On 11 March 2015 ASX released a consultation paper in relation to better facilitating listings on ASX by companies listed on the NZX Main Board (Consultation Paper). To access the relevant media release and Consultation Paper please here.
The Consultation Paper proposes that New Zealand companies listed on the NZX Main Board be exempted from the relevant profits and net asset thresholds necessary to obtain an “ASX Foreign Exempt Listing” and only need to meet the requirements of the NZX Main Board.
At present, in order to obtain an “ASX Foreign Exempt Listing” a foreign listed company is required to have:
- An operating profit for each of the last 3 financial years of at least A$200 million; or
- Net tangible assets of at least A$2 billion,
as well as at least 1,000 shareholders.
By way of comparison the requirements for a full ASX listing are:
- An aggregated profit for each of the last 3 financial years of A$1 million; or
- Net tangible assets of at least A$3 million,
as well as at least 300-400 shareholders.
The gulf between the two tests couldn’t be more stark.
At present, only Alcoa Inc. (ASX:AAI) and Anglogold Ashanti Limited (ASX:AGG) are listed on ASX via a “ASX Foreign Exempt Listing”, neither of these companies are New Zealand listed companies.
The Consultation Paper highlights that of the 32 companies which are listed on both the NZX Main Board and ASX all of them have a listing on ASX that requires full compliance with the ASX Listing Rules and not an “ASX Foreign Exempt Listing”.
Relevantly, “ASX Foreign Exempt Listing” allows for substituted compliance whereby the listed entity’s primary obligation is to comply with the listing rules of their primary place of listing.
While dual listed entities do commonly seek exemptions from the full requirements of a full ASX listing, the resulting regulatory burden is nevertheless both cumbersome and duplicative.
This is magnified by discrepancies between the timetabling requirements of different listing rules and time zone differences which can make strict timing obligations difficult to comply with.
Simple capital raisings and other corporate actions either need to be “shoe-horned” into both listing rule regimes or regulatory relief obtained.
We applaud ASX for considering the relaxation of these rules which will likely facilitate more NZX Main Board listed entities and greater inter-bourse trading between the NZX Main Board and ASX.
Why not more?
While we are very happy with this proposed reform it is to an extent an overdue one. It would also appear based on ASX’s own data that the “Foreign Exempt Listing” option is being seriously under-utilised.
We believe that the reason for this lack of utilisation is the “very high” (ASX’s own words in the Consultation Paper) profit and net asset thresholds. These thresholds have the effect that mid-cap foreign companies listed on respectable (and comparable from a regulatory perspective) foreign exchanges are forced to seek a full listing on ASX and effectively duplicate their regulatory obligations.
Companies who satisfy the “very high” thresholds have the necessary resources to satisfy the obligations of a full listing and to an extent the “ASX Foreign Exempt Listing” is a self-defeating option.
We urge ASX to consider either:
- extending exemptions beyond just New Zealand and consider other exchanges such as the Singapore Stock Exchange (SGX); or
- lowering the thresholds for a “Foreign Exempt Listing” so that mid-cap companies listed on respectable foreign exchanges can seek a listing on ASX with a minimum of expense and unnecessary regulatory obligations.
Doing either of these things has the potential to encourage a greater number of foreign companies to consider a secondary ASX listing.
Considering a secondary ASX listing?
While the changes are still only at consultation stage, we believe that once these changes are implemented they represent an exciting opportunity for NZX Main Board listed companies to access a deeper equity capital market and seek an ASX listing.