipts or MEL ordinary shares due to a contravention of the 10% Limit. MEL has also sought waivers and rulings in respect of the requirement for MEL to enter into a security agreement with the Crown, the timing for release of its 2013 annual report, and certain material transactions with Transpower New Zealand Limited (a Related Party of MEL). Application 1 - Rule 7.9.1 19. MEL has applied to NZXR for a waiver from NZSX Listing Rule ("Rule") 7.9.1 so that the Crown and MEL are not required to enter into a security agreement in respect of the Crown's 51% shareholding. 20. In support of its application, MEL makes the following submissions: a) Rule 7.9.1 is only intended to apply to contractual restrictions on dealings in shares and should not apply to restrictions imposed by law; b) The purpose of a Security Agreement is to enable NZX to enforce, on behalf of persons who subscribe for shares, restrictions on the ability of a major shareholder to deal with its shares. This form of shareholder protection is unnecessary where any breach of such restrictions would constitute a breach of law; c) The protections provided by Rule 7.9.1 are unnecessary as the ownership restrictions that apply to the ordinary shares are also contained in the Constitution and are therefore enforceable by any MEL shareholder under the Companies Act 1993, which provides mechanisms for shareholders to require MEL to comply with its Constitution (see for instance ss164, 170 and 171 of that Act). Specifically: i. clause 4(a) of each of the Fourth Schedule and Fifth Schedule of the Constitution prohibits MEL from issuing, acquiring or redeeming any shares if it would result in the Crown breaching the 51% Holding; and ii. clause 24 of the Constitution requires the board to refuse to register a transfer of shares where it has actual knowledge, or believes, that the transfer of those shares would, or would be likely to, contravene Part 5A of the PFA (which includes the 51% Holding); d) The 51% Holding will be clearly disclosed in the Offering Document; and e) Under Part 5A of the PFA, no person (other than the Crown) may have a relevant interest in more than 10% of the ordinary shares. Any party to a Security Agreement may have a relevant interest in the Crown's 51% shareholding on the basis that they have the power to control the acquisition or disposition of the ordinary shares subject to the Security Agreement. This could place that party in breach of the PFA by granting a relevant interest in more than 10% of the ordinary shares. Application 1 - Rules 21. Rule 7.8.1 provides: "If: (a) at the time of the initial Quotation of a Class of Equity Securities a person holds more than 20% of the Securities of that Class; or (b) at the time of the initial Quotation of a Class of Equity Securities a person is entitled, pursuant to a binding arrangement, to subscribe for more than 20% of the Securities of that Class (other than pursuant to a bona fide underwriting agreement), Rule 7.8.2 shall apply in respect of the Equity Securities held or to be subscribed by that person (in this Rule 7.8 the "Specified Securities")." 22. Rule 7.8.2 provides: "The Offering Document in respect of Securities referred to in Rule 7.8.1 shall state with reasonable prominence either: (a) the restrictions which are to be imposed upon the disposal of the effective ownership and control of all or any of the Specified Securities by the holders of those Specified Securities (and if the holders are not to be the beneficial owners of the Specified Securities, by the beneficial owners); or (b) that there are no restrictions of the nature referred to in (a)." 23. Rule 7.9.1 provides: "If an Offering Document states, pursuant to Rule 7.7 or 7.8, that restrictions are to be imposed upon disposal of the effective ownership or control of any Securities then: (a) the Issuer shall enter into an agreement (a "Security Agreement") with the persons to whom those Securities are to be issued, and if those persons are not the beneficial owners of those Securities, those beneficial owners, and with such other persons (if any) as NZX may consider necessary in order to ensure that the restrictions on disposal of effective ownership or control of those Securities can be effectively enforced; and (b) that agreement shall be in such form as NZX may require, and shall prohibit the parties to it from taking steps which would cause the effective ownership or control of those Securities to be disposed of otherwise than in accordance with the restrictions specified in the Offering Document; and (c) where that agreement provides a discretion for lifting the imposed restrictions prior to the expiry of an agreed restriction period, the agreement shall stipulate that the exercise of this discretion requires the consent of non-interested Directors of the Issuer in addition to any other requirements. For this purpose, the term "interested" bears the meaning assigned to that term in section 139 of the Companies Act 1993, on the basis that if an Issuer is not a company registered under that Act, the reference to the "company" in that section shall be read as a reference to the Issuer." Application 1 - Decision 24. On the basis that the information provided to NZXR is full and accurate in all material respects, NZXR grants MEL a waiver from the requirement in Rule 7.9.1 to enter into a security agreement with the Crown in respect of the Crown's holding in MEL ordinary shares. Application 1 - Reasons 25. In coming to the decision to grant MEL waiver from Rule 7.9.1, NZXR has considered the following matters: a) The Crown's ability to sell MEL ordinary shares is restricted by the PFA. It is unnecessary therefore, to require a further restriction by way of a security agreement; b) The Ownership Restrictions will be disclosed in the Offering Document; and c) MEL will bear a non-standard designation, which will alert potential investors to the Ownership Restrictions. Application 2 - Rules 11.1.1 and 11.1.3 26. MEL has applied to NZXR for a waiver from Rules 11.1.1 and 11.1.3 so that the Trust Deeds may contain provisions that restrict the transfer of Instalment Receipts, and that allow MEL to require certain documentation and/or information in relation to a transfer (as outlined above in paragraph 13). 27. In support of its application, MEL makes the following submissions: a) The restrictions on transfer are desirable to ensure the restrictions in the PFA can be given effect to and are binding on Instalment Receipt holders as the PFA does not restrict the registration of a transfer of Instalment Receipts that would result in a breach of the 10% Limit; b) The restrictions on the transfer of Instalment Receipts will be clearly disclosed in: i. the Offering Document (which will require NZX approval under Rule 6.1.2(e)); ii. statements provided to shareholders pursuant to Rule 11.2.1; and iii. new investor communications provided to persons who acquire Instalment Receipts following the offer; and c) The power of sale outlined above in paragraph 13(d) arises from the Crown's commitment to ensure at least 85 to 90 per cent. New Zealand ownership of MEL on completion of the offer. The Crown wishes to have a mechanism in place to enforce this commitment, given that it is of fundamental importance to the Crown. Application 2 - Rules 28. Rule 11.1.1 provides: "Subject to the provisions of any legislation, and to Rules 11.1.4 and 11.1.5, no Issuer shall impose, in its Constitution or otherwise, any restriction on the right of a holder of a Quoted Security to transfer that Security, or any restriction upon registration of a properly completed transfer of Quoted Securities." 29. Rule 11.1.3 provides: "Subject to the provisions of Rule 11.1.5 and of any legislation no Issuer shall: (a) require any documentation relating to transfers other than to establish an entitlement to transfer; or (b) require any information relating to the transferee; or (c) impose any restriction on the acceptability of any common form of transfer." Application 2 - Decision 30. On the basis that the information provided to NZXR is full and accurate in all material respects, NZXR grants MEL a waiver from Rules 11.1.1 and 11.1.3 to allow each Trust Deed to include the provisions described in paragraph 13 of this decision which restrict the transfer of Instalment Receipts, and allow MEL to require certain documentation and/or information in relation to a transfer. 31. The waiver in paragraph 30 is granted on the conditions that: a) MEL bears a non-standard designation; and b) Details of the provisions in the Trust Deeds that restrict the issue, acquisition or transfer of ordinary shares are: i. Appropriately disclosed in the Offering Document and all statements provided to holders under Rule 11.2.1; and ii. Provided to persons who acquire Instalment Receipts following the offer. Application 2 - Reasons 32. In coming to the decision to grant MEL a waiver from Rules 11.1.1 and 11.1.3, NZXR has considered the following matters: a) The provisions described in paragraph 13 enable MEL to enforce the 10% Limit, which is a key aspect of the Ownership Restrictions under the Government's MOM Programme; and b) The conditions contained in paragraph 31 will ensure that persons applying for Instalment Receipts in the Offer, and persons trading Instalment Receipts on market have notice of the Ownership Restrictions, the consequences of breaching the 10% Limit and the Crown's power of cancellation. Application 3 - Approval and Waiver from Rules 11.1.5 and 11.1.6 33. MEL has applied to NZXR for approval under Rule 11.1.5 in respect of provisions in its Constitution, as outlined above in paragraphs 14 and 15, that restrict the transferability (issue, acquisition or transfer) of Instalment Receipts and MEL ordinary shares, or require certain documentation and/or information in relation to a transfer. 34. MEL has applied to NZXR for a waiver from Rule 11.1.6 so that the Trust Deeds and MEL's Constitution may contain the provisions outlined above in paragraphs 16 and 17, which allow for the suspension of benefits or rights attaching to the Instalment Receipts or ordinary shares by reason of transfer. 35. MEL makes the following submissions in respect of those applications: a) The restrictions on issue, acquisition or transfer contained in the Constitution are consistent with the PFA. In particular, section 45R(2) of the PFA provides that MEL must not issue, acquire or redeem shares or other voting securities if it would result in a breach of the 51% Holding and section 45R(3) of the PFA provides that an issue, acquisition or redemption is invalid and of no effect to the extent that it breaches subsection (2); b) The footnote to Rule 11.1.5 states that (non-relevant text omitted): "NZX recognises that there are situations in which a restriction on the ownership of the Equity Securities of an Issuer may be appropriate... NZX will generally exercise its discretion to permit a restriction to be introduced where: ... (b) the restriction is desirable, expedient or necessary in connection with giving effect to a statutory requirement; (c) there are other reasons which NZX considers justify the inclusion of a restriction. NZX will as a general rule only exercise its discretion under Rule 11.1.5 before the time of the initial Listing of an Issuer or, in respect of a Class of Securities of an Issuer, before the time of the initial Quotation of that Class. NZX's view is that any restriction on the ownership of Equity Securities of an Issuer should be clear at the time of Listing or Quotation, so that investors can make an informed investment decision before they acquire Equity Securities of the Issuer through NZX."; c) The restrictions on issue, acquisition or transfer are desirable to ensure the restrictions in the PFA can be given effect to by MEL. The PFA does not expressly restrict the registration of a transfer of Instalment Receipts or ordinary shares, as the case may be, that would result in a breach of the 10% Limit or the 51% Holding or to issue shares or other securities that would result in a breach of the 10% Limit. MEL considers it desirable to include restrictions on the issue, acquisition or transfer of securities in its Constitution to enable it to give effect to the PFA; d) MEL will clearly disclose the restrictions on the acquisition or transfer of Instalment Receipts and the issue, acquisition or transfer of ordinary shares in: i. the Offering Document (which will require NZX approval under Rule 6.1.2(e)); ii. statements provided to shareholders pursuant to Rule 11.2.1; and iii. new investor communications provided to persons who acquire Instalment Receipts or ordinary shares, as the case may be, following the Offer; e) The provisions outlined in paragraphs 16 (in relation to the Instalment Receipts) and 17 (in relation to the ordinary shares) are consistent with, and supported by: i. section 45T(1)(c) of Part 5A of the PFA, which provides that a person may not exercise or control the exercise of any voting rights attaching to Excess Shares; ii. section 45T(2) of Part 5A of the PFA, which provides that a person has no right to be paid a dividend or other distribution in respect of Excess Shares; and iii. section 45T(5) of Part 5A of the PFA which gives MEL power to include in its Constitution consequences for exceeding the 10% Limit that are additional to those set out in section 45T. f) The 10% Limit and the consequences of exceeding it will be disclosed in the Offering Document. g) In respect of the board's powers to declare Instalment Receipts or ordinary shares, as the case may be, to be held in breach of the 10% Limit, these operate in clearly defined circumstances and are set out in the Constitution (see, respectively, clauses 12 to 21 of the Fifth Schedule and clauses 12 to 21 of the Fourth Schedule); h) The Constitution provides certain protections for investors (who hold either Instalment Receipts or ordinary shares) with a relevant interest in Excess Shares: i. MEL must give written notice to affected holders and give them the opportunity to make representations to it before MEL makes a determination as to whether there is a breach of the 10% Limit (clause 12 of the Fifth Schedule and clause 12 of the Fourth Schedule); ii. An affected holder has seven days to respond to the notice (clause 12(e) of the Fifth Schedule and clause 12(e) of the Fourth Schedule); iii. MEL must make its determination within 14 days of receipt of representations in writing and must promptly give notice to the relevant holders of its final determination once made (clause 13 of the Fifth Schedule and clause 13 of the Fourth Schedule); iv. Clause 18 of the Fifth Schedule and clause 18 of the Fourth Schedule require the board, in deciding which Instalment Receipts or ordinary shares, as the case may be, are to be identified as being in breach of the 10% Limit and in making its determination, to have regard to any criteria as it may, in its discretion, consider appropriate and equitable; i) The Fifth Schedule applies to the Instalment Receipts by virtue of clause 18.1 of each Trust Deed; and j) The power of sale outlined above in paragraph 15(f) arises from the Crown's commitment to ensure at least 85 to 90 per cent. New Zealand ownership of MEL on completion of the offer. The Crown wishes to have a mechanism in place to enforce this commitment, given that it is of fundamental importance to the Crown. Application 3 - Rules 36. Rule 11.1.5 provides: "An Issuer may, with the prior approval of NZX, incorporate in its Constitution or Trust Deed a provision restricting the issue, acquisition or transfer of Relevant Interests in Equity Securities." 37. Rule 11.1.6 provides: "Except as expressly permitted by the Rules, no benefit or right attaching to a Security shall be cancelled or varied by reason only of a transfer of that Security." Application 3 - Decision 38. On the basis that the information provided to NZXR is full and accurate in all material respects, NZXR hereby grants MEL approval under Rule 11.1.5 to allow MEL to include in its Constitution the provisions described in paragraph 14 and 15 of this decision, which restrict the transferability (issue, acquisition or transfer) of Instalment Receipts and MEL ordinary shares, or require certain documentation and/or information in relation to a transfer. 39. On the basis that the information provided to NZXR is full and accurate in all material respects, NZXR hereby grants MEL a waiver from 11.1.6 to allow the inclusion of the provisions described in paragraphs 16 and 17 of this decision in the Trust Deeds and MEL's Constitution, allowing the suspension of dividend and voting rights attached to Instalment Receipts and MEL ordinary shares where the 10% Limit is breached. 40. The approval and waiver in paragraphs 38 and 39 are granted on the conditions that: a) MEL bears a non-standard designation; and b) Details of the provisions in the Trust Deeds and Constitution that restrict the issue, acquisition or transfer of Instalment Receipts or ordinary shares and of circumstances in which dividend and voting rights may be suspended (as per the provisions in the Constitution and the Trust Deeds), are: i. Appropriately disclosed in the Offering Document and all statements provided to shareholders under Rule 11.2.1; and ii. Provided to persons who acquire MEL ordinary shares following the offer. Application 3 - Reasons 41. In coming to the decision to grant MEL the approval and waiver described in paragraphs 38 and 39, NZXR has considered the following matters: a) The provisions described in paragraphs 14 to 17 enable MEL to enforce the 10% Limit, which is a key aspect of the Ownership Restrictions under the Government's MOM Programme; b) The conditions contained in paragraph 40 will ensure that persons applying for Instalment Receipts in the Offer, and persons trading Instalment Receipts and ordinary shares on market have notice of the Ownership Restrictions, the consequences of breaching the 10% Limit and the Crown's power of cancellation; c) The policy underlying Rule 11.1.6 reflects the fundamental principle that shareholders are entitled to exercise the rights attaching to securities (especially the right to vote and receive dividends) and only in very limited circumstances should these rights be removed; d) The provisions described in paragraphs 16 and 17 apply in limited circumstances and it is desirable that MEL has the ability to ensure the 10% Limit is adhered to and that there is an appropriate disincentive to breaching the statutory requirements in Part 5A of the PFA. The provisions in paragraphs 16 and 17 are necessary to help achieve the policy objectives in Part 5A of the PFA. The PFA expressly anticipates that a company's constitution can add to the consequences set out in the PFA; and e) MEL's constitution sets out a process whereby holders of a relevant interest in Excess Shares are notified that they may have breached the 10% Limit, and of the consequences of this breach, including, in particular, where a breach is found not to be inadvertent. Holders of a relevant interest in Excess Shares are also able to make representations to MEL in respect of an alleged breach. This procedure will give holders of a relevant interest in Excess Shares an opportunity to respond to and rectify the breach of the 10% Limit prior to MEL suspending the dividend or voting rights attached to the MEL ordinary shares in which they have a relevant interest. Application 4 - Rule 10.5.2 42. As a State enterprise, MEL's annual report must be provided to its shareholding Ministers and laid before the House of Representatives (or published in the Gazette) pursuant to section 17 of the State Owned Enterprises Act 1986 ("SOE Act"). MEL currently receives the benefit of Rule 10.5.2, to allow it to provide its annual report to holders of MEL Bonds after that report has been made available in accordance with section 17 of the SOE Act. 43. In preparation for the Offer, MEL ceased to be a State enterprise, and became a MOM company on 30 August 2013. At that time, it became unclear whether MEL could continue to rely on Rule 10.5.2. 44. MEL has sought a ruling that Rule 10.5.2 applies to an Issuer that is a State enterprise as at the end of its financial year. 45. In support of its application, MEL makes the following submissions: a) Notwithstanding the fact that MEL is now a MOM company, it is required to provide its 2013 annual report to shareholding Ministers, and have that report laid before the House of Representatives (or published in the Gazette) pursuant to section 17 of the SOE Act. This is required as MEL was still a State enterprise at the end of its 2013 financial year (30 June 2013); b) The timing of the application of section 17 of the SOE Act is a statutory requirement. The obligations in section 17 follow on from the obligation in section 15 to deliver the annual report to the shareholding Ministers. Section 15 requires the board of a State enterprise to deliver the annual report to the shareholding Ministers "within 3 months after the end of each financial year". At the time this obligation commenced (i.e. the end of MEL's financial year), MEL was a State enterprise. Accordingly, the MEL board must comply with section 15 to deliver the annual report to the shareholding Ministers and the responsible Minister must comply with section 17 and lay the annual report before the House. The Crown agrees with this interpretation and has advised MEL that their expectation was that MEL would comply with section 15 as it was a State enterprise for its full financial year; and c) MEL intends that its 2013 annual report will be laid before the House of Representatives in conjunction with the registration of the Offering Document. Given the current timetable, this is expected to be 20 September 2013. However, this timetable is subject to change, and the timing of tabling in the House of Representatives is not within the control of MEL. As a result, and given MEL's obligations under the SOE Act, MEL may not be able to make its 2013 annual report available to holders of MEL Bonds until after 30 September 2013 (the date on which it would otherwise be due under the Rules). Application 4 - Rules 46. Rule 10.5.1 provides: "Subject to Rule 10.5.2 each Issuer shall within three months of the end of each Issuer's financial years: (a) Deliver to NZX electronically, in the format specified by NZX from time to time; and (b) Make available to each Quoted Security holder in accordance with Rule 10.5.3, an annual report. ..." 47. Rule 10.5.2 provides: "An Issuer that is a State enterprise (as defined in the State Owned Enterprises Act 1986) is not required to issue to its Quoted Security holders an annual report (in accordance with Rule 10.5.1) until that annual report has been provided to the Minister responsible for the State enterprise in accordance with the requirements of the State Owned Enterprises Act 1986 and laid by that Minister responsible for that State enterprise before the House of Representatives in accordance with the State Owned Enterprises Act 1986 or published in the Capital Gazette under section 17A(2A) of the State Owned Enterprises Act 1986, whichever is the earlier." Application 4 - Decision 48. On the basis that the information provided to NZXR is full and accurate in all material respects, NZXR grants MEL a ruling that Rule 10.5.2 applies to Issuers who are State enterprises as at the relevant balance date. Application 4 - Reasons 49. In coming to the decision to grant MEL a ruling in respect of Rule 10.5.2, NZXR has considered the following matters: a) MEL has advised that because it was a State enterprise as at its 2013 balance date, it must comply with the obligations in section 15 and 17 of the SOE Act. The Crown has also communicated their expectation that MEL would comply with section 15 as if it was a State enterprise for its full financial year; b) The effect of the Ruling would be to maintain the status quo and MEL's current reporting obligations as if the offer were not taking place. MEL's bondholders would not be receiving the information any later than if MEL was in fact still a State enterprise relying on Rule 10.5.2; and c) Pursuant to section 36ZM of the Securities Markets Act 1988, NZXR has consulted with the Financial Markets Authority in making this determination. Application 5 - Rule 9.2.1 50. Under the Listing Rules, various entities in which the Crown has a majority interest ("Crown Subsidiaries") will be Related Parties of MEL for the following reason: a) The Crown is a Related Party of MEL under Rule 9.2.3(b), as it holds a Relevant Interest in 10% of MEL's ordinary shares; b) Each Crown Subsidiary is a related company of MEL under section 2(3)(c) of the Companies Act, as the Crown holds more than half of the issued shares of both companies; and c) As a related company of MEL, Crown Subsidiaries are Associated Persons of the Crown under Rule 1.8.3(a)(ii), and therefore are Related Parties of MEL. 51. The Crown and Crown Subsidiaries (for example, Transpower New Zealand Limited ("Transpower"), Mighty River Power Limited and Genesis Power Limited) have extensive involvement in the electricity industry acting in a number of different capacities, including as a participant, regulator and consumer. MEL may enter into significant contracts with Crown Subsidiaries, in the ordinary course of its business, which are Material Transactions under Rule 9.2.2(e). 52. MEL seeks a ruling that no Crown Subsidiary is an Associated Person of MEL solely by reason of the Crown holding shares in both MEL and the Crown Subsidiary. 53. In support of its application, MEL makes the following submissions: a) Notwithstanding the common ownership between MEL and other Crown Subsidiaries, contracts between these parties are entered into on an arm's length basis and without regard to the common ownership by the Crown. This approach is supported by the Crown Ownership Monitoring Unit's Owner's Expectations Manual, which provides at paragraph 2.1: 1. During the 1980's, the Government began using the company model as part of its broader State sector reforms. A key principle under the company model is the separation and maintenance a clear division between the Government's ownership, purchasing and regulatory interests. 2. Under the company model, Crown-owned companies: o Operate at arm's length from the Government (unlike departments, Crown-owned companies are not part of the Crown, but are owned by the Crown); o Have independent boards that are accountable for the companies' performance; o Are separate legal entities, with directors being responsible for overseeing the management of the business and affairs of the companies. b) It is reasonable, to avoid these Rules unnecessarily restricting MEL's business, to exclude from the application of these Rules entities whose status as a Related Party is merely incidental to there being a common Crown shareholding; c) The footnote to Rule 1.8.7 expressly notes that the definition of Associated Person is broad and issuers are encouraged to seek rulings on such matters. The ruling is sought on the basis that the application of the relevant tests are unnecessarily broad in the context where the Crown is a majority shareholder; d) The ruling is sought on the basis that the parties are not considered to be Related Parties solely by reason of their common Crown shareholding only. If the Crown Subsidiaries should otherwise be considered Related Parties of MEL, for instance, a Crown Subsidiary independently holds a relevant interest in 10% of MEL's shares, or if they can be seen to be acting "jointly or in concert" with MEL, then the Related Party Rules would continue to apply. In addition, MEL is not seeking a ruling that the Crown itself not be considered a Related Party; e) The ruling sought will have no detrimental effect on Instalment Receipt holders or shareholders. Such ruling would allow MEL to enter into transactions in the ordinary course in a timely manner. If the ruling sought is granted, investors will be participating in the offer on a fully informed basis in relation to these matters; f) The policy reasons underpinning Rule 9.2.1 are simply not applicable here where each of MEL and the Crown Subsidiaries operates completely independently of the others and dealings between them are on an arms' length basis; g) The specific agreements that could be expected to require shareholder approval under Rule 9.2.1 are those under which Transpower provides transmission services to MEL ("Benchmark Agreements"). There is one Benchmark Agreement that relates to all of MEL's hydro power stations and separate Benchmark Agreements for some of MEL's wind farms; and h) The Benchmark Agreement for the hydro power stations is not a negotiated, signed agreement, but rather an agreement specified by the Electricity Industry Participation Code (the "Code"). The Benchmark Agreements that relate to wind farms are substantially the same as the standard Benchmark Agreement specified by the Code. Transpower publishes a schedule annually that sets out what its fees will be, and MEL is obliged to pay these. The fees are dictated by the Transmission Pricing Methodology, which is regulated by the Commerce Commission. Accordingly, the expected size of the fees vary from year to year depending on the Transmission Pricing Methodology. The total amount of fees payable by MEL to Transpower for transmission services for the 2013/2014 year is $126.6 million. The Benchmark Agreements do not have a fixed term, but may be terminated by the parties in certain circumstances, or in the case of the Benchmark Agreement for the hydro stations, may be amended or replaced if the Benchmark Agreement specified in the Code is amended or replaced. Application 5 - Rules 54. Rule 1.8.2 provides: "In the Rules, a person is an Associated Person of another person if the first person is associated with the other in terms of Rules 1.8.2 to 1.8.6." 55. Rule 1.8.3 provides: "Without limiting Rule 1.8.2, the first person is associated with the second person if: (a) the first person is a company, and the second person is: ... (ii) Related Company of that company; or..." 56. Rule 9.2.1 provides: "9.2.1 An Issuer shall not enter into a Material Transaction if a Related Party is, or is likely to become: (a) a direct or indirect party to the Material Transaction, or to at least one of a related series of transactions of which the Material Transaction forms part; or (b) in the case of a guarantee or other transaction of the nature referred to in paragraph (d) of the definition of Material Transaction, a direct or indirect beneficiary of such guarantee or other transaction, unless that Material Transaction is approved by an Ordinary Resolution of the Issuer." 57. Rule 9.2.3 provides: "For the purposes of Rule 9.2.1, "Related Party" means a person who is at the time of a Material Transaction, or was at any time within six months before a Material Transaction: ... (b) the holder of a Relevant Interest in 10% or more of a Class of Equity Securities of the Issuer carrying Votes; or (c) an Associated Person of the Issuer or any of the persons referred to in (a) or (b), other than a person who becomes an Associated Person as a consequence of the Material Transaction itself (or an intention or proposal to enter into the Material Transaction itself); or..." Application 5 - Decision 58. On the basis that the information provided to NZXR is full and accurate in all material respects, NZXR declines to grant the ruling sought in paragraph 52, as the Crown Subsidaries are Related Parties of MEL under the Rules for the reasons set out in paragraph 50 above. Instead, NZXR grants MEL a waiver from Rule 9.2.1 so that MEL may enter into Benchmark Agreements with Transpower in order to comply with the Code without obtaining shareholder approval, provided that the amounts payable under those agreements are determined in accordance with the Transmission Pricing Methodology and regulated under the Code and Part 4 of the Commerce Act 1986. 59. The waiver in paragraph 58 is granted on the condition that: a) Any Benchmark Agreement entered into between MEL and Transpower that constitutes a Material Transaction is in the form specified by the Code or, if the form specified by the Code is not used, the directors of MEL certify that the Benchmark Agreement is entered into on arm's length, commercial basis without regard to the Crown's common ownership of MEL and Transpower; and b) The waiver, its conditions and effect, and the total amount of fees payable by MEL to Transpower under the Benchmark Agreements each financial year are disclosed in MEL's annual reports that relate to the periods during which MEL relies on this waiver. Application 5 - Reasons 60. In coming to the decision to grant MEL a waiver from Rule 9.2.1, NZXR has considered the following matters: a) The policy behind Rule 9.2.1 is to ensure that Related Parties do not exercise undue influence or use personal connections to reach a favourable outcome for, or a transfer of value to, the Related Party in respect of a transaction and that shareholders are given an opportunity to review transactions where the board may have been subject to actual or perceived influence from a Related Party; b) Given that the terms of the Benchmark Agreements are regulated by the Code, and the fees payable under those agreements are regulated by the Transmission Pricing Methodology, no party is in a position to exercise undue influence on MEL in relation to the entry into Benchmark Agreements, or during negotiation of the terms and conditions of Benchmark Agreements; c) The fees published by Transpower and payable by MEL in respect of the Benchmark Agreements are regulated by the Electricity Authority and the Commerce Commission; and d) The Crown has publicly stated in the Crown Ownership Monitoring Unit Owner's Expectations Manual that Crown Subsidiaries are required to operate at arm's length from the Government, and be governed by independent boards. Confidentiality 61. MEL requests that this waiver application and any decision are kept confidential until the Offering Document has been registered with the Registrar of Financial Service Providers. 62. In accordance with Footnote 1 to Rule 1.11.2, NZXR grants MEL's request. End CA:00241386 For:MEL Type:WAV/RULE Time:2013-09-20 12:13:11
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