26.08 2012

New ASX Listing Rules For Rights Issues

In line with ASX’s ongoing theme of facilitating flexibility in and enhancing capital raising opportunities for ASX listed companies, it released a consultation paper ‘Modernising the timetable for rights issues: Facilitation efficient and timely rights issues’ on 4 July 2012 in which it proposes to reduce the time it takes to conduct traditional rights issues by more than a third so that the proposed new timetable is 16 business days (New Timetable) as opposed to 26 business days.

With the recent heightened use of non-traditional rights issue structures for capital raisings, the ASX considers that the New Timetable will aid the traditional rights issue’s attractiveness and viability as a capital raising mechanism with a better balance between companies’ need for timely capital raisings in volatile markets after the global crisis, and shareholders’ ability to participate.

Issues identified with the New Timetable largely relate to the impact on reaction times given the shorter timeframe, including:

  • one day for entitle trading: time for investors to buy/sell securities in response to rights issue announcement in order to join or exit the share register ahead of the rights trading period (particularly for renounceable raisings) with foreign shareholders being impacted the most;
  • period between the ex date and the record date: settlement systems and process of market users may impact common market transactions such as stock lending arrangements;
  • day after record date to and including date documents are sent to shareholders: time to finalise and disseminate offer documentation;
  • time for shareholders to accept offer: practical realities in retail shareholders’ ability to consider disclosure documentation, make an investment decision and respond to the offer (including making available cleared funds to pay for any subscriptions). Further impact on shareholders in remote locations who rely on hard copies being sent out to them and shareholders that rely on cheque payments.

The consultation paper seeks feedback in relation to these and any other issues identified in relation to the New Timetable. ASX believes that issues in relation to shareholder’s opportunity to participate can be solved through increased and accepted use of electronic dissemination of disclosure and offer documents, electronic mechanisms of acceptance of offer and electronic funds transfer available.

In the consultation paper ASX also invites discussion on proposal for developing, in the longer term, an even shorter timetable for rights issues of under a week to achieve a rights issue timetable that is competitive with a placement timetable (which is recognised as being the least fair method of capital raising as existing retail shareholders do not get to participate and have their shares diluted as a result).

Submissions are due to ASX on Tuesday, 14 August 2012. We would welcome your thoughts on the proposed changes to the rules regulating traditional rights issues, so please email Glenn Vassallo (Managing Director of GRT Lawyers) at gv@grtlawyers.com with your comments.


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