MAIN EQUITY MARKETS/EXCHANGES
1. What are the main equity markets/exchanges in your jurisdiction? Outline the main market activity and deals in the past year.
Main equity markets/exchanges
The Australian Securities Exchange (ASX) is the primary exchange in Australia (www.asx.com.au). There are also two small secondary exchanges:
The ASX provides an attractive exchange for foreign companies to list on, due to its position as a developed market in the AsiaPacific region. As at October 2011 there were 127 foreign companies listed on ASX.
Chi-X Australia (Chi-X), a wholly-owned subsidiary of alternative trading operator, Chi-X Global Holdings, recently completed its 'soft launch' period and received approval from the Australian Securities and Investments Commission (ASIC) to introduce trading in all S&P Index/ASX 200 stocks and ASX-listed exchange traded funds from commencement of trading on 9 November 2011. Chi-X is intended to offer an alternative to trading on ASX using its low latency, high performance proven trading system. Its launch is intended to introduce to the Australian market innovative new order types, the potential for lower costs and a more efficient way to trade. Chi-X is a trading market only, and it is not possible for a company to list on Chi-X.
Market activity and deals
The initial public offering (IPO) market is still relatively slow. In the period 1 January 2011 to 15 November 2011, 93 organisations listed on the ASX compared to 103 for the 2010 financial year. Secondary capital raising activity has remained reasonably strong during 2011, although considerably lower than the record levels of 2009. Significant transactions in 2011 included:
- GI Dynamics with A$311 million (IPO).
- Bega Cheese with A$253 million (IPO).
- Collins Foods with A$232 million (IPO).
- Australia and New Zealand Banking Group with A$1.3 billion (placement).
- West Australian Newspapers Holdings with A$1 billion (placement).
- Growth Point Properties Australia with A$102 million (rights issue).
(As at 1 February 2012, US$1 was about A$0.94.)
A number of planned IPOs have been postponed during the last year, many before official launch, due to the uncertainty in the global financial markets.
Directors of companies seeking to list generally retain discretion to delay or withdraw the IPO at any time before allotment of securities. Therefore, the offer can be simply postponed by an announcement to the market and return of any application monies received.
2. What are the main regulators and legislation that applies to the equity markets/exchanges in your jurisdiction?
There are two key regulators relating to ASX listed companies:
- ASX Limited.
The ASX Listing Rules set out the requirements for admission to ASX and regulate the conduct of listed companies. ASX Limited is responsible for enforcement of these rules.
ASIC regulates offers of securities under the Corporations Act 2001 (Cth) (Corporations Act) and associated matters such as market conduct, insider trading and advertisements. The role of market supervision was transferred from ASX Limited to ASIC during 2010. ASIC has issued Market Integrity Rules, which govern the conduct of brokers and other participants who execute orders on ASX and Chi-X.
3. What are the main requirements for a primary listing on the main markets/exchanges?
For an entity to be admitted to the official list of ASX and have its securities quoted on the ASX, it must satisfy the listing criteria set out in the ASX Listing Rules, which include the requirements summarised below. ASX Limited is responsible for determining whether the criteria have been met and whether a company is admitted to ASX. In addition, foreign companies that wish to list on ASX must register with ASIC as a foreign company.
Minimum size requirements
An entity seeking admission as an ASX listing must satisfy either the profit test or the assets test as set out below:
- Profit test. The entity must have both:
- aggregated profit from continuing operations for the last three full financial years of at least A$1 million; and
- consolidated profit from continuing operations for the 12 months ending no later than two months before the application for admission of greater than A$400,000.
- Assets test. The entity must have either:
- net tangible assets of at least A$2 million after deducting the costs of fundraising; or
- a market capitalisation of at least A$10 million.
The entity must also have a minimum level of working capital (see below, Trading records and accounts) and must have at least half of its total tangible assets in cash (or in a form readily convertible to cash) and have commitments to spend half of its cash.
Different thresholds apply in the case of an investment company. A foreign entity seeking a full ASX listing is subject to the same admission requirements that apply to an Australian entity, irrespective of whether it is listed on another stock exchange.
However, large international companies that are already listed on a recognised overseas securities exchange may be eligible to obtain a foreign exempt listing. To obtain a foreign exempt listing, the entity must have either:
- Operating profit before income tax for each of the previous three financial years of at least A$200 million.
- Net tangible assets of at least A$2 billion at the time of admission.
Trading record and accounts
There is a trading record requirement if an entity seeks admission under the profit test (but not if an entity is seeking admission under the assets test). To satisfy the profit test, the entity must both:
- Be a going concern or a successor of a going concern.
- Have the same main business activity as during the previous three full financial years.
The entity must also give ASX prescribed financial accounts and a balance sheet that have been audited or reviewed in the manner specified. This applies under both the assets and profit tests.
There is no working capital requirement if an entity is seeking admission under the profit test. To satisfy the assets test, the working capital must be at least A$1.5 million. If it is not, the working capital must be at least A$1.5 million if the entity's budgeted revenue for the first full financial year that ends after the listing was included in the working capital.
The prospectus or product disclosure statement (PDS) for the offer must also include a statement that the entity has sufficient working capital to carry out its stated objectives (or must provide ASX with a report from an independent expert to this effect).
Shares in public hands
To list on ASX, an entity must satisfy ASX's "spread" requirements, that is, there must be at least either:
- 500 shareholders, each holding a parcel of at least A$2,000 of shares.
- 400 shareholders, each holding a parcel of at least A$2,000 of shares, with at least 25% being held by persons who are not related parties of the company.
In either case, ASX escrowed securities (that is, securities subject to lock-up arrangements) are excluded. For a foreign exempt listing, a company must have at least 1,000 shareholders each holding a parcel of at least A$500 of shares.
4. What are the main ways of structuring an IPO?
An IPO is usually structured as one of the following:
- Offer for subscription, that is an offer of new securities of the issuer.
- Offer for sale, that is an offer of existing securities of selling shareholders (allowing existing shareholders to exit all or part or their holding).
- A combination of the above.
An IPO can comprise offers to different types of investors (whether under an offer for subscription or sale), including one or more of the following:
- Institutional offer. An offer to invited sophisticated or professional investors.
- Retail offer. An offer to the public generally.
- Broker firm offer. An offer to certain clients of brokers granted allocations of shares.
- Priority offer. An offer available to certain persons on a priority basis (for example, to employees or holders of shares in a related entity).
An entity can also conduct a compliance listing, which comprises a listing without an offer of securities, such as a dual listing.
5. What are the main ways of structuring a subsequent equity offering?
The main ways of structuring a subsequent equity offering include:
- Private placement. A placement of securities to a relatively small number of select sophisticated (often institutional) investors.
- Rights issue or entitlement offer. A pro rata offer of additional shares to existing shareholders.
- Share purchase plan. An offer to existing shareholders of up to A$15,000 each of new securities at a discount to market price without brokerage fees or stamp duty. Share purchase plans are often offered to shareholders in conjunction with a private placement to institutional investors to limit the impact of their dilution.
- Dividend reinvestment plan. An offer to existing shareholders to participate in a plan where new shares are issued instead of a dividend that would otherwise be payable in cash. Only shareholders who elect to participate in the plan receive new shares.
6. What are the main steps for a company applying for a primary listing of its shares? Is the procedure different for a foreign company and is a foreign company likely to seek a listing for shares or depositary receipts?
The principal steps involved in applying for an ASX listing of a company's shares include:
- Any pre-IPO restructuring to ensure that the group is appropriately structured for a listing.
- Due diligence including a formal due diligence committee process.
- Preparing a prospectus and ancillary documents for the offer of shares and listing of the company on ASX.
- Agreeing underwriting or offer management agreements.
- Pre-marketing of the offer and pricing.
- Lodging of the prospectus with ASIC.
- Submission of an application for listing to ASX.
- Offer period.
- Allocation and issue of shares.
- Admission to ASX and commencement of trading.
The procedure is the same for a foreign company seeking an ASX listing except that more limited requirements need to be satisfied for either:
- A foreign exempt listing.
- A foreign company that is not making an offer of shares at the same time as the application for admission (for example, on a dual listing).
As shares in most foreign companies cannot be settled electronically through ASX's Clearing House Electronic Subregister System (CHESS), foreign companies seeking a listing normally apply to have a form of depositary receipts known as CHESS Depositary Interests (CDIs) quoted on ASX instead of the company's shares or common stock.
ADVISERS: EQUITY OFFERING
7. Outline the role of advisers used and main documents produced in an equity offering. Does it differ for an IPO?
The following advisers commonly feature on an IPO.
The lead investment bank is primarily responsible for managing the IPO process and co-ordinating the entity's other advisers. Its role can include the following, in some cases in conjunction with other banks:
- Advising on the structuring of the offer including the size of the issue and the timing and pricing of the offer.
- Advising on the entity's capital structure, board composition and corporate governance.
- Publishing research on the entity through the bank's research function.
- Assessing the likely level of demand for the entity's securities.
- Advising on, and conducting marketing of, the offer including running road shows in conjunction with the issuer.
- Underwriting or offer managing the offer.
The issuer's law firm's role is to:
- Advise the company on the legal aspects of preparing for listing including matters such as, in the case of proprietary companies, converting to a public company, implementing any required pre-IPO reorganisation, appointing and removing directors, changing the company's constitution and directors' service contracts and preparing corporate governance policies.
- Carry out the legal aspects of due diligence.
- Assist the company in the preparation and verification of the prospectus or PDS.
- Advise on underwriting or offer management arrangements.
The investment bank generally obtains separate legal advice. If there are selling shareholders, they may also be separately represented.
The role of the investigating accountant is to conduct financial due diligence and to provide a report on any historical, pro-forma or forecasted financial information for the prospectus or PDS.
The tax advisers (who are often also the legal or accounting advisers) are responsible for tax structuring advice relating to any reorganisation and tax advice for the IPO or equity offering.
Depending on the nature of the business, particular experts may be commissioned to provide reports for the prospectus or PDS (for example, a tenement report for an exploration or mining company).
The company's share registry manages the register of shareholders, processes applications for the IPO or equity offering and handles the share register on a continuing basis.
Communications and investor relations consultants
These consultants advise on public relations matters including dealing with the media and communications with shareholders.
For secondary equity offerings, some or all of the same advisers may be involved depending on the structure and size of the offering and whether a prospectus or other disclosure document is required.
The principal documents produced on an IPO include:
- ASX compliant constitution for the issuer.
- Due diligence planning memorandum.
- Due diligence reports and sign-offs from advisers and the issuer.
- Due diligence committee report.
- Prospectus or PDS (and any supplementary prospectus or PDS) and application form.
- Investigating accountant's report.
- Verification notes.
- Underwriting or offer management agreement.
- ASX listing application.
- Board and shareholder resolutions to approve any reorganisation and IPO steps.
- Corporate governance policies.
The documents produced on a secondary equity offering depend on the type of equity raising exercise undertaken. Certain types of equity raisings do not require a prospectus or other disclosure document (see Question 9) and many of the ancillary documents above are consequently not required.
EQUITY PROSPECTUS/MAIN OFFERING DOCUMENT
8. When is a prospectus (or other main offering document) required? What are the main publication, regulatory filing or delivery requirements?
An entity must prepare one of the following disclosure documents for any offering of securities or financial products for issue or sale to investors in Australia, unless a specific exemption applies (see Question 9):
- A prospectus, for securities such as shares.
- A PDS, for financial products such as units in a managed investment scheme, for example a property trust.
Once prepared, the prospectus or PDS must be lodged with ASIC, but ASIC does not pre-vet prospectuses or PDS's before issue.
9. What are the main exemptions from the requirements for publication or delivery of a prospectus (or other main offering document)?
Exemptions are provided from the prospectus requirements of the Corporations Act for offers to certain classes of investors including:
- Offers to sophisticated investors. An offer
where one of the following applies:
- the minimum amount payable for the shares on acceptance of the offer is at least A$500,000;
- the amount payable by the investor for the shares when aggregated with the amount previously paid by the investor for other shares in the same class is at least A$500,000;
- a qualified accountant certifies that the investor has either net assets of at least A$2.5 million, or gross income for each of the previous two financial years of at least A$250,000 per year;
- the offer is made to a company or trust controlled by a person who meets any of the above requirements;
- the offer is made through a financial services licensee who has given certain certifications as to the sophistication of the investors.
- Offers to professional investors. An offer to "professional investors" within the meaning of the Corporations Act.
- Rights issues or entitlement offers to existing shareholders. Provided that certain conditions are met, a listed company can make a pro rata offer under a rights issue or entitlement offer to its existing shareholders without the need to prepare a full prospectus. Rights issues are ordinarily made under a short-form offering document and issuers are required to issue a notice essentially confirming that the issuer has complied with its continuous disclosure and financial reporting obligations under the Corporations Act.
- Share purchase plan offers. Provided that certain conditions are met, a listed company can make an offer to existing shareholders to acquire up to A$15,000 of shares each under a share purchase plan. The offer is made under a short-form offer document setting out the key terms of the offer.
- Small-scale offerings. Personal offers that do not result in securities being issued to more than 20 investors, to raise no more than A$2 million in any 12-month period.
- Offers to senior managers. An offer to senior managers of the company or of a related body corporate or to a family member or a body corporate controlled by the senior manager or such relative.
- Bonus issues and dividend reinvestment plans. An offer of fully paid shares to existing shareholders under a dividend reinvestment plan or a bonus share plan.
- Employee incentive plan offers. An offer to employees under an employee incentive plan. ASIC allows these offers without the preparation of a full prospectus, provided the plan complies with certain conditions and a short form offer document containing certain prescribed information is provided to employees and lodged with ASIC.
There are separate, but broadly similar, categories of exemptions for offering units in managed investment schemes.
Most of these exemptions can be aggregated, for example, to allow an offer of shares to sophisticated and professional investors and to certain members of senior management as part of a single capital raising.
In addition, if a company is seeking an ASX listing but is not simultaneously conducting an offer of shares, ASX may allow an information memorandum to be used for the listing instead of a prospectus. The information memorandum can in some circumstances contain more limited information than a prospectus, and is not subject to the prospectus liability regime.
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