ASIC loosens fundraising controls

Fundraising should be easier under a range of reforms announced by ASIC on Thursday night.

The reforms address a number of restrictions that have hindered legitimate fundraising methods for a number of years. The key changes are:

• abolition of the 10% discount limit on placements by listed MISs without the approval of members, where they have appropriate provisions in their constitutions;
• lifting of the $5000 cap on share purchase plans, plus see-through access to plans by trust beneficiaries;
• extension of the rights issue takeover exception to accelerated rights issues;
• case-by-case extensions of the rights issue exception to shortfall facilities;
• case by case relief from the nominee process for foreign shareholders.

ASIC has also made some commentary about the process of fundraising:

"Of clear concern is the market anticipating a placement or share issue as a result of issuers' advisers' soundings on the prospect. ASIC intends to focus on how confidential information is managed in these transactions and expects to provide further guidance about this towards the end of the year."

10% discount for MIS placements

Until now, placements without member approval by listed MIS using existing ASIC relief were subject to two major conditions:

• the units could not be issued at a discount of more than 10% of the current market price;
• the issue, together with any related issue in the previous year, could not comprise more than 15% of the interests in the relevant class of units.

ASIC has now abolished the 10% discount restriction. This is in direct response to the current financial crisis. Many responsible entities have argued they need to raise funds quickly to enable the repayment of debts and that the 10% discount limit has simply not reflected market reality. However the reality is that many listed MIS have undertaken substantial placements at more than a 10% discount using a transaction specific amendment to their constitution. That mechanism may still have some use as the new relief still leaves a number of technical issues. For example, the relief does not cover issues to associates of the responsible entity.

ASIC points out that the abolition of the discount cap does not allow mean that responsible entities can offer any discount they want. The size of any discount must take into account the best interests of existing members.

Share and MIS unit purchase plans

As noted above, ASIC has made two significant changes to facilitate fundraising through share and MIS unit purchase plans.

The first change is that the $5000 cap on annual plan participation by members has been tripled, to $15000.

ASIC has also cleared the way for small investors to participate in share and MIS purchase plans through investment platforms such as master trusts.

Until now, these purchase plans were effectively denied to small investors in this position because of monetary limits on investor participation. That monetary limit applied to each investor whose name appeared on the register. Where that investor was a trustee, the monetary limit applied to the trustee, rather than to the individual beneficiaries for whom the trustee held the shares.

ASIC now allows plans to be offered to both investors whose names appear on the register and those who hold their investments through a trustee or other nominee.

In order for beneficiaries to access the plan, a number of steps will have to be followed:

• the plan itself will have to allow custodians to acquire shares or interests on behalf of their beneficiaries;
• the beneficiaries will have to instruct the custodian to apply on their behalf;
• the custodian will have to certify to the issuer that it holds shares or interests on behalf of the relevant beneficiaries and supply their details.

There is no requirement to offer the plan with a placement. Where a plan offer is made as a stand-alone offer, a cleansing notice must be lodged with ASX within a 24-hour period before the offer is made. No further cleansing notice is required where the SPP follows a placement and the cleansing notice is not more than 30 days old.

To accommodate plans which were announced before the new relief came into effect (18 June), the pre-existing relief for offers under plans (in ASIC Class Orders [CO 02/831] and [CO 02/832]) continues until 1 September.

Takeovers relief for accelerated rights issues

Accelerated rights offers have been problematic for some time, because they don't fall within the standard takeovers exemption for rights issues (due to the timing differences between institutional and retail offers).

ASIC has now granted a specific exemption for accelerated rights issues. The exemption is conditional upon the retail allotment's being made within two months of the institutional allotment.

There are two other important caveats to the relief:

• it will not extend to shortfall offers; and
• foreign shareholders will still have to be dealt with under the nominee process in s 615.

However, some limited case-by-relief for shortfalls and foreign shareholders will be available: see below.

Shortfalls

A shortfall facility allows members to subscribe for any shares that are not taken in a rights issue.

In legal terms, shortfall facilities do not appear to fall within the scope of the rights issue exemption from the takeovers provisions (item 10 of s 611).

Last year, ASIC granted relief for shortfall facilities that are attached to rights issues. It has now indicated that it is prepared to grant case-by-case relief for other types of shortfall facilities. Relief may be refused if:

• the shortfall offer price is less than the initial rights offer price;
• members do not have an opportunity to participate in the shortfall facility;
• the ability to participate in the shortfall facility is somehow restricted; or
• the allocation method unfairly favours some participants over others.

ASIC is also prepared to grant case-by-case relief to allow bona fide underwriters to take up the shortfall under a dividend reinvestment plan.

Nominee process for foreign shareholders

In order to fall within the statutory takeovers exemption for rights issues, it is necessary to establish a nominee procedure to handle the entitlements of foreign shareholders to whom offers cannot practicably be made.

A nominee procedure is not required in order for a non-renounceable rights issue to fall within the prospectus exemption in Ch 6D. ASIC now says that it is prepared to grant corresponding case-by-case relief from the takeovers requirements where:

• the company has demonstrated an urgent need for capital;
• there are only a very small number of foreign holders and they hold only a very small number of shares; and
• it is unlikely that any proceeds from the sale of securities would actually be remitted to the foreign holders (ie, the market price has fallen below the issue price or so close to it that the nominee process would chew up the difference).