17.09 2012

The ASX’s New Listing Rules Receive Regulatory Clearance

On 25 July 2012, the ASX announced that its proposed new listing rules, to assist small to medium size companies to raise capital for investment, have received regulatory clearance from ASIC. This follows extensive industry consultation and is part of the ASX’s series of initiatives to strengthen Australia’s equity capital markets which it believes will increase the competitiveness of the ASX by bringing it in line with its foreign counterparts.

 

The new Listing Rules aim to (among other things):

1.   facilitate greater capital raising for mid to small caps; and

2.  update the admission requirements for companies wanting to list on the ASX.

 

The ability of mid to small caps to raise funds is often limited as they usually have a narrower range of shareholders and tend to be more speculative in nature. Placements to institutional investors are a vital source of capital for these companies and provide much of their secondary capital needs.

 

Expanded ability to Raise Capital for mid to small caps

Under the existing listing rules, listed entities can issue up to 15% of new shares every year without shareholder approval. In addition to this, under the new listing rule, listed entities that are outside the S&P/ASX300 and that also have a market capitalisation of $300 million or less will be able to seek approval by special resolution at an annual general meeting to issue up to 10% of its issued capital at a maximum 25% discount to the market price. The entity must demonstrate to the market the volume weighted average price (VWAP) over the previous 15 trading days was used to calculate the discount to market price.

Additional disclosure obligations will be imposed in the notice of meeting, when securities are issued and when any further approval is sought. These include the minimum price the shares will be issued, allocation policy, the impact on current shareholders on the basis of different assumed issue prices and different values for the number of existing shares, a statement of purposes for which the shares may be issued (i.e. for non-cash consideration), why the issue via a placement and not as or in addition to a rights issue, and the costs involved.

 

New admission requirements

The ASX has also updated admission requirements for entities wanting to list on the ASX by increasing the minimum net tangible assets (NTA) test from $2 million to $3 million, and providing new and liberalised ways for entities to meet shareholder spread requirements by lowering the monetary thresholds for the number of shareholders that an entity needs for admission.

 

Timing

The capital raising rules will come into effect from 1 August 2012 and the ASX intends to review these every two years. With regards to the new admission requirements, a three month transition period has been provided and which will be effective from 1 November 2012.

 

Other Proposals

These are just two of the ASX’s market initiatives to support mid to small caps; other initiatives include:

  • introducing a faster rights issue process (Specialist Article)
  • introducing additional intra-day, marketing makers, and re-introduction of broker IDs to support price formation for small to mid caps;
  • extending the ASX trading hours to attract more overseas investors;
  • launching the Australia Resources Conference and Trade Show, to be held in Perth in November 2012, to bring together international and domestic providers of capital and Australian resources entities in one location; and
  • trialling a new equity Research Scheme to fund high-quality, independent research for listed entities with a market capitalisation below $1 billion, to improve the ability of smaller companies to communicate to, and raise capital from, a broader set of investor.

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