In a move with implications for small to mid-cap entities considering a future listing, the Australian Securities Exchange (ASX) has announced amendments to certain of its admission requirements.

The amendments follow the ASX's consultation papers ASX SME, Mid-Cap and Micro-Cap Equity Market Review and Strengthening Australia's equity capital markets (released in March 2011 and April 2012 respectively). They form part of a range of initiatives by ASX aimed at:

  • Meeting the needs of issuers and investors outside the S&P/ASX200 (and those based in Western Australia in particular)
  • Improving the competitiveness of the ASX in a global context.

The ASX Listing Rules (Listing Rules) set the minimum admission criteria a company must comply with in order to obtain a listing on the ASX. The changes to the Listing Rules announced by the ASX affect what are commonly called the "spread" and "assets" tests. They will take effect from 1 November 2012 (to allow a three-month transitional period for entities in the process of applying for admission).

Changes to "spread" test

ADMISSION CRITERIA CURRENT REQUIREMENT REQUIREMENT FROM 1 NOVEMBER 2012
Number of Shareholders (Spread)

Minimum 500 investors @ AU$2,000

or

Minimum 400 investors @ AU$2,000 and 25% held by unrelated parties

Minimum 400 investors @A$2,000

or

Minimum 350 investors @ AU$2,000 and 25% held by unrelated parties

or

Minimum 300 investors @ AU$2,000 and 50% held by unrelated parties

As the above table shows, condition 7 of Listing Rule 1.1 will now provide three alternative "spread" tests under which an applicant entity may apply for admission. Specifically, the spread test will be satisfied by:

  • 400 persons, each holding parcels of securities in the main class with a value of at least AU$2,000 (excluding restricted securities). There is no minimum percentage of the issued capital that must be held by non-related parties of the entity; or
  • 350 persons, each holding parcels of securities in the main class with a value of at least AU$2,000 (excluding restricted securities), and at least 25% of the securities in the main class are held by non-related security holders (excluding restricted securities held by the non-related security holders); or
  • 300 persons, each holding parcels of securities in the main class with a value of at least AU$2,000 (excluding restricted securities), and at least 50% of the securities in the main class are held by non-related security holders (excluding restricted securities held by the non-related security holders).

The spread test essentially provides a barrier to entry in that an entity seeking to list needs to have:

  • Sufficient investor support to justify and maintain a listing
  • A reasonable prospect of liquidity in the secondary (post-initial public offer) market.

Feedback to the ASX has been that securing at least 400 or 500 shareholders who own at least AU$2,000 of an entity's securities is a capital raising impediment for small and mid-cap companies. While the changes outlined above should not materially impact the barrierto-entry aspect of the spread test, the greater flexibility, coupled with the reduction in the required number of security holders, should have the combined effect of facilitating ASX listings by emerging small and mid-cap companies.

Changes to "asset" test

ADMISSION CRITERIA CURRENT REQUIREMENT REQUIREMENT FROM 1 NOVEMBER 2012
Company Size Profit Test

AU$1 million net profit over past three years +

AU$400,000 net profit over last 12 months

or

 No change
Assets Test AU$2 million net tangible assets

or

AU$10 million market capitalisation

 AU$3 million net tangible assets

or

AU$10 million market capitalisation

As the above table shows, an entity seeking to list on the ASX must also satisfy either the "profits test" or the "assets test" as a condition of listing. Listing Rule 1.3.1 will now provide that the applicable net tangible assets (NTA) test will be AU$3 million. In other words, applicants seeking admission under this test (as opposed to the profit test) will be required to have an NTA of at least AU$3 million after deducting the costs of fund raising. The alternative AU$10 million market capitalisation test remains unchanged (as does the profit test).

While this increase in the required NTA from AU$2 million to AU$3 million is significant in that it makes it more difficult for companies with a small asset base to list on the ASX, as noted above the AU$10 million market capitalisation admission test remains unchanged. Accordingly it should not have a material impact on the ability to list on the ASX. The increase is also substantially less than the AU$4 million NTA test originally proposed.

DLA Piper Australia welcomes these changes, which demonstrate the continued responsiveness of the ASX to industry consultation, and should improve fundraising flexibility for the small and mid-cap market.

© DLA Piper

This publication is intended as a general overview and discussion of the subjects dealt with. It is not intended to be, and should not used as, a substitute for taking legal advice in any specific situation. DLA Piper Australia will accept no responsibility for any actions taken or not taken on the basis of this publication.


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