In good news for small to medium cap companies, the Australian Securities Exchange (ASX) amended its rules in August 2012 to enable certain listed companies to raise increased equity capital via placements. However, there are a number of eligibility conditions, disclosure obligations and shareholder approval requirements which a listed company must satisfy in order to access the benefit of that potential increased placement capacity. As we approach reporting season, companies listed on the ASX should assess their ability to satisfy the applicable regulatory requirements and consider the potential benefits that may be obtained by utilising the increased placement capacity.
Increased Placement Capacity
The ASX Listing Rules, which govern the conduct of companies listed on the ASX, now permit listed companies to issue an additional 10% of their issued capital by way of placements over a 12 month period with shareholder approval (Additional 10% Capacity). This is in addition to the existing placement capacity that listed companies have to issue up to 15% of their issued capital without shareholder approval.
Applicable Regulatory Requirements
To be eligible to seek shareholder approval at its AGM for the Additional 10% Capacity, a company must not have a market capitalisation of more than A$300 million at the time the AGM is held and not be included in the S&P / ASX 300 Index. Further, if it is eligible, the listed company must also comply with the following requirements (amongst others) in order to issue securities under the Additional 10% Capacity:
- at least 75% of the votes cast by shareholders present and voting at the AGM must be in favour of the resolution seeking approval of the Additional 10% Capacity;
- the price at which the securities are issued must not be discounted by more than 25% of the 'market price';
the Notice of AGM must include details of the following matters (amongst others):
- a statement of the risks of economic and voting dilution for existing shareholders;
- the purpose for which the funds raised by the securities issued will be used; and
- the allocation policy for securities issued (including how the company intends to decide who to offer securities to and whether it intends to offer securities to existing shareholders or new investors).
Approval commonly sought by life sciences companies
To date, at least 35 ASX listed companies in the life sciences industry have issued equity securities under the Additional 10% Capacity, notwithstanding the regulatory requirements applicable to such placements. This suggests that the disclosure hurdles do not present a significant obstacle to companies obtaining the benefit of the Additional 10% Capacity.
If it is effectively utilised, the Additional 10% Capacity offers eligible listed companies valuable flexibility in accessing capital in a quicker, easier and often more cost-effective manner (particularly as the approval may last for up to 12 months from the date of the AGM).