It might seem like eons ago that ASX announced its intention to tighten the requirements for new listings on ASX – because it was. As reported in our earlier alerts of 16 May 2016, 25 May 2016 and 27 July 2017, the ASX has finally released the new raft of listing rule changes around the enhanced listing criteria set to commence on 19 December – Merry Christmas!
You might recall our previous alerts outlined what were some significant changes to the listing criteria, seeking, presumably, to squeeze out smaller, start-up and less established players from seeking listing on ASX. There was significant public criticism of ASX's approach, and a number of submissions made to ASX on this point (including from this firm). Principal amongst those complaints were those related to the proposed doubling of the minimum market capitalisation from $10 million to $20 million and, specifically, a requirement for there to be a minimum number of holders under the "spread" requirement who need to hold $5,000.00 of shares, rather than the former $2,000.00 limit.
So where did we end up?
Well, it is fair to say that ASX has given a little to each of the stakeholders and, somewhat pleasingly, has adopted a middle ground approach to the new criteria. Whilst there has certainly been a tightening of some of the requirements, as detailed below, many junior, start-up and would-be ASX listed companies will be happy that the original proposals have been watered down in some key aspects.
A summary of the changes to the Listing Rules is below:
- for entities that are listing under the "profits test" (that is, established companies with a history of revenue and profitability), there has been an increase in the requirement for consolidated profits for the 12 months prior to admission from the previous $400,000.00 to $500,000.00. This is consistent with the original consultation proposal.
- for companies listing under the assets test:
- the minimum net tangible assets minimum has been increased from $3 million to $4 million. This is a reduction from the $5million contained in the original consultation proposal.
- the minimum market capitalisation requirement has increased from $10 million to $15 million. Again, this is down from the original $20 million sought in the original consultation proposal.
- a new 20% minimum free-float requirement has been included. This is consistent with the consultation proposal and has been implemented by ASX for new listings under its "policy" guidelines for some time and it was an expected change.
- importantly, the tiered system of "spread requirements" has been done away with. Now all companies must have at least 300 shareholders having at least $2,000.00 of securities. This represents a significant departure from the original consultation proposal which suggested a requirement for fewer holders holding a larger dollar value of shares ($5,000.00).
- for "assets test" entities – those applicants must show audited accounts for two full financial years for both the entity seeking admission and any significant business that it has acquired in the 12 months prior to applying for admission, or that it acquires in conjunction with its listing. This is a reduction on the original consultation proposal which suggested three full financial years of audited accounts.
- for "assets test" companies – a standardised $1.5 million working capital requirement across all entities (previously this was limited to mining companies). This is consistent with the consultation proposal.
Overall, the requirements are tougher, but not significantly so, particularly when one considers that many of the dollar thresholds have been in place for some time (for example, the net tangible assets requirement financial threshold was originally put into place in 2012 and the minimum market capitalisation threshold has been in place since 1999). Arguably, the new thresholds are more reflective of the commercial reality of the size, structure, and minimum working capital needs for companies that seek to list on ASX in any event.
It is interesting to note that in the ASX paper announcing the new listing criteria, it has been emphasised that Guidance Note 1 will be amended to clarify that ASX has an absolute discretion on who to admit to the official list and will take into account the reputation, integrity and the efficiency of its market in exercising these discretions.
Whilst some examples will be provided in the guidance note, presumably there will be a heavy "Guvera–type" focus in the considerations ASX will turn to refusing to admit a company to the ASX.
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