ASX's efforts to encourage more NZSX listed
companies to also list on ASX could be frustrated by a technical
wrinkle in the Corporations Act which inhibits a company's
ability to raise capital.
ASX recently amended the ASX Listing Rules to make it easier for
companies that are already listed on the NZSX main board to obtain
a "foreign exempt listing" on ASX.
The advantage of a foreign exempt listing over a standard ASX
listing is that the issuer is not required to comply with the vast
majority of the ASX Listing Rules, so long as it complies with the
rules of its home jurisdiction. That concession significantly
reduces the compliance costs of a dual listing.
Prior to the recent changes, a foreign exempt listing has only
been available to large foreign issuers who had an operating profit
of at least A$200 million in each of its last three full financial
years or had net tangible assets of at least A$2,000 million at the
time of listing.
Those high thresholds have meant that those NZSX listed issuers
that have chosen to also list on ASX have typically done so through
a standard ASX listing.
The new ASX changes make it far easier for NZSX listed companies
to obtain a foreign exempt listing.
Essentially, issuers who are listed on the NZSX main board can
now apply for a foreign exempt listing if their profits are over
A$1 million in each of the last three years or they have more than
A$3 million of net tangible assets. There are no shareholder spread
These are sensible reforms and advance the trend towards greater
integration between the Australian and New Zealand capital
There is, however, a wrinkle in the Corporations Act that could
discourage NZSX listed companies from taking immediate advantage of
The problem lies in the fact that a company that has a foreign
exempt listing is not a "listed disclosing entity" for
the purposes of the Corporations Act. At first glance that is a
good thing for issuers, as it means that they are not subject to
the Australian continuous disclosure rules contained in section 674
of the Corporations Act.
However, this treatment also complicates the issuer's
ability to raise capital by way of a rights issue or an exempt
issue (such as an institutional placement). This is because an
entity that is not a "listed disclosing entity" cannot
issue a cleansing notice. Sections 708A and 708AA of the
Corporations Act require a cleansing notice to include a statement
that, as at the date of the notice, the issuer "has
complied" with the continuous disclosure requirements of
An issuer with a foreign exempt listing cannot make that
statement, as it is not a "listed disclosing entity"
required to comply with section 674 in the first place.
This could have significant consequences for some capital
the issuer may need to create a prospectus to extend a New
Zealand rights issue to Australian holders (unless they are able to
rely on another exemption - such as the exemption described in ASIC
Regulatory Guide 72 which applies where no more than 10% of the
shares are offered to Australian residents); and
in the context of a private placement, the issuer will need to
find an alternate way to manage the risk that a sale offer of the
placement shares in Australia during the first 12 months after
their issue might breach the secondary sales provisions of the
Corporations Act. The traditional options of either issuing a
prospectus at the time of the placement, or somehow restricting the
recipient's ability to offer those shares for sale in Australia
in the first 12 months after issue, are unlikely to be
We understand that ASIC is aware of this issue and is
considering its regulatory response. There would seem to be a sound
policy basis for ASIC to allow a NZSX listed issuer to issue a
cleansing notice so long as it is able to state that it is in
compliance with the disclosure requirements of NZSX. Applications
for case by case relief will no doubt be framed on that basis.
Class order relief to that effect would, however, pave the way
for many more NZSX listed issuers to access Australia's deeper
Until there is a clear regulatory response, we expect that some
NZX issuers may prefer to stay at home.
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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