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07 August 2002

News Release

Report published on Wakefield Hospital's initial public offering of shares

The Securities Commission has published a report on its review of the initial public offer (IPO) of shares in Wakefield Hospital Limited (Wakefield) last year.

"This review shows how important it is to clearly identify the investment risks in offer documents," Chairman Jane Diplock said.

"When inviting investment from the public rigorous due diligence must be applied to the risks associated with the investment and these risks should be fully disclosed. Prospective financial information must comply with the relevant Financial Reporting Standard."

"Proper disclosure is crucial in building investor confidence in our securities market," Jane Diplock said.

Wakefield's IPO was made in August and September 2001. The company listed on the New Zealand Stock Exchange on 6 September 2001.

The Market Surveillance Panel of the New Zealand Stock Exchange referred questions about the forecasts in the Wakefield IPO offer document to the Securities Commission on 17 December 2001.

The Commission's review considered three aspects of Wakefield's IPO:

• whether the offer document adequately described the risk associated with the offer;
• whether the prospective financial information properly set out the main assumptions on which it was based; and
• the process followed by the directors in preparing the offer.

The Commission has formed the view that:

• the offer document was misleading because it failed to adequately describe the risks faced by Wakefield relating to the subcontracting of publicly funded cardiac surgery;
• the prospective financial information was misleading because it failed to state that it was based on an assumption that Wakefield would receive significant revenue from publicly funded cardiac surgery in the 2001/02 financial year;
• the prospective financial information was likely to have been misleading because it was presented as a forecast;
• the directors of Wakefield did not undertake adequate financial due diligence to ensure that investors were properly informed of:
  • the key risks relating to publicly funded cardiac surgery; and
  • the basis for the business judgement they had made relating to the key risks, and how their judgement affected the prospective financial information.

In the Commission's view the directors held an honest but mistaken belief that subcontracting with Capital Coast District Health Board to provide cardiac surgery would resume in the 2001/02 year, and the directors believed that the risk statements and assumptions were not misleading.

The Commission's findings indicate possible breaches of securities law. The Commission is referring the report to:

• Wakefield shareholders who subscribed to the IPO for them to consider whether any action should be taken; and
• the Companies Office.

A Report on Aspects of the Initial Public Offering of Wakefield Hospital Limited in 2001 is available on the Commission's website www.seccom.govt.nz

Contact: Catherine Chapman (04) 471 7659

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