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The Australian Securities Exchange (ASX) has
recently issued a consultation paper "Modernising the
timetable for rights issues: facilitating efficient and timely
rights issues". The Consultation Paper proposes to reduce
the traditional rights issue timetable by 10 business days (from a
maximum of 26 business days to a maximum of 16). This is a timely
Consultation Paper, given current market volatility and on-going
market discussion about capital raising structures.
The proposal is seeking to maintain the traditional rights issue
as a viable capital raising mechanism and to strike a balance
between the different interests of the issuer and its
shareholders.
The key changes include:
that the maximum timetable for a traditional rights issue is
reduced from 26 business days to 16 business days;
the cum entitlement trading period is reduced from two business
days to one (being only the day the offer is announced);
the minimum trading period for renounceable rights will be
reduced by 3 business days to 8 business days;
the period from when the documents are sent to shareholders and
acceptances close is reduced from 10 business days to 7 business
days; and
the period from acceptance closing to issue of the securities
is reduced from 6 business days to 3 business days.
Balancing the competing interests
The timetable for any rights issues needs to appropriately
balance potentially competing interests and consider potential
volatility in equity markets.
A listed company may urgently need funds. A longer offer period
will delay this and exposes the company to greater risks of adverse
market conditions which may impact on the success of the rights
issue and the costs to the company. A shorter offer period will
reduce these risks for the issuer (and its underwriter) and may
also potentially reduce the discount required to raise the capital.
As such, a reduced timetable will be more attractive to issuers and
may decrease the seemingly increasing reliance on institutional
placements to quickly raise funds (these placements, of course,
deny retail investors the opportunity to participate in the capital
raising and dilute their existing shareholding, often at a
discount).
On the other hand, retail shareholders need sufficient time to
be able to participate in a rights issue. Under the proposal,
shareholders would have 3 business days less to consider and accept
the offer. Specifically, they would have between 9 to 11 business
days' notice from the company of the capital raising and 6
business days to review any disclosure document and make payment
(each assuming one business day for posting). Of course, many
rights issues are now conducted under 'low docs' using a
cleansing notice (resulting in only limited disclosure to
shareholders) and electronic payment (rather than cheque) is
frequently used, each an argument in favour of compressing a rights
issue timetable. The impact is, however, likely to be greatest on
foreign shareholders or shareholders in remote areas that are
reliant on hard copy documents. The ASX notes that it is not clear
what proportion of shareholders fall into this category and whether
that proportion is sufficient to justify the longer timetable.
Other changes to rights issues being considered by
ASX
The ASX has also opened the door to whether, in the long term,
an even shorter timetable could be adopted, namely less than one
week which the ASX notes would be competitive with a timetable for
a placement. This would be driven by electronic dissemination of
disclosure documents and mandatory electronic payment. This will
require wide consultation and likely legislative reform.
ASX is also proposing amendments to facilitate accelerated
rights issues. Currently the ASX regularly grants waivers from the
Listing Rules to allow companies to conduct accelerated rights
issues (for example, JUMBOs and AREOs). The amendments to the
Listing Rules to facilitate the accelerated rights issue will only
be finalised after the conclusion of the above consultation process
for traditional rights issues. ASIC has already issued class order
relief to facilitate certain accelerated rights issue (under Class
Order 08/35).
The ASX will be receiving comments on its Consultation Paper
until 14 August 2012. We will keep you updated of any
developments.
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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