On 12 May 2016, ASX released a Consultation Paper titled "Updating ASX's admission requirements for listed entities", setting out proposed Listing Rule and Guidance Note changes to ASX's admission requirements.
ASX is seeking submissions by Friday, 24 June 2016 before engaging with ASIC, with a view to finalising changes by early August, to come into effect on 1 September 2016, subject to regulatory approvals.
ASX's key proposals in the Consultation Paper are summarised below.
Increase in financial thresholds for listing under the profits test and assets test
The proposed changes to the profits test and assets test seek to increase:
- the "profits test": the consolidated profit requirement to at least $500,000 (up from the current $400,000 requirement); and
- the "assets test": thresholds to net tangible assets of $5 million or a market capitalisation of $20 million (up from net tangible assets of $3 million or a market capitalisation of $10 million).
ASX states that it considers the increase to be appropriate in maintaining the quality of the market and that it should provide greater certainty that the entity will have sufficient resources.
Introduction of minimum free float
There is currently no minimum free float requirement (although Guidance Note 1 provides that ASX will expect entities to list with a minimum free float of at least 10%).
In seeking to achieve an appropriate balance between supporting market liquidity, and innovation and emerging growth industries, ASX proposes to introduce a 20% minimum free float requirement. This requires at least 20% of the entity's main class of securities at the time of admission to:
- not be "restricted securities" or subject to voluntary escrow; and
- be held by non-affiliated security holders (ie. those who are not related parties of the entity or associates of a related party, or security holders whose relationship to related parties or their associates would, in ASX's opinion, deem them to be treated as an affiliate).
Updated minimum spread test
ASX has also proposed to update the current minimum spread test requirements to demonstrate a sufficient level of investor interest in the entity and its securities to justify listing.
Under the proposed changes, entities must have on admission at least:
- 200 non-affiliated security holders, where the entity has a free float of less than $50 million; or
- 100 non-affiliated security holders, where the entity has a free float of $50 million or more.
Each security holder must hold a parcel of securities with a value of at least $5,000 (up from the current requirement of $2,000).
The proposed amendments do not extend to requiring a minimum number of Australian-resident shareholders, however, ASX proposes to update Guidance Note 1 to clarify when ASX may exercise its discretion to impose such a requirement.
Extension of working capital requirements to all entities seeking admission under the assets test
To seek to provide investors with greater certainty as to available working capital of an entity, ASX also proposes to require all entities (not just mining and oil and gas exploration entities) admitted under the assets test to have at least $1.5 million in working capital available, after deducting administration costs and the costs of acquiring assets budgeted for the first full financial year after listing.
Entities applying under the assets test to provide audited accounts for the last three full financial years
Entities admitted under the assets test are currently not required to provide audited accounts, and may provide accounts for a period less than three full financial years.
ASX has proposed amendments to Listing Rule 1.3.5 to require entities applying under the assets test to provide:
- audited accounts for the last three full financial years; and
- audited or reviewed accounts for the last half year where the entity's accounts for the last full financial year are more than eight months old,
unless ASX agrees otherwise.
ASX will retain discretion to accept less than three full financial years of audited accounts, however, this discretion would only be exercised where ASIC will accept disclosure of less than three full financial years of audited accounts in the disclosure document.
Discretion to refuse admission
ASX proposes to update the Introduction to the Listing Rules and Guidance Note 1 to reinforce its discretion as to admission and quotation decisions and provide guidance on:
- when ASX may exercise its discretion not to admit an entity to the official list; and
- where an applicant may be considered to not have a structure and operations appropriate for a listed entity.
ASX has proposed amendments to the Listing Rules in addition to those noted above, including changes to encourage growth in ASX Foreign Exempt listings and clarify admission requirements across all categories of listings.
ASX will also update Guidance Notes 1, 4, 12, 29 and 30 to clarify its guidance on various policies and procedures, including updates to Guidance Note 12 to address emerging issues with backdoor listings. Under the proposed changes, trading in the securities of an entity that announces a backdoor listing will be suspended from the point of announcement until the entity has re-complied with ASX’s admission requirements, which will align backdoor listings with front door listings.
ASX is seeking submissions by Friday, 24 July 2016. If you are interested in making a submission or wish to discuss the above, please contact any member of the Clayton Utz team listed below.
Contributed by Brendan Groves, Kate Allison, Warrick Louey and Stuart Byrne