ASX has significantly liberalised key capital raising
Today ASX announced finalised listing rule changes that will
allow smaller and mid-size companies to issue 25% of their share
capital in 12 months, rather than the standard 15% that has long
applied to ASX-listed companies.
We see the new capital raising rules as offering world-leading
flexibility for companies whose market capitalisation would
otherwise require them to seek specific shareholder approval to
every meaningful capital raising.
ASX has also relaxed the 'spread test' that applies to
IPO applicants, potentially addressing a significant hurdle to
first listing and one of the key drivers of backdoor listing
At the same time, ASX has increased the net tangible assets test
for admission from $2 million to $3 million. This slightly raises
the bar for new micro-cap listings, but should not be relevant to
the majority of listings as the test can be satisfied by the cash
raised on IPO.
The new capital raising rules will take effect from 1 August
2012 and the new admission test rules will apply to new admission
(and recompliance) applications lodged after 1 November 2012.
New 25% issue capacity
Eligible smaller and mid-size companies will be able to seek a
shareholder mandate to permit them to issue up to 25% of their
share capital by way of placements over a 12 month period. Issues
under the 25% mandate cannot be discounted by more than 25% to the
company's 15 trading day VWAP.
To gain the benefit of the 25% mandate, approval needs to be
sought at the AGM by special resolution, requiring 75% of
shareholders who vote to be in favour. The 25% mandate has a 12
month shelf-life and will therefore need to be refreshed on a
yearly basis. We expect that a 25% mandate resolution will become a
regular feature of the AGMs of eligible companies.
To be eligible, at the time the AGM is held a company needs
have a market capitalisation of $300 million or less; and
not be included in the S&P/ASX 300 Index.
ASX recommends companies seeking a 25% mandate provide a draft
calculation of market capitalisation when giving their draft AGM
notice to ASX for review. There may be some uncertainty for
companies dispatching their AGM notices as to whether they will
meet the eligibility tests on the date of their AGM, given
potential fluctuations in market capitalisation. However, there can
be no embarrassment in seeking a 25% mandate which turns out to be
unavailable due to the happy circumstance of share price
appreciation. Resolutions can be made responsive to this issue
through drafting them to be conditional on eligibility.
Most companies will hold their AGMs in November and therefore
will have certainty as to their inclusion in the S&P/ASX 300
Index, which is published on the first Friday of March and
Specific information requirements apply for the meeting
documentation when seeking a 25% mandate, including the risk of
dilution to existing shareholders, the company's 25% mandate
share allocation policy and the purposes for which 25% mandate
shares may be issued. This information needs to be disclosed again
with the Appendix 3B announced after the issue of 25% mandate
shares. We expect that companies will often publish relatively
broad statements on these matters, allowing them flexibility to
issue shares to a range of investors and apply the funds raised for
a variety of purposes.
As to the limitation on discounting, shares issued under a 25%
mandate must not be issued at a price that is less than 75% of the
volume weighted average price - or VWAP - of the securities over
the 15 trading days on which trades in those securities were
recorded immediately before:
the date on which the issue price of the securities is agreed,
the issue date (if the securities are not issued within 5
trading days of the date on which the issue price is agreed).
The VWAP figure and the source of the VWAP data must be
disclosed when announcing an issue of shares under a 25%
Some transactions will need to be carefully structured if the
intent is to rely on a 25% mandate. While vanilla financial
investor placements will always be executed within 5 trading days
of agreeing the issue price, more nuanced corporate-to-corporate
share issues may often have longer settlement times. For example,
issue of share-based consideration for acquisition of an asset may
well be delayed more than 5 trading days from agreeing the issue
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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