The ASX has finalised new Listing Rules to assist small to medium size companies to raise capital for investment. The new rules come into effect on 1 August 2012.
Summary of the imminent changes
Under Listing Rule 7.1, all listed entities have the ability to issue up to 15% of their issued capital in any 12 month period without needing to seek shareholder approval. Certain issues are exempted from the general rule and therefore do not count towards the 15% cap (such as shares issued pursuant to a pro-rata entitlement offer or qualifying employee incentive scheme).
From 1 August 2012, a new Listing Rule 7.1A will be introduced into the Listing Rules. Listing Rule 7.1A will permit listed entities that:
- meet the threshold eligibility criteria; and
- have obtained the approval of their ordinary shareholders by special (75%) resolution at the AGM,
to issue an additional 10% of issued capital over a 12 month period.
There is a maximum discount of 25% to market price at which the additional 10% can be issued.
The listed company must meet the following criteria at the time of its AGM in order to be eligible to seek to rely on the new Listing Rule 7.1A:
- it must have a market capitalisation of $300 million or less; and
- it must not be included in the S&P/ASX 300 Index.
In terms of calculating market capitalisation, the trading price will be taken to be the closing price on ASX on the last trading day on which trades were recorded before the date of the AGM.
The S&P/ASX 300 Index is rebalanced twice a year in March and September with the list published on the first Friday of March and September, with changes coming into effect on the third Friday of March and September.
Companies proposing to seek shareholder approval should monitor the S&P/ASX 300 Index and provide a draft calculation of market capitalisation to ASX at the time of lodgement of the draft notice of AGM for ASX review. It will be appropriate for companies to state in the notice of AGM that if the eligibility criteria are not met on the date of the AGM, then the resolution will be withdrawn.
The approval under Listing Rule 7.1A lasts for 12 months from the date of the AGM and does not lapse if the company’s market capitalisation subsequently exceeds $300 million or if it is included in the S&P/ASX 300 Index at some time during that period.
Only qualifying entities that have obtained shareholder approval by a special resolution at the AGM may issue securities pursuant to Listing Rule 7.1A.
The resolution must be passed by at least 75% of the votes cast by members entitled to vote on the resolution.
The resolution can only be put at AGMs. It may not be put at any other shareholder meeting. Certain information must be set out in the notice of AGM as prescribed by Listing Rule 7.3A (including the allocation policy for the issue).
Additional placement capacity
An issue (or agreement to issue) under Listing Rule 7.1A does not detract from the company’s capacity to issue securities under Listing Rule 7.1. It operates as a separate capacity.
Accordingly, eligible companies must be clear which rule it is relying upon whenever it issues or agrees to issue new equity and must calculate its capacity to issue securities under each of Listing Rules 7.1 and 7.1A separately.
Limitations within which new issues must be made
Listing Rule 7.1A cannot be used for placements of securities in a class that has not yet been quoted.
The issue price must be no lower than 75% of the volume weighted average price (VWAP) calculated over the 15 trading days on which trades were conducted immediately before either:
- the date on which the securities are issued; or
- the date on which the price of the securities is agreed, provided the issue is thereafter completed within 5 business days.
Provided the requisite disclosure is included in the notice of AGM, securities may be issued as scrip consideration for the acquisition of assets. The value of the assets being acquired needs to be determined to demonstrate that the deemed issue price is no lower than 75% of the VWAP. The valuation may be provided by an independent expert or the directors of the company if they have appropriate expertise to carry out the valuation of the asset. The valuation must be released to the market before the issue is made.
Additional disclosure requirements
When an issue of securities is made under Listing Rule 7.1A, additional information required by Listing Rule 3.10.5A must be released. This is in addition to any information required by the Listing Rules or the Appendix 3B (which will be modified to take into account the new rules).
The additional information includes details of the dilutionary effect of the issue, details of any underwriting arrangements (including fees) and any other fees or costs incurred in connection with the issue. Where the securities are issued for cash, a statement of the reasons why Listing Rule 7.1A was utilised rather than a pro-rata or other type of issue where existing shareholders would ordinarily be entitled to participate must be included.
Conclusion and further information
Overall, the changes provide smaller to medium sized companies with greater fundraising flexibility which we anticipate will be welcomed by a number of industry sectors.
Other amendments will also take effect from 1 August 2012, including a lowering of the spread requirements and to increase the NTA requirement under the assets test for entities seeking admission to ASX. Links to the new rules, a user guide and the S&P/ASX 300 Index are available from the ASX website.