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
