Australia: New ASX Exposure Draft On Capital Raisings Released

Last Updated: 11 November 2003

Article by Ms Philippa Stone and Mr Philip Hart

The ASX's Exposure Draft titled Capital raising mechanisms in a disclosure-based market – ASX proposals for informed choice was released on 20 October 2003.

The purpose of the Exposure Draft is to release for public comment proposed changes to Chapter 7 of the Listing Rules. The ASX states that the amendments are designed to 'facilitate flexibility in the structuring of capital raising mechanisms to better accommodate the capital raising needs of a diverse range of ASX listed companies'.

This article outlines the major changes proposed by the ASX.

Proposed amendments

Listing Rule 7.1

The ASX has proposed a number of key amendments to Listing Rule 7.1. Listing Rule 7.1 currently provides that a listed entity may issue not more than 15 per cent of its issued capital in any 12-month period, without the approval of security holders.

The key changes are outlined here.

  • The percentage of issued capital that may be issued without investor approval is to be increased from 15 per cent to 20 per cent.
  • Investors will be given the ability to confer a general mandate on a listed entity to issue greater than 20 per cent of its issued capital for a period of up to 13 months. The 13 months timeframe is designed to permit renewal of the mandate at annual general meetings.
  • Additional exceptions to Listing Rule 7.1 are proposed, including:
    - issues under share purchase plans (SPP). The ASX has sought submissions on whether this exception should also include issues to an underwriter of the SPP
    - 'jumbo' entitlement offers, although text for the actual amendment does not appear to have been provided in the Exposure Draft
    - issues approved by shareholder resolution under item 7 of section 611 of the Corporations Act. The ASX has asked whether there should be any time limit within which securities must be issued under this exemption.
  • The current exception for issues under a dividend reinvestment plan (DRP) will be amended so that any issues under the DRP (including issues to an underwriter) will be excepted from Listing Rule 7.1, as long as the DRP does not impose a limit on participation.

Timetables

The ASX has proposed amendments to the timetables for both renounceable and non-renounceable pro rata issues reducing the total time for a pro rata issue from the current 40 business days to 23 business days. The ASX has also proposed amendments to the timing of the opening of a non pro rata offer to existing shareholders.

Hybrid securities

To ensure consistent treatment of hybrid securities under the Listing Rules, the ASX has proposed to amend the definition of 'convertible securities' to include all convertible securities, regardless of the conversion terms. The ASX has also proposed technical amendments to Listing Rule 7.1.4 to clarify the treatment of hybrid securities that convert at a market price for the purposes of Listing Rule 7.1. The ASX has invited additional submissions on any other difficulties that arise in relation to the issue of hybrid securities.

Other

The Exposure Draft includes other proposed amendments, including removing the requirement to make pro-rata issues to New Zealand security holders and clarifying whether a voting exclusion statement is required where security holder approval is sought for an issue of securities that includes a priority for existing security holders.

Implications

The ASX states that 'its primary role is to facilitate the widest variety of forms of capital raisings in the context of an informed market'. The ASX considers that the package of amendments 'will result in a spectrum of capital raising forms being available in terms of the balance between "time to market" and certainty of outcome versus maximum participation'.

Assuming that the ASX's proposed amendments come into effect, some of the key implications for participants in the securities industry will be as follows.

  • With the increased placement capacity, listed companies will have greater capacity to conduct institutional and other private placements, without the need for security holder approval. While the changes will provide listed companies with increased funding flexibility, they will also further limit the raisings where the market receives a prospectus, and where retail investors have an opportunity to participate pro rata (although the changes to facilitate SPP offers will enable 'follow on' SPP offers to be made to retail shareholders after an institutional placement).
  • Listed entities will have greater flexibility to pursue acquisition initiatives requiring the issue of greater than 20 per cent of their issued capital, provided that investors are prepared to grant a mandate to management permitting issues of securities within the 13-month period. However, we query whether investors will be prepared to allow listed entities such latitude.
  • The proposed amendments are likely to increase the attractiveness of SPPs, DRPs, rights issues and hybrids as alternative forms of capital raisings available to listed entities.
  • While the amendments may look promising for listed managed investment schemes, the capital raising options for listed managed investment schemes will still be constrained. ASIC Class Order 98/52 will continue to place limits on the amount of capital that can be raised outside a rights issue, and it would be timely for ASIC to consider liberalising this Class Order to ensure that listed entities have flexibility in addressing their capital needs comparable with companies. To take advantage of the 13-month mandate proposal, listed trust would need to convene a special meeting, since they are not required to hold annual general meetings (although many do).

Timing

The proposed amendments will take effect on 30 January 2004.

ASX has invited submissions on the Exposure Draft and those submissions should be received by ASX no later than 30 November 2003.

This article provides a summary only of the subject matter covered, without the assumption of a duty of care by Freehills. The summary is not intended to be nor should it be relied upon as a substitute for legal or other professional advice.

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