On 25 July 2012, the Australian Securities Exchange (ASX) finalised new Listing Rules aimed at making it easier for mid to small caps (described in the new rules as “eligible entities”) to raise capital as well as to update the initial admission requirements.

The amendments follow on from the release of Strengthening Australia’s equity capital markets: ASX proposals and consultation in April this year (see http:// s2.webtemplate.com.au/bridgehead/ PiperAlderman/media/files/8956.pdf). The amendments are broadly consistent with the original proposals but have introduced some important changes.

The key changes from the original proposals are as follows:

  • An “eligible entity” must now also fall outside the S&P/ASX 300 in addition to having a market capitalisation of $300m or less at the time the shareholder approval is sought
  • Shareholder approval for the purposes of new Listing Rule 7.1A is required to be given by a special resolution (at least 75% of votes in favour) and be passed at an AGM, rather than by an ordinary resolution (at least 50% of votes in favour) passed at a general meeting
  • An “eligible entity” must now also fall outside the S&P/ASX 300 in addition to having a market capitalisation of $300m or less at the time the shareholder approval is sought
  • Shareholder approval for the purposes of new Listing Rule 7.1A is required to be given by a special resolution (at least 75% of votes in favour) and be passed at an AGM, rather than by an ordinary resolution (at least 50% of votes in favour) passed at a general meeting
  • The entity must now disclose its allocation policy for the issue of securities under Listing Rule 7.1A at the time shareholder approval is sought
  • With respect to calculating the discount to market price at which the securities may be issued, the securities issued under Listing Rule 7.1A must be issued at a price of no less than 75% of the volume weighted average price over 15 trading days before the date on which the securities are issued or the date on which the price at which the securities are to be issued is agreed, rather than no less than 75% of the average market price over that period 
  • In relation to the admission requirements - ASX has increased the net tangible assets test on admission from $2m to $3m, rather than from $2m to $4m as was originally proposed, and
  • The new Listing Rules will be reviewed after two years of operation.

ASX has also clarified the position with respect to an entity ceasing to fall within the definition of an “eligible entity” between the time the notice of meeting relating to the approval is issued and the date of the meeting. Specifically, ASX has stated that if an entity is considering seeking shareholder approval under Listing Rule 7.1A but anticipates that at the time of the AGM it may be included in the S&P/ASX 300 Index and/or have a market capitalisation of greater than $300m, then it should include a statement in the notice of meeting for the AGM stating that if either of these events occurs by the date of the AGM, then the resolution will be withdrawn.

However, if an entity obtains approval under Listing Rule 7.1A and subsequently during the 12 month approval period ceases to be an eligible entity, the approval will not lapse.

The capital raising rules will come into effect on 1 August 2012. The amendments are therefore likely to be of interest during the upcoming AGM season to mid to small caps that are seeking to raise capital.

The amendments to the admission requirements will come into effect on 1 November 2012 to allow a three month transitional period for entities in the process of applying for admission.