Australia: Changes ahead for listed small to mid cap companies and the resource sectors

Last Updated: 17 April 2012
Article by Adam Levine, Clive Cachia, Robert Cunningham and Jol Rogers


The Australian Securities Exchange (ASX) has recently released a consultation paper proposing several reforms to address the needs of small to mid cap companies. These include changes to the current capital raising and admission requirements.

The paper also includes a summary of the feedback given to the ASX in response to the Issues Paper on Reserves and Resources Disclosure Rules for Mining and Oil & Gas Companies released in October 2011. This summary gives some useful advance warning of likely Listing Rule reform affecting mining and oil and gas companies. Our earlier eAlert outlining the proposals for such enhanced disclosure requirements can be found here.

Part one – small to mid cap sector

Who is the small to mid cap?

The small to mid cap sector plays an increasingly important role in Australia's equity market. ASX's statistics show that there are more than 1,600 companies in this sector, more than half of which are from the resources sector. Interestingly, the small to mid cap sector represents 76% of the listed entities on the ASX but account for only 6% of total market capitalisation.

For the purposes of ASX's reform proposals, small to mid cap companies are those entities with a market capitalisation of A$300 million or less. The ASX proposes to release a list of those companies which fall under the A$300 million market cap threshold every six months on the last trading day of May and November. The entities included on the list will be eligible to issue share capital under the ASX's proposed capital raising rules.

Sticking with the one board

Feedback from ASX's consultation does not support a second board for small to mid cap companies (as is the case with other jurisdictions, like Canada). While respondents thought the single ASX market catered well for the small to mid cap sector, certain reforms should be implemented to better respond to its specific needs. These are now being proposed by the ASX.

More flexibility in capital raisings

One of the key areas of importance for the small to mid cap sector is capital raising. The ASX recognises that the small to mid cap sector is often limited to equity issues as a means of raising finance. So, the ASX is proposing a change to allow the small to mid cap sector more flexibility around capital raising initiatives.

The ASX's basic rule for equity issues under which a listed company can only issue up to 15% of its issued capital in a 12 month period without shareholder approval will remain in place. However, the new proposal will allow small to mid cap companies to seek shareholder approval to issue a further 10% of their issued capital over a 12 month period, at a maximum 25% discount to market price. So, in effect, small to mid cap companies will have the flexibility to easily (and more cheaply) raise equity finance at up to 25% of their market cap. There are certain requirements for disclosures to shareholders both pre and post issue of the additional 10%. These focus largely around the dilutive effect for existing shareholders.

The proposals would make the ASX's capital raising framework for mid to small cap companies similar to other exchanges, such as Toronto, London, Hong Kong and Singapore.

Admission criteria

The ASX also seeks to update its admission requirements by proposing changes to the requirements for shareholder spread and net tangible assets on listing.

In respect of shareholder spread, the ASX has proposed more flexibility around meeting the shareholder spread requirements. These proposals seek to address concerns how the ASX's current admission criteria, at times, hinder smaller company participation in capital markets. It is proposed that companies applying for listing would have:

  • at least 400 (currently 500) shareholders each with shares of at least A$2,000
  • at least 350 (currently 400) shareholders each with shares of at least A$2,000 and 25% of shares are held by non-related parties
  • at least 300 shareholders each with shares of at least A$2,000 and 50% held by non-related parties (this is a new proposal).

The ASX also proposes an increase to the net tangible assets on listing requirement from A$2 million to A$4 million. This may have the effect of limiting the listing possibilities for companies with no real asset base. The A$10 million market capitalisation option remains unchanged.


The deadline for submissions on these reforms is 14 May 2012. Middletons would be happy to assist you if you would like to lodge a submission. In the meantime, ASX has provided the proposals to ASIC with the view to obtain regulatory clearance for the necessary amendments to the Listing Rules.

Part two – resources sector


ASX has received over 120 submissions since its release of the Issues Paper on Reserves and Resources Disclosure Rules for Mining and Oil & Gas in October 2011. In keeping with the broad objective of promoting the ASX as a major international investment destination, the feedback given is generally supportive of significantly enhancing the reporting and disclosure requirements to better align with international best practice and promote investor confidence.

Such enhancements include:

  • expanding the use of cautionary statements when reporting exploration and production targets
  • requiring greater information to support resource and reserve estimates and the need for pre-feasibility studies to support ore reserve declarations
  • expanding the scope of annual reporting and reconciliation of current and prior year estimates
  • implementing a common classification regulatory framework for oil and gas companies similar to the JORC Code regime for hard-rock mineral companies.

For a more comprehensive summary of the feedback given to the ASX and ASX's reaction (where given) click here.

Payments to host governments

Additionally, the consultation process has unearthed further recommendations to facilitate greater disclosure and transparency around payments made by energy and resources companies to host governments in the jurisdictions in which they operate. ASX has referred the matter and relevant submissions to the Commonwealth Government, so expect to see some reform in this area in the months ahead.

Next steps

ASX is preparing draft amendments to the listing rules to reflect the above feedback. An exposure draft of such amendments is due for public release and comment in mid-2012.

The separate but concurrent review of the JORC Code by the Joint Ore Reserves Committee is ongoing and will no doubt be influenced by the feedback provided to ASX.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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