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Capital Markets Alert: New ASX Capital Raising Listing Rules Finalised - 30 Jul 2012

New ASX Listing Rules to facilitate capital raisings by mid to small cap listed entities will come into effect on 1 August 2012.

The new Listing Rules, which will be in place for this year's AGM season, enable mid to small caps to seek shareholder approval at their AGM to issue a further 10 percent of share capital over the following 12 month period, in addition to the 15 percent allowed in the current Listing Rules.

Here, partner Michelle Eastwell outlines the key changes to the Listing Rules, and explains some of the key issues listed companies need to be aware of when relying on these rules.

Key changes

The new capital raising Listing Rules:

  • apply to companies that have a market capitalisation of $300 million or less, and are outside the S&P/ASX 300;
  • permit an eligible company to obtain a 12 month shareholder mandate to issue a further 10 percent of its share capital (in addition to the 15 percent currently permitted by Listing Rule 7.1), at a maximum discount of 25 percent to the market price; and
  • provide that shareholder approval can only be obtained at the company's AGM by special resolution, with at least 75 percent of votes in favour of the resolution. Accordingly, eligible companies should now be considering whether it is appropriate to seek approval for this 12 month mandate at their upcoming AGMs.

Background to the changes

The ASX has, over the last year, sought to implement a number of initiatives to ensure the Australian market remains globally competitive, particular in the resources sector. These initiatives include introducing new capital raising Listing Rules, proposing faster rights issue timetables and trialling an equity research scheme.

With more than 1600 mid to small caps - more than half of which are in the resources sector - ASX has been particularly focused on addressing the needs of these companies to raise capital by placements. The changes recognise that mid to small caps rely heavily on placements as a critical source of capital, and that the existing Listing Rules often create time and cost inefficiencies, with the need to convene meetings outside of the AGM period and obtain shareholder approval before issuing securities exceeding the 15 percent capacity under Listing Rule 7.1.

The ASX issued a consultation paper in April 2012 and subsequently undertook industry consultation on the proposals. The new Listing Rules incorporate several changes from the feedback provided.

The new rules will be reviewed after two years.

Key elements of the new capital raising Listing Rules

  • The new Listing Rules will apply to companies that have a market capitalisation of $300 million or less, and are outside the S&P/ASX 300 at the time of obtaining shareholder approval under the new Listing Rules.
  • Eligible companies may seek shareholder approval to allow the issue of a further 10 percent of share capital over a 12 month period on a non pro-rata basis (ie by a placement). The approval must be obtained at the AGM and must be passed by a special resolution, with at least 75 percent of votes in favour of the resolution. The approval will lapse after 12 months or earlier if shareholders approve a significant transaction under Listing Rules 11.1.2 or 11.2.
  • There is an ability for shareholders of eligible companies to ratify securities issued in reliance on the new Listing Rules, which will have the effect of refreshing the placement capacity to the extent of the ratification.
  • The securities issued must be in an existing quoted class of equity securities of the eligible company.
  • The maximum discount on the securities is 25 percent to the market price. This is calculated by reference to the VWAP over the 15 trading days on which trades in the company's shares were recorded immediately before either:
    - the day on which the price of the securities is agreed; or
    - if the securities are not issued within five trading days of the day on which their price is agreed, the day on which the securities were issued.
  • When obtaining shareholder approval, companies must provide specific information to shareholders, including:
    - pricing and dilution information;
    - the purposes for which the equity securities may be issued, including whether they may be issued for non-cash consideration;
    - details of the allocation policy for issues under the approval; and
    - if this type of shareholder approval has been previously obtained, details of all share issues over the past 12 months, including, in the case of cash consideration, the amount of cash spent, what it was spent on and what the remaining cash is intended to be spent on.
  • Further disclosure must be made to the ASX and to the market generally when the securities are issued, including:
    - details of the dilution;
    - why the issue proceeded as a placement and not as (or in addition to) an issue which ordinary shareholders could participate in;
    - details of any underwriting arrangements; and
    - any other fees or costs incurred in connection with the issue.

It is important to note that these changes do not impact on the need to seek approval for related party transactions under the Listing Rules or the Corporations Act.

Changes to admission conditions

The ASX has also reviewed the Listing Rules relating to spread and net tangible asset requirements on admission, and has introduced changes that will be effective from 1 November 2012.

The net tangible asset requirement will be increased from $2 million to $3 million (rather than the $4 million requirement proposed in the initial ASX consultation paper). The spread requirements have also been amended to decrease the number of shareholders required to meet the existing spread requirements, and to introduce a new test of 300 holders where unrelated parties hold unrestricted shares equal to at least 50 percent of all shares on issue.