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Changes to capital raising arrangements

ASX has processes in place to continually review and update its listing rules whether in response to changes in market practice, legislative amendments or to remedy issues that ASX perceives in the market.

This article outlines proposed changes to two aspects of capital raising: rights issues and share purchase plans. It also sets out ASX’s approach to waiver applications made by foreign companies with a primary listing on another exchange seeking relief from certain obligations under the ASX listing rules.

Capital Raising on ASX

In 2006, ASX-listed companies raised a total of $61.4 billion. In the first half of 2007, listed companies raised a total of $40 billion. If this trend continues, the total amount of capital raised on ASX in 2007 will exceed capital raised in 2006. Secondary capital raisings have been particularly strong in the first half of 2007, with $9.7 billion raised through rights issues and $12.8 billion raised in share purchase plans and placements. This compares with $5 billion and $25.6 billion respectively for 2006.

The chart below sets out total capital raisings. 2007 data includes the first half-year only.

Total capital raising

Total capital raisings ($bn)

This chart below shows the growth of secondary capital raisings. 2007 data includes the first half-year only.

Secondary capital raising

Secondary capital raisings ($bn)

Share Purchase Plans (SPPs)

ASIC Policy Statement 125 (PS 125) gives relief to corporations listed on ASX so they can offer existing shareholders the opportunity to acquire $5000 of additional shares without the requirement to release a prospectus. ASX has commenced an internal review of the regulatory framework for conducting SPPs following feedback that the current arrangements may not be working effectively in all circumstances due to sellers delaying or ultimately failing settlement, thereby affecting the eligibility of purchasers.   ASX is considering introducing a requirement that companies must announce a SPP with a one-day retrospective eligibility date. This would mean that shareholders on the register the day before the SPP is announced will be eligible to participate in the plan. 

The proposal will eliminate the incentive for sellers to delay or fail settlement so that they are eligible to participate in the plan. However, it will not add to the length of time it will take a company to conduct a SPP and will not detract from the underlying principle of the SPP, of providing long-term shareholders the opportunity to purchase shares at a discount to the market price as a reward for their loyalty. ASX will release a public consultation document requesting comments on this proposal shortly.

Rights Issues

On 28 July 2007, various amendments to the Corporations Act 2001 under the Corporations Legislation Amendment (Simpler Regulatory System) Act 2007 came into force. Listed companies and managed investment schemes can now make a pro-rata rights issue of securities (in an already quoted class) to existing security holders without a disclosure document or product disclosure statement (PDS), provided that the issuer of the securities releases a “cleansing notice” to the relevant market operator in the 24 hours before the offer is made, and various other conditions are met.

The cleansing notice is modelled on the existing section 708A requirements. In essence, it must include ‘excluded information’ being:

  • Price-sensitive information not previously announced in reliance on the carve-outs from continuous disclosure in Listing Rule 3.1A, and which investors or their professional advisers would reasonably require to assess the company’s financial position and financial performance, and the rights and liabilities attaching to the securities offered.
  • The potential effect of the rights issue on the control of the entity and 
  • A statement that the securities are being offered without disclosure and that the company has complied with various sections of the Corporations Act. 

ASX listing rules mandate timetables for rights issues. Pro-rata non-renounceable entitlements issues are covered by paragraph 3 of Appendix 7A and pro-rata renounceable right issues by paragraph 4 of Appendix 7A.

There are two key dates in relation to each of these timetables: day 0, when the timetable for the issue begins and day 6, when the security holders entitled to participate in the offer are determined (the record date).

For rights issues made using a prospectus or PDS, disclosure of these documents and the Appendix 3B (the listing rule form of announcement of issue) will occur on or before day 0. For rights issues made without a disclosure document under the new sections 708AA and 1012DA, ASX expects that the Appendix 3B lodged on or before day 0 will also contain or be accompanies by all relevant information for the rights issue, including any excluded information that falls within the ambit of the cleansing notice.

This requirement ensures that trading in the rights (where applicable) and securities, for offers made both with and without a disclosure document, is fully informed from day 0.

Because of the timing requirements for the lodgement of a second cleansing statement under section 708AA in relation to secondary trading of securities issued without a disclosure document under section 708AA, ASX may not grant deferred settlement trading to new securities immediately after the closing date of a rights issue conducted without a disclosure document.

International Listings

ASX has reviewed its approach to waiver applications made by foreign companies with a primary listing on another exchange (“foreign companies”) seeking relief from certain obligations under the ASX Listing Rules.

Such waivers have been granted sparingly.  While this is unlikely to change significantly, some limited circumstances have been identified where applications that may have been denied in the past would now be likely to succeed. 

ASX may recognise compliance with the obligation created by the listing rules in the place of primary listing as constituting full compliance with the ASX requirements where:

  • the company is also listed on one of the world’s other major exchanges and 
  • ASX is satisfied that differences between the two sets of listing rules in relation to a particular obligation are merely “around the edges” rather than differences as to the substance of the obligation.

ASX does not propose to devise inflexible rules as to which exchanges are sufficiently “major” to warrant this form of recognition or which aspects of which rules will be regarded as being sufficiently ancillary to warrant this treatment.

Instead, ASX will be guided by considerations such as whether:

  • the inconvenience to the listed company, in satisfying two sets of requirements which are assessed as not being significantly different, outweigh any detriment to users of the ASX market from non-application of ASX requirements and
  • the outcome be consistent with the underlying purpose of the relevant rule and with the principles that are taken into account in applying the rules generally.

A Guidance Note will be issued shortly.

By Heidi Zwar, Gary Hobourn and Michela Gallimore - ASX Regulatory and Public Policy Unit and John Moran, Senior Analyst - ASX Legal – Corporate and Supervisory department.

Copyright 2007 ASX Limited ABN 98 008 624 691. All rights reserved 2007.
Information provided is for educational purposes and does not constitute financial product advice.  You should obtain independent advice from an Australian financial services licensee before making any financial decisions.  Although ASX Limited ABN 98 008 624 691 and its related bodies corporate (“ASX”) has made every effort to ensure the accuracy of the information as at the date of publication, ASX does not give any warranty or representation as to the accuracy, reliability or completeness of the information.  To the extent permitted by law, ASX and its employees, officers and contractors shall not be liable for any loss or damage arising in any way (including by way of negligence) from or in connection with any information provided or omitted or from any one acting or refraining to act in reliance on this information. This document is not a substitute for the Operating Rules of the relevant ASX entity and in the case of any inconsistency, the Operating Rules prevail.