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A Report on Aspects of the Initial Public Offering of Wakefield Hospital Limited in 2001

SUMMARY OF CONCLUSIONS

1. This is a report on a review by the Securities Commission of aspects of the initial public offering of shares (IPO) in Wakefield Hospital Limited (WHL), a company incorporated in New Zealand.

2. The Commission has considered three broad questions in its review:
   1. whether the offer document for WHL's IPO adequately described the risk factors associated with the share offer;

   2. whether the prospective financial information in the offer document properly set out the principal assumptions on which it was based; and

   3. the process followed by the directors of WHL in preparing for the IPO.

3. The Commission has formed the view that:
   1. the offer document for the IPO was misleading because it failed to adequately describe the risks faced by WHL relating to subcontracting of publicly funded cardiac surgery;

   2. the prospective financial information in the offer document was misleading because it failed to state that the prospective financial information was based in part on an assumption that WHL would receive significant revenue from publicly funded cardiac surgery in the 2001/02 financial year;

   3. the prospective financial information was, by the date of allotment of shares following the IPO, also likely to mislead investors because it was presented as a forecast when, by that date, a significant assumption underlying that information was more properly described as a hypothetical rather than a "best-estimate" assumption;

   4. the directors of WHL did not undertake adequate financial due diligence to examine the risks and uncertainties concerning publicly funded cardiac surgery underlying the prospective financial information, in order to ensure that the offer document properly informed investors of:
      • the key risk factor in this regard;

      • the basis for the business judgement they had made in relation to that key risk factor, and how that judgement affected the prospective financial information.

      The inadequacy of the financial due diligence process may have contributed to the misleading nature of the offer document;

   5. in preparing the offer document, and at the time of allotment of shares, the directors of WHL held an honest but mistaken belief that subcontracting with Capital and Coast District Health Board (CCDHB) for the provision of publicly funded cardiac surgery would re-commence in the 2001/02 year. The directors of WHL believed that the risk statements and assumptions were not misleading by reason of omitting references to the risks associated with the contracting situation with CCDHB.