The ASX and ASIC have granted temporary capital raising relief to listed companies
There's no doubt that company finances have taken a hit from COVID-19. In doing its bit to support hard-hit companies or those entities seeking to shore up their balance sheets, the ASX has just announced a 10% uplift in the 15% placement capacity under listing rule 7.1 to facilitate capital raising for listed entities. ASX listed entities now have a 25% limit on placements under the new relief instrument.
The extra 10% does not operate in addition to any extra placement capacity under listing rule 7.1A and, to the extent that shares have been issued under 7.1A prior to the commencement of the relief instrument, the uplift will be limited to the capacity that remains.
Both the ASX and ASIC have stressed that the current need for quick access to capital should not outweigh the requirement for fairness in equity raising. In other words, don't just raise capital for the sake of raising capital. In acting in the best interests of the company as a whole, directors should still balance the need for quick capital against the dilution of existing shareholders while also trying to achieve fairness between both institutional and retail investors.
To achieve fairness in equity raises, the ASX requires entities that take up this extra capacity to make a follow-on accelerated pro rata entitlement offer, or make an offer under a share purchase plan at the same or a lower price than the placement price.
The ASX has also made it clear that this is a one-off measure that can only be accessed once by an entity, after which the listing rule will revert to operate as usual. Entities looking to do more than one placement using the additional placement capacity will need to approach the ASX for an individual waiver. The class waiver will expire on 31 July 2020 unless extended or removed by the ASX.
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