Australia: ASX seeks feedback on its proposal to modernise rights issues

The importance of companies being able to raise capital in a timely manner has been highlighted both during the GFC and by the volatile markets which have persisted in its wake. When compared to other forms of capital raising, such as placements, the process for conducting a traditional rights issue is much lengthier and accordingly can expose companies to greater market and pricing risk, as well as increased costs.

In an effort to help ensure that "standard rights issues remain a viable capital raising mechanism", on 3 July 2012 the Australian Securities Exchange (ASX) released a consultation paper entitled Modernising the timetable for rights issues: Facilitating efficient and timely rights issues in which the ASX outlines its proposal to condense the standard timetable for renounceable and non-renounceable rights issues from 26 business days to 16 business days.

The ASX proposes that because it is "leveraging off advances in systems, operational processes and technology", the time period for each step of the standard timetable is able to be reduced. The proposed timetable from the Consultation Paper is set out below:

Step Current timetable Proposed timetable
Announcement date to ex date 2 business days (day 0 to day 1) 1 business day (day 0)
Ex date to and including record date 5 business days (day 2 to day 6) 3 business days (day 1 to day 3)
Trading period for renounced rights (renounceable offer only) 14 business days (day 2 to day 15) 8 business days (day 1 to day 8)
Day after record date to and including date that documents are sent to holders 4 business days (day 7 to day 10) 3 business days (day 4 to day 6)
Day after documents are sent to holders to and including acceptances close date 10 business days (day 11 to day 20) 7 business days (day 7 to day 13)
Day after acceptances close date to and including issue date 6 business days (day 21 to day 26) 3 business days (day 14 to day 16)
Total timetable 26 business days 16 business days

One significant aspect of the proposed timetable is to reduce the period between the date that documents are required to be sent out and the date that acceptances close. This change will limit the time that shareholders have to consider the disclosure document and the details of the offer, make their investment decision and arrange for payment. As identified by the ASX, this concern may be mitigated by the availability of the offer document electronically on ASX's Market Announcements Platform, the use by many companies and shareholders of electronic acceptance of the offer and electronic methods of payment. However, foreign shareholders, or shareholders who live in remote areas and who require a hardcopy of the disclosure documents, may be disadvantaged by this aspect of the proposal.

The ASX considers that a shorter standard timetable is expected to increase the attractiveness of rights issues as a capital raising mechanism through assisting to reduce costs, underwriting risks, market execution risks and the size of the discount required to raise the required capital. The ASX and others have argued that it is important to ensure that rights issues continue to be a viable capital raising mechanism so existing shareholders are provided with the opportunity to participate in capital raisings.

The proposal to modernise rights issues is part of a broader suite of capital raising initiatives currently being pursed by the ASX. As you may be aware, the ASX proposes to allow mid to small caps to seek a 12-month shareholder mandate to issue 10% of issued capital at a maximum 25% discount to market price and the ASX also sought feedback in 2011 to make amendments to the ASX Listing Rules to facilitate accelerated rights issues. The Consultation Paper also flags options in the longer term for developing an even shorter timetable for a rights issue that could be completed in less than a week.

The ASX is seeking feedback on the impact of reducing the time periods for each of the steps noted in the table above and on a number of other questions which are outlined in the Consultation Paper. Submissions are required to be lodged by 14 August 2012.

We have advised on many rights issues and would be happy to assist you with any queries that you may have in relation to the Consultation Paper.

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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