Reducing the burden of capital raising – listing rule amendments by the Australian Securities Exchange (ASX)

Aug 2012 |

The ASX has recently amended the listing rules in an effort designed to ease the means by which listed, small to medium sized companies can raise capital. From 1 August 2012, the new rules allow eligible companies to issue up to 25% of their share capital within a 12 month period. The ASX believes this will promote the competitiveness and attraction of ASX listed companies. The ASX has also announced amendments to the capital adequacy requirements for listing, due to take effect from 1 November 2012.

Increased capital raising capacity

In a move set to provide greater flexibility to companies looking to raise capital, (but of concern to minority shareholders), the listing rules now allow an eligible entity to increase its issue of share capital from 15% to 25% by way of placements in the 12 months following approval by special resolution at the entity's AGM. Eligible entities are those that are not included in the S&P/ASX 300 Index and have a market capitalisation of $300 million or less by the time of their AGM. For those entities unsure of whether they will be eligible to seek shareholder approval to undertake the additional placement, ASX suggests the entity draft the resolution in the notice of AGM to be conditional upon the entity satisfying the eligibility criteria. Further, ASX recommends any entity seeking shareholder approval under the new rules provide ASX with a draft calculation of the entity's market capitalisation when lodging its draft AGM notice to ASX for review. The amended rules also provide additional disclosure requirements to be met by entities seeking shareholder approval for the additional issue of securities. Specifically, these entities will be required to provide with their AGM notice, details including:

  • the minimum price of the issue, explanation of the risk of economic and voting dilution of existing shareholders;
  • the date by which the issue may be made;
  • the purposes for which the issue may be made; and
  • the entity's allocation policy for issues under the approval.

Should an entity gain shareholder approval for the issue, this information must be disclosed, with the Appendix 3B, upon each subsequent issue of securities under the approval. Entities issuing additional securities under the amended rules must issue the securities at a price no less than 75% of the volume weighted average price (VWAP) for securities of the same class calculated over the 16 trading days on which trades in those securities were recorded immediately before:

  • the date on which the issue price of the securities is agreed; or
  • the issue date of the securities (provided this is later than 5 trading days after the issue price is agreed).

An entity must disclose the VWAP figure and source of VWAP data when it announces an issue of securities under the amended rules.

Amendments to ASX admission requirements

The ASX has also announced amendments to admission requirements for entities seeking ASX listing after 1 November 2012. A new "spread test" has reduced shareholder numbers required to be satisfied and a third limb to the test has been added. The amended criteria now requires applicants to satisfy one of the following tests:

  • a minimum of 400 holders of securities in the main class of securities, each holding securities with a minimum value of $2,000, excluding restricted securities; or
  • a minimum of 350 holders of securities in the main class of securities, each holding securities with a minimum value of $2,000, excluding restricted securities with nonrelated security holders holding at least 25% of securities in the main security class (excluding restricted securities held by nonrelated security holders); or
  • a minimum of 300 holders of securities in the main class of securities, each holding securities with a minimum value of $2,000, excluding restricted securities, with nonrelated security holders holding at least 50% of securities in the main security class (excluding restricted securities held by nonrelated security holders).

For the above tests, "restricted securities" are those subject to restriction agreements. ASX has also increased the net tangible assets required of applicants under the assets test to $3 million (after deducting the costs of fundraising). This change also applies to listing applications made on or after 1 November 2012.