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