04.11 2014

Changes to ASX Guidance Note 12 – Significant Changes To Activities

An updated version of Guidance Note 12 (Significant Changes to Activities) was released by ASX on 30 September 2014 providing additional direction on how ASX applies Listing Rule 11.1 to 11.3. Revised Guidance Note 12 provides clarity on the ASX’s views on a number of issues and may make backdoor listings more attractive to certain applicants.

Changes to Guidance Note 12 (Significant Changes to Activities)

Guidance Note 12 provides direction on the requirements an entity must satisfy if it proposes a significant change to its activities. The key updates to the revised guidance note are as follows.

Meeting the minimum spread test (section 3.6)

Where a company is required to re-comply with Chapters 1 and 2 of the ASX Listing Rules as part of a significant change to the nature or scale of a listed entity’s activities, it would need to meet ASX’s minimum spread requirements under Listing Rule 1 condition 7.

Revised Guidance Note 12 clarifies that where an entity is undertaking a material capital raising with its re-compliance listing, ASX will normally use the issue price for the capital raising under the prospectus or PDS to determine whether a holder’s securities have a value of at least A$2,000 to meet the minimum spread test. However, ASX may use a different measure to determine the value of a holder’s securities if the entity is not undertaking a material capital raising with their re-compliance listing or if ASX is concerned that the issue price under the prospectus or PDS does not fairly reflect the market value of its main class of securities.

Meeting the profits test or assets test (section 3.7)

Revised Guidance Note 12 provides general guidance on how ASX applies the profits test and assets test to a re-compliance listing and notes in particular that:

  • if an entity has failed to lodge any financial statements with ASX in the period prior to its re-admission, or if the financial statements it has lodged have not been properly audited or reviewed, ASX will insist that default is cured prior to re-admission taking effect. This applies even where the entity is being re-admitted under the assets test and it would not ordinarily have to produce audited or reviewed financial statements to meet that test;
  • if ASX requires an entity to re-comply with the admission requirements (Chapters 1 and 2 of the Listing Rules), it must provide ASX a reviewed pro-forma statement of financial position together with the review, as if it were being admitted to the official list for the first time. The reviewed pro-forma statement of financial position must show the effect of the proposed transaction(s) as well as reflect any material change in the financial position of the entity since the balance date of the last financial statements given to ASX; and
  • ASX generally expects to see the reviewed pro-forma statement of financial position in the prospectus, PDS or information memorandum the entity lodges with ASIC.

The 20 cent rule (section 3.9)

It is not uncommon for an entity undertaking a re-compliance listing to make an offer of securities to raise capital. Normally the minimum issue price of new securities must be at least $0.20 each.  Revised Guidance Note 12 has adopted a new policy on the application of the “20 cent rule” to re-compliance listings recognizing that where an entity’s securities have been trading on ASX at less than $0.20, having to undertake a consolidation or restructure to comply with the “20 cent rule” prior to, or in conjunction with, a capital raising can impose impediments to the completion of a transaction that might otherwise be in the interests of an entity and its security holders.

In such cases, ASX will consider a request not to apply the “20 cent rule” provided:

  • the issue price for any securities being issued or sold in conjunction with the transaction:
    • is not less than $0.02 each; and
    • is specifically approved by security holders as part of the approval(s) obtained under Listing Rule 11.1.2; and
  • ASX is otherwise satisfied that the entity’s proposed capital structure after the transaction will satisfy Listing Rule 1.1 condition 1 and 12.5 (appropriate structure for a listed entity).

The new policy also recognizes that where an entity is not proposing to undertake a capital raising in conjunction with a significant change to the nature or scale of its activities, the “20 cent rule” has no application. In that case, if ASX has any concerns about the level at which an entity’s securities are likely to trade following the significant change, it will address those concerns on a case-by-case basis. This may include requiring the entity to consolidate or restructure its share capital as a condition of its readmission.

Minimum option exercise price (section 3.10)

Revised Guidance Note 12 has adopted a new “minimum option exercise price rule” to re-compliance listings, similar to the new policy on the “20 cent rule”. The new policy applies where an entity is proposing to issue options over ordinary securities in conjunction with the transaction(s) that has caused ASX to require the entity to re-comply with the admission requirements (Chapters 1 and 2 of the Listing Rules) and its ordinary securities have been trading at less than $0.20. In that case, ASX will consider a request not to apply the “minimum option exercise price rule”, provided:

  • the exercise price for the options:
    • is not less than $0.02 each; and
    • is specifically approved by security holders as part of the approval(s) obtained under Listing Rule 11.1.2; and
  • ASX is otherwise satisfied that the proposed capital structure of the entity after the transaction in question will satisfy Listing Rule 1.1 condition 1 (appropriate structure for a listed entity).

ASX may have concerns on this latter issue if, for instance, the number of options to be issued is disproportionate to the number of ordinary securities on issue.

Escrow requirements (sections 3.8 and 3.13)

Securities issued to the vendors in a backdoor listing would generally be considered as restricted securities and subject to escrow. Revised Guidance Note 12 also clarifies that ASX will look carefully at any issues of securities shortly before or after the announcement of the transaction to determine whether such issues are in the nature of seed capital and should therefore also be subject to escrow requirements.

A listed entity that is short of working capital may need to undertake a capital raising to cover the costs of getting a transaction to the stage of security holder approval under Listing Rule 11.1.2 or achieving re-compliance with the admission requirements under Listing Rule 11.1.3.

Where such an issue occurs by way of a pro rata offer, ASX is unlikely to classify the securities concerned as restricted securities. However, if the issue occurs by way of a placement, ASX will examine carefully and, if ASX forms the view that the cash raised is in the nature of seed capital or that the securities have been issued to a promoter of the transaction, ASX is likely to classify the securities as restricted securities, making them subject to escrow requirements.

Further Information

Should you be considering a backdoor listing onto ASX and require any further information, please contact us.


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