Changes to ASX Emergency Capital Raising Relief
As a result of the Australian Stock Exchange’s (ASX) view that there has been significant stabilisation in market conditions, the ASX has revised the settings for the availability of the recent amendments to the capital raising requirements under its Listing Rules (LR) made in response to the economic impacts of the COVID-19 pandemic.
Effective from 16 September 2020, any entity wishing to rely on the ASX’s temporary emergency capital raising relief must satisfy ASX that the entity is raising capital predominantly for the purposes of addressing the existing or potential future financial effect on the entity resulting from the COVID-19 health crisis, and/or its economic impact.
The ASX has released an update advising of changes to the following:
ASX has revised the conditions which must be satisfied for an entity to access the capital raising relief in the class order waivers to LR 7.1 (Class Waivers) as amended with effect on 16 September 2020.
Earlier this year, the ASX introduced two Class Waivers implementing temporary emergency capital raising measures to provide entities affected by COVID-19 with greater flexibility to raise urgently needed capital. The new measures entailed a temporary uplift in the placement capacity under LR 7.1 which will allow entities to issue equity securities equal to 25% in a single placement without shareholder approval. This represented a 10% increase from the previous placement capacity of 15%. For more information on these emergency capital raising provisions, please refer to our previous article located here.
In July 2020, the ASX subsequently announced that the emergency capital raising measures had been extended to 30 November 2020.
However, as a result of the ASX being of the view that there has been significant stabilisation in market conditions, the ASX has tightened the settings for the availability of the Class Waivers. Any entity wishing to rely on the Class Waivers must now satisfy ASX that the entity is raising capital predominantly for the purposes of addressing the existing or potential future financial effect on the entity resulting from the COVID-19 health crisis, and/or its economic impact.
These changes reflect the expectations of the Australian Securities and Investments Commission that directors must provide transparent disclosure to the market about the capital raising decisions they are making which are required to be in the best interests of the company.
ASX retains its ability to withhold the benefit of the Class Waivers where a capital raising appears to have inequitable features for existing security holders. This will apply even where the disputed capital raising is COVID-19 related and urgently needed.
It remains to be seen whether ASX further extend the COVID-19 emergency capital raising measures beyond 30 November 2020, or whether their less frequent use will see the measures lapse at the end of November without further extension.
In response to queries from listed entities and their advisors, the ASX has clarified that the additional 10% temporary placement capacity provided for in the Class Waiver cannot be ratified or replenished under LR 7.1 or 7.4.
For listed entities that have relied on the 10% extra placement capacity, this means that securities issued under the entity’s normal 15% placement capacity under LR 7.1 can still be approved or ratified. However, any securities issued under the additional 10% temporary placement capacity cannot.
The rule applies equally to listed entities that used the additional 10% temporary placement capacity rather than a 7.1A mandate to issue shares above their normal 15% placement capacity. Entities that have a valid LR 7.1A mandate are unaffected by these changes and retain their ability to approve or ratify the issue of shares under LR 7.1 and 7.4 in the usual way.
ASX has made a number of recent changes to the LR’s and associated ASX Guidance Notes regarding NOM requirements and voting exclusion statements.
Listed entities will need to be across these changes, given the ASX’s ability to reject an entity’s NOM and require an updated draft if the changes are not complied with. The ASX may take up to five business days to advise on this outcome and may extend the deadline if further review is needed (LR 15.1). This may contribute to significant time delays in obtaining ASX approval for an entity’s draft NOM.
A summary of the key changes to the LR’s can be found here.
Following the commencement of daylight savings at 2:00am AEDT on Sunday 4 October 2020, the ASX Market Announcements will remain open until 8.30pm EST (5.30pm WST), instead of the usual 7.30pm EST.
ASX also released updates to ASX Guidance Notes 3, 4, 12 and 19 on 28 August 2020. An overview of these changes can be seen in our recent article.
If you require any assistance with capital raising procedures or compliance of your NOM with ASX listing rule requirements, please contact our Corporate Advisory and Governance team.