- Release Date: 04/07/13 18:40
- Summary: WAV/RULE: VHP: VHP - Waiver and Ruling in respect of NZSX Listing Rules
- Price Sensitive: No
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VHP 04/07/2013 16:40 WAV/RULE REL: 1640 HRS Vital Healthcare Property Trust WAV/RULE: VHP: VHP - Waiver and Ruling in respect of NZSX Listing Rules 4 July 2013 NZX Regulation Decision Vital Healthcare Property Trust Application for Rulings and Waivers from NZSX Listing Rules 7.5.1 and 7.10.5 Background 1. Vital Healthcare Property Trust ("VHP") is a unit trust under the Unit Trusts Act 1960 with units quoted on the NZX Main Board. The Manager of VHP is Vital Healthcare Management Limited ("Manager"), which is a wholly owned subsidiary of North West Value Partners Inc. ("NWVP") of Canada. The trustee of VHP is Trustees Executors Limited. 2. VHP is considering undertaking a pro-rata renounceable rights offer in accordance with NZSX Listing Rule ("Rule") 7.3.4(a) ("Rights Offer"). The maximum amount which VHP would seek to raise under the Rights Offer (and so the number of units that could be issued) is yet to be determined, but would not be expected to exceed $40 million. VHP's market capitalisation as at the date of this decision is approximately $426 million. 3. VHP would like to be able to offer to eligible unitholders who accept their entitlement in full under the Rights Offer the option to apply for additional new units to the extent there is any shortfall in the level of subscriptions ("Oversubscription Facility"). This would likely enhance the cost-effectiveness of the Rights Offer as it would avoid the need for an underwriting arrangement and the associated cost to VHP and its unitholders. 4. The allocation of new units available under the Oversubscription Facility would occur as follows: (a) first, all applicants for additional new units would be allocated the lesser of: (i) the number of additional new units applied for by the applicant under the Oversubscription Facility; and (ii) the number of additional new units applied for by the applicant under the Oversubscription Facility multiplied by the proportion that existing units held by the applicant, as at the record date, bears to the number of existing units held by all applicants as at the same date; and (b) second, any remaining unallocated new units following the allocations set out above would be allocated amongst the remaining unsatisfied applicants on the same basis as in paragraph (a) above, until all of the available new units have been allocated. All beneficial owners of units for whom a custodian holder acts directly or indirectly as a custodian, and who have instructed the custodian holder to apply for additional new units on behalf of the beneficial owner, would be allocated a number of additional new units calculated in accordance with the above, on the basis that each beneficial owner is treated as a separate unitholder. For this purpose, a "custodian holder" would mean an eligible unitholder that: (a) is a trustee corporation or a nominee company and holds units by reason only of acting for another person in the ordinary course of business of that trustee corporation or nominee company; or (b) holds units by reason only that the person is a bare trustee of a trust to which the units are subject. 5. No applicant for additional new units would be allocated any greater number of additional new units than the number for which they have applied under the Oversubscription Facility. If the total number of additional new units for which applications have been received exceeded the total number of new units available in the Oversubscription Facility, VHP would scale the applications in accordance with the above. NorthWest 6. On 2 April 2013, NorthWest International Healthcare Properties Real Estate Investment Trust ("NorthWest International"), an Associated Person of NWVP and of Paul Dalla Lana and Bernard Crotty, who are directors of the Manager, gave a restricted transfer notice ("RTN") under Rule 4.5.2 to acquire up to 5% of the units in VHP which, if completed, would result in NorthWest International and certain of its related/associated entities (together, "NorthWest") increasing their aggregate relevant interest in VHP from 19.99% to up to 24.99%. NorthWest International stated in its RTN that it sought to increase its interest to 24.99%, including through supporting any potential future capital raising of VHP. 7. As at the date of this decision, NorthWest has a relevant interest in 20% of the units in VHP, the additional units above the position at 2 April having been acquired under the RTN. VHP is not aware of any other unitholder who is an Associated Person of NorthWest. Under the RTN NorthWest International may continue to acquire further units in VHP up to 24.99%. NorthWest could also choose to acquire further VHP units outside the RTN process, in reliance on the "creep" mechanism inherent in the definition of "Restricted Transfer" in Rule 4.1.1. 8. Given the intentions signalled in the RTN, VHP expects that NorthWest would wish to participate fully in the Rights Offer and apply for the maximum number of additional new units available under the Oversubscription Facility. NorthWest may also look to acquire rights on-market that have been renounced by unitholders. As a result, NorthWest's proportionate holding in VHP would be likely to increase after the Rights Offer (unless all unitholders elected to subscribe for their full entitlement and no rights are renounced). 9. If NorthWest increased its holding to over 25% VHP would lose its PIE tax status. VHP has received a ruling from the Inland Revenue that VHP is a "Public Unit Trust" for the purposes of the Income Tax Act 2007. The effect of this ruling is that any unitholder (and associated persons) may have an interest of up to 25% in VHP without VHP losing its Portfolio Investment Entity or "PIE" status in terms of the Income Tax Act. 10. VHP sought the rulings and waivers in this application on the assumption that any issuances made to NorthWest under the Rights Offer would not result in its aggregate interest exceeding 24.99%. 11. Rule 7.5.1 requires shareholder approval for the precise terms and conditions of an issue if there is a significant likelihood of the issue resulting in a person or group of Associated Persons materially increasing their ability to exercise effective control of the Issuer. Applications 1 and 2 - Rulings/waivers sought in respect of Rule 7.5.1 Application 1 - Pro-rata entitlement under Rights Offer and Oversubscription Facility 12. VHP has requested a ruling that the issue of up to a further 4.99% of units to NorthWest in accordance with its pro-rata entitlement under the Rights Offer (and under the Oversubscription Facility), resulting in a maximum aggregate interest of 24.99%, would not result in NorthWest materially increasing its ability to exercise, or direct the exercise of, effective control of VHP in terms of Rule 7.5.1. 13. In the alternative, VHP has requested a waiver from the Rule 7.5.1 requirement to obtain unitholder approval to allow VHP to issue units in the circumstances described in paragraph 12 above. 14. In support of its application for a ruling in respect of Rule 7.5.1, VHP submits that: (a) Rule 7.5.1 applies to material increases in the ability to exercise effective control of an issuer. 20% is a key control threshold which has been adopted in section 4 of the Rules. NorthWest already has an interest in more than 20% of the units in VHP and will not, therefore, be crossing any key control threshold as a result of any Rights Offer issuance. There would therefore be no material increase in control in terms of Rule 7.5.1 resulting from NorthWest increasing its interest in VHP by up to 4.99%, from 20% to 24.99%. (b) Under section 4 of the Rules, a person who controls 20% or more of the voting rights of an issuer is able to increase its control by no more than 5% in any period of 12 months by way of Transfers without having to issue a RTN. It is therefore accepted under the Rules that a person with 20% or greater control may "creep" by 5% in any one year without materially increasing its ability to exercise effective control. This application relates only to an increase of up to 4.99% (and possibly less) in NorthWest's interest in VHP under the Rights Offer. The extent to which the issue of units under the Rights Offer will affect NorthWest's ability to exercise effective control of VHP is therefore not materially different to (and is less than the amount that would be available to it) if it elected to creep under the mechanism that is already permitted by section 4 of the Rules. (c) The independent directors of VHP are satisfied that should NorthWest's unit holding increase from its current 20% to the maximum 24.99%, NorthWest will not materially increase its ability to exercise, or direct the exercise of, effective control of VHP. The independent directors of VHP are happy to provide this confirmation directly to NZX and have reached this conclusion based on their assessment of: (i) the composition of VHPs unit register; (ii) the extent of voting at unit holder meetings both prior to and after NorthWest became a substantial security holder; (iii) the nature of business conducted at unit holder meetings; (iv) the fact that effective control of VHP (in terms of its day to day business) is held by the Manager, which has a majority of independent directors and clear obligations under both the Unit Trusts Act and VHP's Trust Deed. Any increase of unit holding will have no impact on the Manager, the composition or appointment of its board, or its operations; and (v) NorthWest would remain unable to vote on a number of possible resolutions where it would be prevented to do so by the related party voting restrictions. (d) Historic voter turnout/patterns demonstrate that at 20% NorthWest already has the ability to exercise negative control by "blocking" extraordinary resolutions. At both the 2011 and 2012 annual meetings of VHP, there were extraordinary resolutions put to the meeting. VHP has provided evidence to NZX to demonstrate that in each case a 20% holding and a 24.99% holding, if voted, would have had the same effect, albeit to a varying degree, but which degree is only marginally (and certainly not materially) different. (e) An independent Appraisal Report was prepared by KordaMentha as at 19 April 2013 in response to the RTN given by NorthWest for an increase from 19.99% to up to 24.99%. In its report, KordaMentha noted (in the context of potential impacts of NorthWest holding a 24.99% interest): (i) at its (then) current 19.99% unit holding, NorthWest had in practical terms the ability to "block" a resolution that required at least 75% of the units voted to support the resolution; and (ii) it is rare for substantially all units on issue to be voted on any one particular resolution so NorthWest's 19.99% is a high proportion of the units likely to be voted. 15. In support of its application for a waiver from Rule 7.5.1, VHP submits that: (a) The Rights Offer would be made to all unitholders (other than those overseas unitholders who are likely to be excluded on the basis permitted in Rule 7.3.4(h)) on the same terms and on a basis which, if the offer were accepted by all unitholders, would maintain their proportionate interest in VHP. The offer would be renounceable so that any unitholders who do not wish to take up their pro-rata entitlements will be able to receive value for their rights. Accordingly, no unitholder would be prejudiced by reason of not having accepted their entitlement and as a result of that, NorthWest's holding increasing from 20% to up to 24.99%. (b) The terms of the Rights Offer would fall within the permitted issuances in Rule 7.3.4 and would not confer any additional benefit or advantage on NorthWest that is not available to other unitholders. In fact, not granting the ruling or waiver would have a prejudicial effect on NorthWest. VHP would not be able to permit NorthWest to participate in the Rights Offer (including the Oversubscription Facility) on the same basis as all other unitholders. This would be contrary to the intent of Rule 7.3.4. (c) If the waiver is not granted, and NorthWest is not able to participate to its full entitlement in the Rights Offer or apply for additional units under the Oversubscription Facility, there would be less certainty of outcome for VHP in terms of the amount able to be raised under the Rights Offer. VHP would therefore need to consider entering into an underwriting arrangement which would increase the costs associated with the Rights Offer. If this occurred, NorthWest could in any event enter into an arrangement with the underwriter to take a transfer of units from the underwriter which, if disclosed in the prospectus for the Rights Offer, would fall within the last paragraph (b) of the definition of "Restricted Transfer" in Rule 4.1.1, and thereby be permitted without prior unitholder approval. NorthWest could therefore effectively reach the same percentage interest in VHP post a Rights Offer but VHP would have had to incur additional costs through the underwriting arrangement. If NorthWest could participate in the Rights Offer on the same terms as all other unitholders, this would provide greater certainty of outcome for VHP and allow for a more cost-effective capital raising. (d) If the waiver is not granted, there would be increased costs and delay for VHP in order to complete the capital raising, including the costs and delay associated with convening a unitholder meeting and obtaining an appraisal report. Such costs and delay are unnecessarily prohibitive where there is already ability for NorthWest to increase its holding by the same percentage as it would under a Rights Offer through alternative mechanisms (i.e. under the RTN or by creep). It is more beneficial for VHP if the funds that would be required for NorthWest to acquire the units either on-market or from an underwriter are invested as capital in VHP, rather than paid to a third party seller of units. (e) A resolution under Rule 7.5.1 requires the preparation of an appraisal report. An Appraisal Report has recently been prepared and provided to unitholders as described in paragraph 14(e). That report considered whether the terms and conditions of NorthWest's RTN were "fair" to VHP's Non-Associated unitholders and noted the matters set out in paragraph 14(e). (f) NorthWest already has the ability to move to a 24.99% unitholding without unitholder approval under the RTN it has given and separately under the permitted creep provisions of the Rules. It could do this by acquiring units currently on issue or from unitholders post the issue. However, this would not result in the additional capital sought flowing to VHP. (g) VHP intends to use the capital raised through the Rights Offer to repay bank debt so as to ensure that VHP's Loan to Value Ratio ("LVR") is at a level which the board of the manager of VHP considers appropriate. Application 2 - Renounced rights purchased on-market 16. VHP has requested a ruling that: (a) if NorthWest purchases renounced rights on-market; and (b) pursuant to those renounced rights, VHP issues up to a further 4.99% of units to NorthWest, that issue would not result in NorthWest materially increasing its ability to exercise, or direct the exercise of, effective control of VHP in terms of Rule 7.5.1. 17. In the alternative, VHP has requested a waiver from the Rule 7.5.1 requirement to obtain unitholder approval to allow VHP to issue units in the circumstances described in paragraph 16 above. 18. In support of its application for a ruling in respect of Rule 7.5.1, VHP submits that: (a) Rule 7.5.1 regulates issuances where an issuer has the ability to control the terms of the issue, including the identity of the allottee, so that no allottee is able to materially increase the ability to exercise control of that issuer. An issuance made under a rights offer is not an issuance of this type. VHP would not be able to influence or have any control on who may or may not elect to sell or acquire rights on the secondary market. VHP is obliged, under the terms of the Rights Offer, to issue units to a person who has purchased rights and elects to take up those rights by subscribing for the underlying units offered. If Rule 7.5.1 applied to impose restrictions on the circumstances in which VHP could issue units to a purchaser of rights, this would significantly impact on the value of the renounceable nature of the Rights Offer. A purchaser of rights who already held 1% or more of the units in VHP would have no certainty that the units attaching to those rights would be issued to them, if exercised. Similarly, VHP would have no certainty as to its ability to carry out its obligation to issue units to a purchaser of rights assuming it in fact knew the identity of the purchaser/subscriber - noting that a purchase and holding of rights does not of itself give rise to a notifiable relevant interest. Accordingly, the issue of units to a person who has acquired rights should not be an issuance to which Rule 7.5.1 ought to apply. (b) A subscription for units which arises from the purchase of rights in the secondary market is more akin to a secondary market acquisition rather than a primary issuance. (c) While it is not a matter which VHP could control, if NorthWest purchased rights which resulted in an increase in its aggregate holding from 20% to up to 24.99%, there would be no material increase in NorthWest's ability to exercise, or direct the exercise of, effective control of VHP, for the reasons as set out in paragraph 14. 19. In support of its application for a waiver from Rule 7.5.1, VHP submits that: (a) As stated in paragraph 18(a), VHP would have no ability to control whether NorthWest (or any other person) acquires rights on-market or not. If the waiver is not granted, VHP would be restricted in terms of which holders of rights it is able to issue units to. (b) All unitholders would receive an entitlement to rights proportionate to their existing unitholdings in VHP and would have the ability to renounce those rights and receive value for them. The terms and conditions on which NorthWest may acquire rights on-market would be identical to the terms and conditions applying to all other potential purchasers (including other unitholders) of rights. No unitholder would therefore be prejudiced by NorthWest acquiring rights and having paid market value for them. (c) NorthWest is already able to increase its interest to 24.99% under the RTN or by using the creep mechanism. As stated in paragraph 15(d), it would be more beneficial to VHP if NorthWest were able to acquire rights and subscribe for units in VHP, than if NorthWest's funds were used to purchase units form a third party. Applications 1 and 2 - Rules 20. Rule 7.5.1 provides: Notwithstanding the provisions of Rules 7.3 and 7.6, no issue, acquisition, or redemption of Securities shall be made by an Issuer if: (a) there is a significant likelihood that the issue, acquisition, or redemption will result in any person or group of Associated Persons materially increasing their ability to exercise, or direct the exercise of (either then or at any future time) effective control of that Issuer; and (b) that person or group of Associated Persons is entitled before the issue, acquisition, or redemption to exercise, or direct the exercise of, not less than 1% of the total Votes attaching to Securities of the Issuer; unless the precise terms and conditions of the issue, acquisition or redemption have been approved by an Ordinary Resolution of the Issuer. 21. Subparagraph (a) of the definition of Restricted Transfer in Rule 4.1.1 provides: the Transfer which would result in the Votes controlled by any person or group of persons who are Associated Persons of each other, of any Class of Quoted Equity Securities of an Issuer: (i) exceeding 20% of the Votes attached to that Class; or (ii) if the person or group of persons controls 20% or more of the Votes attached to that Class, increasing by more than 5% in any period of 12 months excluding increases as a result of Transfers pursuant to a Restricted Transfer notice previously given by the person or group of persons; together with.. Application 1 - Decision 22. On the basis that the information provided to NZX Regulation ("NZXR") is full and accurate in all material respects, NZXR rules that an increase (as described further in paragraph 23) in the percentage of Votes attached to units in VHP ("VHP Votes") controlled by NorthWest and its Associated Persons from 20% to 24.99% would not constitute a material increase in NorthWest and its Associated Persons' ability to exercise, or direct the exercise of, effective control of VHP for the purposes of Rule 7.5.1. 23. For the purposes of paragraph 22, an "increase" includes any increase as a result of: (a) the issue of units in VHP to NorthWest pursuant to the Rights Offer, the Oversubscription Facility or renounced rights acquired by NorthWest on market; and (b) the acquisition of units in VHP by NorthWest in accordance with section 4 of the Rules or any other means available. Application 1 - Reasons 24. In coming to the decision to provide the ruling set out in paragraph 22 above, NZXR has considered that: (a) VHP has demonstrated to NZXR, based on the results of votes on extraordinary resolutions put to VHP unitholders in 2011 and 2012, that a VHP unitholder controlling 20% of VHP Votes effectively has the ability to "block" extraordinary resolutions and therefore already has negative control of extraordinary resolutions. On the basis of the information provided, an increase in the percentage of VHP Votes controlled by a unitholder from 20% to 24.99% would not affect that unitholder's ability to control the outcome of an ordinary resolution. Therefore an increase in the percentage of VHP Votes controlled by NorthWest and its Associated Persons from 20% to 24.99% will not affect NorthWest and its Associated Persons' ability to exercise effective control. (b) The independent Appraisal Report prepared by KordaMentha as at 19 April noted that a unitholding of 19.99% meant that in practical terms NorthWest already had the ability to "block" a resolution that required at least 75% of the units voted to support the resolution despite NorthWest's holding being less than 25%. (c) The independent directors of VHP have certified to NZXR that they are satisfied that an increase in NorthWest's percentage holding in VHP from 20% to 24.99% would not constitute a material increase in NorthWest's ability to exercise effective control of VHP. (d) NZXR considers 25% to be a key control threshold. A 25% holding guarantees the holder the ability to exercise negative control over an issuer by "blocking" a special resolution or, in the case of an issuer that is a unit trust, an extraordinary resolution. NZXR does not accept VHP's submission that, due to the ability to "creep" by 5% in a 12 month period pursuant to section 4, an increase between 20% and 25% will not, as a matter of course, constitute a material increase in the ability to exercise effective control for the purposes of Rule 7.5.1. NZXR considers that in some circumstances a holding of less than 25% may give a security holder the ability to exercise negative control and in those circumstances an increase to 25% may not constitute a material increase in ability to exercise effective control. Application 2 - Decision 25. NZXR declines to grant a ruling that: (a) if NorthWest purchases renounced rights on-market; and (b) pursuant to those renounced rights, VHP issues up to a further 4.99% units to NorthWest, that issue would not result in NorthWest materially increasing its ability to exercise, or direct the exercise of, effective control of VHP in terms of Rule 7.5.1. 26. NZXR also declines to grant a waiver from the Rule 7.5.1 requirement to obtain unitholder approval to allow VHP to issue units to NorthWest in the circumstances described in paragraph 25 above. 27. NZXR notes that the decision set out in paragraph 22 extends to units issued to NorthWest pursuant to renounced rights acquired on-market meaning that the ruling or waiver applied for in application 2 is not required. Application 2 - Reasons 28. In coming to the decisions set out in paragraphs 25 and 26, NZXR has considered that:: (a) Rule 7.5.1 refers to "issues" (which is not a defined term in the Rules) and does not draw any distinction between issues made pursuant to renounced rights and any other issues; and (b) Rule 7.5.1 does not prohibit issues where Rule 7.5.1(a) and (b) are triggered; rather the issuer must obtain shareholder approval in accordance with the Rules. The issuer must make an informed assessment, based on the composition of their share or unit register and historic voting patterns, as to whether there is a significant likelihood that the issue will result in a person or group of Associated Persons materially increasing their ability to exercise, or direct the exercise of, effective control of the issuer and comply with the requirements of Rule 7.5.1 if this is likely to be the case. Application 3 -Waiver sought from Rule 7.10.5 29. VHP has approached NZXR for a waiver from Rule 7.10.5 to enable eligible unitholders to make applications for more than their pro-rata entitlement under the Rights Offer in accordance with the Oversubscription Facility. 30. In support of its application for a waiver from Rule 7.10.5, VHP submits that: (a) The Oversubscription Facility is of benefit to VHP and its unitholders as it would increase the amount that is likely to be raised under the Rights Offer and thereby removing or reducing the need to rely on an underwriter. It would also ensure that existing unitholders will obtain any benefit through the Rights Offer to the greatest extent possible. (b) The terms of the Oversubscription Facility will ensure that, to the greatest extent possible, new units are allocated in proportion to the number of existing units held by the applicants at the record date for the Rights Offer. (c) For the reasons stated in paragraph 14, the Oversubscription Facility will not result in any unitholder materially increasing its ability to exercise effective control of VHP in terms of Rule 7.5.1. (d) Even absent the Oversubscription Facility, the holding of NorthWest would likely increase, to the extent others do not take up or renounce their rights, so the Oversubscription Facility does not confer any additional benefit to NorthWest. (e) There is precedent for this decision including waivers granted to New Talisman Gold Mines Limited (24 October 2012), Scott Technology Limited (27 June 2011), Hellaby Holdings Limited (8 September 2010) and to VHP in relation to its previous renounceable rights offer (4 November 2010). Application 3 - Rules 31. Rule 7.10.5 provides: Renounceable Right shall not entitle the holder of the Right to apply for more than the entitlement of Securities except to enable acquisition of the number of Securities needed to give that holder a Minimum Holding. Application 3 - Decision 32. On the basis that the information provided to NZXR is full and accurate in all material respects, NZXR grants VHP a waiver from Rule 7.10.5 to allow eligible unitholders to apply for units in excess of their entitlement on the basis of the terms of the Oversubscription Facility set out in paragraph 4 above. 33. The waiver from Rule 7.10.5 is granted on the following conditions: (a) that additional units are allocated to applicants under the Oversubscription Facility in accordance with the procedure set out in paragraph 4; (b) NZXR is satisfied that the terms of the Oversubscription Facility are sufficiently disclosed in the Offer Document for the Rights Offer; and (c) the Offer Document for the Rights Offer states that a waiver from Rule 7.10.5 has been granted by NZXR and details the conditions of the waiver. Application 3 - Reasons 34. In coming to the decision to grant a waiver from the requirement in Rule 7.10.5, NZXR has considered that: (a) The condition set out in paragraph 33(a) will ensure that, to the greatest extent possible, units issued to a unitholder under the Oversubscription Facility will be issued in proportion to the number of units held by the applicant at the record date for their Rights Offer entitlement as against the number of units held by all other applicants at the same date. (b) The provision of the Oversubscription Facility will increase the likelihood of VHP raising the capital sought and will ensure that existing unitholders obtain any benefit that can be obtained through the offer to the fullest extent possible. (c) There is precedent for granting waivers from Rule 7.10.5, including those referred to in paragraph 30(e) above. Confidentiality 35. VHP has requested that this application and the decision of NZXR remain confidential until such time as the Rights Offer proposal has been finalised and announced. 36. NZXR grants VHP's request, as it accords with the policy of Rules 1.11.2 and 1.11.4 and the footnotes to those Rules. ENDS. End CA:00238227 For:VHP Type:WAV/RULE Time:2013-07-04 16:40:36
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