Discounted Private Placements in New Zealand: Exploitation or Fair Compensation?

Abstract

Market commentators have suggested that New Zealand's lax private placement and disclosure regulation allows private placement purchasers to immediately sell discounted shares without disclosing these transactions to the market. However, New Zealand firms with the deepest discounts tend to have higher risks, lower returns and higher costs associated with evaluating firm value. Therefore, the possibility that deep discounts may simply represent adequate compensation for the extra risk and cost private placement purchasers incur cannot be ruled out. In this respect private placement purchasers in New Zealand take on the role and risks associated with investment banker and underwriter.

Keywords: Seasoned Equity, Private Equity, Placements, Regulation

JEL Classification: G18, G32, G38