On 6 May 2013, ASX released exposure draft amendments to the ASX listing rules to facilitate entitlement offers. The proposed changes to the ASX listing rules will:
- eliminate the need for ASX waivers for most accelerated entitlement offers and introduce standard timetables for common accelerated entitlement offers
- shorten timetables for all entitlement offers.
The proposal would shorten a typical timetable for a non-accelerated entitlement offer from 26 business days to 19 business days1 by:
- reducing the ex-entitlement period from 5 business days to 3 business days
- reducing the maximum period from the record date to the date offers are sent from 4 business days to 3 business days
- reducing the minimum offer period from 10 business days to 7 business days
- reducing the maximum period from the close of the offer to the issue date from 6 business days to 5 business days
The first reduction is part of a broader change to shorten the ex-period for all corporate actions with an ex-period. This change has significant implications for timetables for dividends and distributions, bonus issues, equal access buy-backs, reductions of capital, and reorganisations, including shortening the timetable for schemes of arrangement2.
These exposure draft rules follow a consultation paper in July 2012 that proposed to shorten the existing entitlement offer timetables in the listing rules. In the July 2012 consultation paper, ASX stated it would progress that initiative together with a proposal set out in an ASX consultation paper released in January 2011 to eliminate the need for ASX waivers for most accelerated entitlement offers, and to introduce standard timetables for those accelerated entitlement offers.
The proposed entitlement offer timetables
Three new timetables have been added to Appendix 7A:
- a timetable for an accelerated non-renounceable entitlement offer (‘ANREO’)
- a timetable for an accelerated renounceable entitlement offer (‘AREO’) that can also be used for simultaneous accelerated renounceable entitlement offers (‘SAREO’)
- a timetable for accelerated renounceable entitlement offers with retail rights trading (‘AREO WRRT’)
The new accelerated offer timetables:
- recognise existing practices that involve the third business day after announcement being the record date 3
- allow a longer 4 business day period from the record date to offers being sent for an AREO WRRT, but otherwise apply the same 3 business day limit
- have a corresponding minimum retail offer period of 7 business days
- have a maximum period from the close of the offer to the issue date of 5 business days for an ANREO (as for non-accelerated offer timetables) and 8 business days for other accelerated offer structures.
The proposed rules vary from the proposals in the earlier consultation papers in several respects, including the following:
- The proposed rules apply to more accelerated entitlement offer structures
- The proposed timetables have been shortened by less than foreshadowed in the July 2012 consultation paper, with no reduction in the period of cum-entitlement trading for non-accelerated entitlement offers, and less shortening of the period between offer close and issue of securities
- An issuer will still be required to notify ASX by 10am on the business day before a proposed trading halt for an accelerated entitlement offer if the halt would coincide with the expiry date for an exchange-traded option, but the proposed fee in this scenario has been dropped
The need for CHESS development and testing work by ASX and system development work by back office service providers to move to a T+3 regime for corporate actions, coupled with an understandable preference to implement that change at a time of year where there are fewer corporate actions, mean these proposals are proposed to be implemented no earlier than January 2014. The proposals are required to go through a consultation process with ASIC and are subject to ministerial disallowance.
The following table summarises the timetables proposed in the exposure draft listing rules:
Click here to view table.
What this means for you
Few accelerated entitlement offers will need waivers
Under the draft rules, ASX-listed entities proposing to conduct an accelerated entitlement offer will in most cases not need a waiver of the listing rules. Such offers will generally have the benefit of exceptions from the placement limit in listing rules 7.1 and the related party issue prohibition in listing rule 10.11, and a note in the listing rules acknowledges particular features of the accelerated entitlement offer process regarding post-announcement transactions and the treatment of nominee holdings.
The benefit of these rules has been extended to all ‘rights issue’ and generally to ‘related issues’ as defined in the Corporations Act as amended by ASIC class order 08/35 or other ASIC instrument. Unlike the July 2012 proposal, entitlement offers that don’t meet the other requirements of section 708AA or 1012DAA will still have the benefit of the new rules. Entities will need to confirm whether the benefit of the rules is available for a proposed accelerated entitlement offer.
By way of example, these rules would cover offers by listed entities despite suspension for more than 5 trading days in the 12 months before the offer4. The rules would also cover an AREO WRRT that procured specific ASIC relief5. However, accelerated entitlement offers with features such as an offer of convertible unsecured listed securities (CULS) or similar6, an offer that include free attaching options7, or an offer open to persons who are issued securities after the record date by way of acceptance of a takeover offer8 would need to seek an ASX waiver unless they successfully procured individual ASIC offer document relief.
A note confirms that these rules will cover an accelerated entitlement offer that is conducted under a prospectus or PDS despite having the benefit of section 708AA or 1012DAA as modified by ASIC.
There are some forced process efficiencies for many entitlement offers
Two of the four proposed changes to the entitlement offer timetables shorten maximum time periods from the existing rules and existing waiver practices for some offers, by:
- reducing the maximum time period from the day after the record date to and including the date that documents are sent to holders of securities from a maximum of 4 business days to a maximum of 3 business days; and
- reducing the maximum period from the day after applications close to and including the issue date for non-accelerated entitlement offers from 6 business days to 5 business days, imposing the same 5 business day limit for an ANREO, and imposing an 8 business day limit for an AREO, SAREO or AREO WRRT.
Those changes don’t strictly facilitate shorter entitlement offers given it is already open to issuers to conduct those processes over as short a period as they consider sufficient. Rather, they force issuers to find process efficiencies if they would have otherwise provided for a longer time period.
A review of recent large entitlement offers suggest they have mostly conformed with the shortened time to send offer documents. ASX states it will consider waiver requests on a case-by-case basis. ASX has also continued the present 4 business day limit for an AREO WRRT, recognising the additional logistical burden of putting rights into the accounts of retail holders of securities over the same period.
However, the shortened period from the close of the offer to issue of securities will squeeze back-end processes for offers. A review of recent entitlement offers suggests that a substantial proportion of offers without a back-end bookbuild allow 6 business days between offer close and the issue date, and a substantial proportion of offers with back-end bookbuilds allow 9 business days between offer close and the issue date. Any time pressure introduced by the shortening of this time period is likely to be mitigated once proposed new retail RTGS payment infrastructure scheduled for delivery in early 2016 is implemented9. In the meantime, issuers and their security registry service providers may need to consider measures to mitigate any time pressure that might otherwise give rise to heightened allocation risk. These might include a consideration of acceptable payment methods and cut-off times for payment. It may mean over-subscription facilities become less prevalent. It may also lead to underwriters for underwritten deals retaining more clearance risk on cheques rather than dealing that risk out to sub-underwriters to the offer.
Responding to permitted shorter minimum retail offer periods
As noted, the proposed rules allow a minimum offer period of 7 business days. If and when that amendment makes its way into the listing rules, it will be interesting to see whether and to what extent issuers embrace the ability to proceed with a shorter offer period.
That may depend on entity-specific factors such as to size and sophistication of a register. The decision may also be affected by the processes for the making of the offer and for acceptance, such as the proportion of holders of affected securities that have given elections to receive such communications by email, and whether an online facility is available to access an offer. The shortening of an offer period can only render less practicable a holder awaiting the receipt of an offer document by mail and then returning an application form with a cheque by mail. We expect most entitlement offers to continue to be conducted without a prospectus or PDS, and accordingly with more limited disclosure for holders to review.
As a general proposition, the Corporations Act does not require a particular minimum offer period for an entitlement offer. However, note that where a holder of the securities needs to rely on the rights issue exception in item 10 of section 611 of the Corporation Act, item 10A of section 11 as inserted by ASIC class order 09/459, or an analogous instrument given by ASIC10, in order to participate without breach of the takeover prohibition in section 606 of the Act, it is a condition of the exemption that offerees have a reasonable opportunity to accept the offer. The Takeovers Panel may also find unacceptable circumstances where an entitlement offer with control implications does not give shareholders a reasonable opportunity to participate, although that is likely to be only one factor the Panel considers in assessing whether overall the control effect exceeds what is reasonably necessary for the fundraising purpose. In these cases, those control implications may lead an entity to allow a longer period for (retail) acceptances.
A shorter offer period also has implications for the period of rights trading. In the July 2012 consultation paper, ASX proposed to reduce the period between the close of rights trading and the close of the offer, but has discarded this proposal, due to concerns about the ability of those buying rights to exercise them in time11 and the additional administrative burden the proposal would place on registries. ASX’s proposed timetables still allow a minimum of 7 business days of rights trading, but we understand some brokers won’t sell rights for a retail security holder until they are visible in the holder’s account. For an AREO WRRT with the minimum offer period there may be only 2 business days of normal settlement trading after rights have been placed into accounts. Holders who only become aware of or respond to an offer when they receive offer documents by mail may have little or no opportunity to sell their rights on-market.
As a more general proposition, some entities may simply choose to give retail shareholders longer to respond to an entitlement offer in the interests of investor relations or to improve the prospects of a successful offer, although we do note that on our review of recent offers, most adopted a relatively short period of market risk of only a 10 or 11 day offer period.
Timetables prior to implementation
As noted previously, the changes are proposed to be implemented no earlier than January 2014 to allow for ASX and back office system changes relating to T+3 settlement for corporate actions, and the changes are subject to ministerial disallowance. It will be interesting to see how ASX’s waiver practice evolves in the meantime.