NZX releases continuous disclosure update to issuers in response to COVID-19
NZX Regulation has today released an update providing guidance for issuers on the approach to disclosure in response to the challenges posed by COVID-19.
The full text of the NZX update is available here.
Who needs to read it? Why?
The NZX update will be of interest to all listed issuers, and particularly those facing internal and external pressures associated with COVID-19 and seeking guidance as to the implications of those pressures on their continuous disclosure obligations under the NZX Listing Rules. It may also be of interest to financial advisers, brokers and investors in NZX listed securities (including fund managers).
What does it cover?
The NZX update was prepared following earlier contact with various issuers and their advisers. NZX notes that, while the update is intended to provide more specific recommendations in light of COVID-19 related concerns, issuers should continue to refer to the NZX Listing Rules and corresponding Guidance Note on Continuous Disclosure as their primary reference points.
The update provides further guidance and recommendations on a number of disclosure scenarios that may be relevant to issuers in the current climate. A summary of the key points is set out below.
Assessing materiality in a volatile market
The NZX acknowledges that while investors will be generally aware of market wide matters such as Government announcements or economic data in relation to COVID-19, the operating or financial impacts of such announcements/data for individual issuers may not be known. Accordingly, the NZX encourages issuers to be cautious in taking a view that the market will have correctly and fully deduced or inferred the impact of public information on the issuer as a justification for the conclusion that the information is not “material information” as it is already “generally available to the market”.
The NZX recognises that issuers may, over time and in the context of COVID-19, make a number of decisions that will have significant operating or capital expenditure impacts, as the duration or potential implications of COVID-19 become clearer. Those decisions should be considered for materiality as and when they are made, which may require issuers to make a number of announcements. While issuers cannot delay the release of material information (unless one of the exceptions applies), the NZX recommends that issuers also consider the cumulative impact of such decisions.
Material deviations from financial projections or market expectations
The NZX notes that many issuers have revised or withdrawn previous financial forecasts or projections in light of COVID-19 related developments, and encourages issuers to regularly assess their past and forecast financial performance in light of current statements to market and prevailing conditions.
In respect of issuers that have not amended or withdrawn their own forecasts or projections, the NZX considers that the market should be able to assume that those forecasts or projections remain valid. Issuers should be cautious in taking a view that the market will have already correctly and fully inferred the impact of COVID-19 on the issuer compared to prior comparable periods.
The NZX acknowledges that, in this time of considerable uncertainty, many issuers may consider that they have insufficient information to provide market updates. The NZX accepts this but reminds issuers and their advisers that they are still obliged to seek out information to the extent possible and, if an issuer determines (or is reasonably able to determine) that it holds material information based on initial or incomplete information alone, that information must be disclosed promptly and without delay to the market, regardless of the fact that there may be additional information to follow.
Covenant breaches – actual or potential
Some issuers may face actual or prospective breaches of lending or financial covenants, given actual or potential COVID-19 impacts on such matters as issuers’ revenue, debt position or market capitalisation. An actual or prospective covenant breach may constitute material information, requiring disclosure.
Cancellation or deferral of dividends
It is public knowledge that a number of listed issuers have recently decided to defer or cancel dividends that had already been announced to market. The NZX considers that any decision to cancel or defer a dividend is likely to constitute material information and requires disclosure to the market promptly and without delay (and, in some cases, with an explanation of the reasons and basis for the cancellation or the deferral). The NZX also considers that a general decision to suspend future dividends for a period of time or indefinitely, where the issuer has previously regularly paid dividends, is likely to constituted material information and require disclosure to the market promptly and without delay.
Cancellation or deferral of interest payments
The NZX reminds issuers that the NZX Listing Rules contain an express obligation on debt issuers to inform the market promptly and without delay if a decision is made not to pay interest on a due date. It expects that any announcement on cancellation or deferral of interest payments sets out the contractual basis for that decision, by reference to the terms and conditions of the securities.
Announcements by the Government or other third parties
Issuers are not required to re-release relevant information contained in announcements by Government agencies and other third parties if it is generally available, as it is no longer material information. The NZX does, however, encourage issuers to consider carefully whether such third party announcements may give rise to further material information specifically in relation to the issuer and its financial products (eg where an issuer identified material operating or financial impacts resulting from the third party announcement).
As noted in previous updates, the NZX has extended capital raising options for issuers during the COVID-19 event, and it expects that a number of issuers will undertake secondary capital raisings in the near term. While the NZX notes that the fact of a decision to undertake a capital raising may itself be material information requiring disclosure, it acknowledges that such a decision is generally likely to remain confidential and an incomplete proposal until the offer is formally approved and launched (and therefore qualifying under the exception in Rule 3.1.2).
This update is a positive initiative by the NZX as it helps to clarify some of the areas of uncertainty currently facing issuers and their advisers, and provides a degree of insight into the NZX’s expectations in relation to continuous disclosure obligations in these uncertain times. The NZX has stated that it will take a pragmatic approach given the current situation, and will consider relief under the Rules if appropriate. Nevertheless, given the fundamental nature of the continuous disclosure obligations for listed companies and our capital market as a whole, the Rules themselves (and the corresponding Guidance Note) should remain the primary reference for issuers and their advisers. As noted by the NZX, issuers should err on the side of caution in identifying information as material.
If you have any questions on the continuous disclosure obligations, or your NZX Listing Rule obligations more generally, please contact one of our experts.