Proposed amendment
The Australian Securities Exchange (ASX) has recently proposed amendments to its listing rules. The proposed amendments are a result of internal rule reviews conducted by the ASX over the past year.
When will the proposed amendments be effective?
The ASX invited comments on the proposed amendments. Once the changes have been finalised, taking into account any feedback received, any requisite changes to the listing rules will be exposed in draft form.
At this stage it is anticipated that the rule changes will be effected in the second half of 2008.
Outline of proposed amendments
The proposed amendments cover four key subjects, namely:
- share purchase plans
- strategic investment vehicles
- capital raisings by small to medium sized enterprises (SMEs), and
- listing eligibility requirements.
Share Purchase Plans
It is proposed that companies offering share purchase plans (SPPs) will be required to ensure that the SPP is open to all shareholders who appear on the register on the business day prior to the announcement of the SPP. The current listing rules do not set any timetable requirements for SPPs.
The day prior to the announcement will be nominated as the record date for eligibility to participate in the SPP and only existing holders registered on the record date will be eligible for the plan.
The proposed amendment will reinforce the intended purpose of the SPP as a mechanism to reward existing long-term shareholders, reduce the incentive for sellers to short-sell or fail to settle in order to qualify for the SPP, and it will ensure confidence and certainty in trading for companies that have announced an SPP.
Strategic investment vehicles
Certain investment companies which would otherwise be ineligible to list or remain listed on the ASX because they have a majority of their assets in cash (thereby exceeding the threshold percentage of assets which can be held as cash as required by the listing rules) will be eligible for listing.
It is proposed that investment companies which have a substantial amount of assets (at least $500 million), a track record of successful investment and active management of strategic assets will no longer be prohibited from listing. Directors and key management of the vehicle will need to have appropriate experience in prior funds under management.
The ASX has formed the view that it is possible to update the listing rules to allow investors the opportunity to invest in well-run listed investment vehicles, while continuing to achieve the goals of investor certainty and corporate governance standards.
The investment vehicles will be subject to specific disclosure requirements, which will enhance transparency.
Capital raisings
Under the proposed amendments, companies with a market capitalisation of $100 million or less, SMEs will be able to obtain a shareholder mandate at their annual general meetings to make placements of up to 25% of the amount of issued capital for a period of up to 12 months from the date of the annual general meeting.
Currently, the listing rules state that a listed company cannot issue ordinary shares amounting to more than 15% of the ordinary securities on issue 12 months earlier, unless it obtains shareholder approval or one of the exceptions to the rule applies.
While still ensuring that a proposed issue of shares is favoured by existing owners, the amendment recognises that companies at earlier stages of development tend to be relatively small in size and have a proportionately higher demand for capital, when compared to more mature companies. SMEs therefore tend to consistently demand capital in excess of the 15% limit.
Shareholders will still determine whether companies are empowered to issue shares in excess of 15% (up to a maximum of 25%), but without the need to call a general meeting each time. This will ensure that there will be none of the delays usually associated with the requirement to hold a general meeting. There will also be greater certainty where the capital raising is needed for an acquisition, and there will be a smaller risk of SMEs being exposed to possible changes in market conditions.
Listing eligibility requirements – initial spread requirement
Under the proposed amendments, companies seeking to be listed will be required to have 200 shareholders each with holdings of at least $2,000 worth of shares.
The current listing rules state that, in order to be listed, entities must have at least 400 shareholders each with holdings of at least $2,000 worth of shares. This spread requirement is regarded by many as the most difficult hurdle for companies seeking to be listed on the ASX and the ASX believes the requirement is an unnecessary barrier to entry for smaller companies.
The benefit of the proposed amendment is the removal of the onerous burden on SMEs to obtain 400 shareholders and the potential increase in the number of subscribers who are able to take a larger stake in the company.
The proposal also seeks to increase the minimum net tangible asset size from $2 million to $4 million.
Listing eligibility requirements – removal of the 20c rule
Companies seeking to be listed on the ASX will no longer be subject to the requirement that the issue price of all securities (except options) for which the entity seeks quotation must be at least 20 cents at the time of initial listing.
The 20 cent rule was originally introduced to limit paper proliferation in the market.
The proposed amendment will bring the ASX listing rules in line with many other major international exchanges in relation to setting a minimum issue price.
For further information, please contact your usual PricewaterhouseCoopers adviser or:
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Andrew Wheeler, Partner
PricewaterhouseCoopers Legal
Corporate and Commercial
Tel +61 2 8266 6401 |
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Kathleen Ward, Senior Associate
PricewaterhouseCoopers Legal
Corporate and Commercial
Tel +61 2 8266 6843 |
