Last week, the Australian Securities Exchange
(ASX) released an updated version of ASX Listing
Rules Guidance Note 12 - Significant Changes to Activities
In this Alert, Senior Associate Alex Davies and Trainee
Solicitor Andrew Clements give a brief overview of some of the key
changes to GN12 and how these changes may benefit those who are
considering a backdoor listing.
The 20 cent rule
The most significant and positive change to GN12 is that ASX has
adopted a new policy on the application of the "20 cent
rule" to re-compliance listings. Usually, re-compliance with
the admission requirements in Listing Rule 2.1 Condition 2 requires
shares to be issued with, or have a sale price of, a minimum of 20
The updated policy recognises that where an entity's
securities have been trading on ASX at less than 20 cents, having
to undertake a consolidation or other restructure to facilitate
compliance with the 20 cent rule can impose a range of prohibitive
factors to the completion of a transaction that might not otherwise
be in the interests of an entity and its shareholders. ASX have
confirmed in the new GN12 that it will consider not applying the 20
cent rule provided:
the issue price or sale price of shares is not less than two
cents each; and
the issue price is approved by shareholders under Listing Rule
ASX is otherwise satisfied that the entity's proposed
capital structure will satisfy Listing Rules 1.1 Condition 1 and
12.5 (appropriate structure for a listed entity).
The new policy also recognises that where an entity is not
proposing to undertake a capital raising as part of the broader
transaction, the 20 cent rule has no application. In that case, if
ASX has any concerns about the price at which an entity's
securities are likely to trade, it will address those concerns on a
Given the difficult market conditions of recent times, we think
this new policy to potentially relax the minimum share price away
from the 20 cent benchmark is a positive move by ASX designed to,
in certain circumstances, preserve existing shareholder value and
encourage renewed interest in backdoor listing transactions.
Meeting the minimum spread requirements
Further guidance has been included in GN12 about how ASX will
examine spread for re-compliance transactions (which is consistent
with, and an extension of, Listing Rule 1.1 Condition 7). Where an
entity is undertaking a material capital raising in conjunction
with a re-compliance listing, ASX will normally use the issue price
under the prospectus to determine whether a holder's securities
have a value of at least $2,000 for the minimum spread test.
ASX may, however, use a different measure to determine the value
of a holder's securities if the entity is not undertaking a
material capital raising in conjunction with its re-compliance, or
if ASX is concerned that the issue price under the prospectus does
not fairly reflect the market value of its main class of
Pre-emptive capital raisings and escrow requirements
ASX acknowledges that a listed entity that is short of working
capital may need to issue securities to raise cash to cover the
costs of getting a transaction to the stage of shareholder
Where such an issue occurs by way of a pro rata offer to
existing shareholders, ASX is unlikely to classify the securities
concerned as restricted securities. However, if the issue occurs by
way of a placement (whether before or after the announcement of the
transaction), ASX will examine it carefully. If ASX forms the view
that the cash raised constitutes seed capital (including promoter
stock), ASX is likely to classify the securities as restricted
securities (making them subject to the normal 'frontdoor'
escrow requirements in Chapter 9 of the Listing Rules).
Key take away points
We see these changes to GN12 as a positive move by ASX to ease
the burden on entities who participate in backdoor listing
transactions. Whilst ASX is steadfast on its position that you
should not be able to achieve through the backdoor that which
cannot be completed through the frontdoor, the updated policy and
the relaxed position on the '20 cent rule' will certainly
reinvigorate the interest in backdoor listings whilst still
enabling directors to preserve some existing shareholder value.
HopgoodGanim are highly skilled at undertaking reconstruction
and backdoor listings and have extensive experience with preparing
ASX submissions for such transactions. If this is something you are
considering, please get in touch.
In the years following the global financial crisis of 2008 many Australian investors lost their life savings as financial products failed and the Australian Stock Exchange shed over 3,000 points.
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