Boost For Equity Capital Raisings

By ASX

The Australian Securities Exchange has proposed significant changes to ASX Listing Rules to help small and mid-cap companies with capital and price formation, and strengthen ASX’s position as a leading global exchange for emerging companies.

More information on ASX proposal and consultation, Strengthening Australia’s Equity Capital Markets. (PDF 40.1KB)

A key proposal is increasing the equity capital-raising limit for small and mid-cap companies. ASX’s proposed rules framework would allow small and mid-cap companies to:

• Issue up to 15 per cent of their issued capital without shareholder approval (current Listing Rule 7.1).
• Issue an additional 10 per cent at a maximum 25 per cent discount to the market price within 12 months of shareholder approval (new rule 7.1A), underpinned by additional disclosure.
• Make additional issues within three months of shareholder approval (current listing rule 7.1).

The proposed changes only apply to small and mid-cap companies with a market capitalisation of $300 million or less. ASX will publish a list of companies that meet this test, twice yearly.

Such companies range from “start-up” enterprises with no record of revenue and dividends, to more established companies that seek capital to grow their business. Small listed companies typically have limited access to venture capital and debt funding, especially in their early stages, and because they have a narrower spread of shareholders they find rights issues less useful.

Placements provided almost 70 per cent of the secondary capital needs of small and mid-cap companies in 2011, ASX research found. The proposed changes will reduce placement compliance costs, by enabling small and mid-cap companies to issue an extra 10 per cent of their issued capital within 12 months of shareholder approval.

Several respondents to ASX’s 2011 consultation process, SME, Mid-Cap and Micro-Cap Equity Market Review, believed current capital-raising limits are too low. An ASX survey of small and mid-cap companies annual general meetings found almost all capital-raising resolutions were approved by shareholders. As such, current ASX Listing Rules may be imposing an unnecessary regulatory burden, reducing flexibility and adding to capital-raising costs.

Admission requirements

ASX has also proposed updated admission requirements, to provide new ways for small and mid-cap companies to meet the shareholder spread requirements set out in Chapter 1, Condition 7, of ASX Listing Rules. Having to secure at least 400 or 500 shareholders who own at least $2000 of a company’s securities was seen as a capital-raising impediment for small and mid-cap companies, according to written submissions received in ASX’s 2011 consultation on this issue.

ASX proposes to adjust the shareholder spread test to:

• 400 holders with ≥ $2000; or
• 350 holders with ≥ $2000 and a minimum 25 per cent held by unrelated parties; or
• 300 holders with ≥ $2000 and a minimum 50 per cent held by unrelated parties.

ASX has also proposed to increase the Net Tangible Assets (NTA) test from $2 million to $4 million. Under ASX’s current asset test, an entity, at time of admission, must have NTA of at least $2 million after deducting the costs of fundraising, or a market capitalisation of at least $10 million.


Initiatives to be trialled

Other proposed ASX Listing Rule changes and initiatives include:

• Exposure draft of Listing Rules changes to improve disclosure to investors in the resources sector – Mining (JORC) and Oil & Gas – in second half of 2012.
• Trial additional intra-day auctions for mid to small caps.
• Introduce equity market-makers for eligible mid to small caps (subject to ASIC Market Integrity Rules for market-makers).
• Consult on turning broker identifications back on for mid to small caps, with IDs being visible to brokers and other market users generally. 
• Consult on extended trading hours.
• Trial of ASX Equity Research Scheme.
• Australian Resources Conference & Trade Show (Perth, November 2012)

Proposed listing rules changes for resource companies, the trial of ASX Equity Research Scheme, and the Australian Resources Conference & Trade Show are covered elsewhere in more detail in this issue of Listed @ASX.