If you are an ASX-listed company and need to raise equity, you may be able to access the temporary relief measures which the ASX has enabled (under the watchful eye of ASIC). These measures were originally due to expire on 31 July, but have been extended to 30 November 2020.
The primary relief adopted by ASX is to increase the placement capacity available under Listing Rule 7.1 from 15% to 25%. This allows companies greater flexibility to make a larger placement of equity before having to seek shareholder approval (a further challenge under the COVID-19 environment).
As placements are by necessity made to sophisticated and professional investors, ASX (and ASIC) are keen to ensure that retail shareholders are given similar opportunities to participate in a capital raising, particularly a capital raising which could be highly dilutive.
Accordingly, any company using the expanded placement capacity must also follow the placement with an entitlement (pro-rata) offer or a security purchase plan (SPP) with securities offered at the same price as the placement or lower. To further assist, ASX now allows a non-renounceable entitlement offer to be made on a basis of more than one new share for every share held, overriding a long term policy position. If an offer is made on this basis, the company must explain the allocation process for any shortfall at the commencement of the offer.
For SPPs, ASX has dropped the previous minimum floor price. Instead the SPP must be priced at or below the placement price as noted above, or if the SPP does not follow a placement, the price may be as "the directors may reasonably determine". If an SPP has a cap on total funds to be raised, the company must explain why they have imposed a cap and how any scale back process will occur if the cap is exceeded.
Again, the aim of the disclosure requirements in each case is to seek to promote equity between retail shareholders and those who participated in the placement. While these new rules have some real benefits, there are some elements that companies should take care with.
Firstly, some companies already have a 25% placement capacity, through the operation of a prior Listing Rule 7.1A approval. A company cannot use both the expanded Listing Rule 7.1 capacity and its capacity under Listing Rule 7.1A; it is one or the other. However there is a pricing floor under Listing Rule 7.1A, so in cases of a deeply discounted offer, companies may be forced to use the temporary expansion under Listing Rule 7.1 rather than their pre-approved Listing Rule 7.1A capacity.
Secondly, a company must make disclosure regarding the process by which it allocated securities under the placement. In addition, a non-public disclosure must be made to ASX and ASIC of the placement "book" setting out the applicants for securities and the allocations made. This reflects ASIC's continued push on transparency of share allocations.
Finally, ASX now requires that the company make a formal request to utilise the temporary relief and set out how the COVID-19 environment has affected them and caused them to need to utilise these measures. This information is also expected to be disclosed to the market when the capital raising is announced.
Overall ASX's actions grant companies more flexibility to undertake capital raisings without shareholder approval, but in a balanced manner that assists all shareholders to participate in such raisings.
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