On 31 March 2020, ASX released Compliance Update no 04/20 and issued two temporary class waivers providing emergency capital raising relief measures.
ASX, in consultation with ASIC, has now released updated temporary class waivers that will apply to capital raisings announced on or after 23 April 2020.
Since ASX released the initial class waivers, there have been a significant number of equity capital raisings, with several entities seeking to rely on the increased placement capacity to quickly raise cash to support their businesses or continue to pursue growth opportunities in the current COVID-19 crisis. Whilst the temporary measures implemented by ASX to facilitate capital raisings in these challenging times have been applauded by many, they have also drawn criticism. For example, some comments are directed to the perceived unfairness of preferencing institutional investors through the placement at the expense of existing high net worth and retail shareholders or the dark arts of the share allocation process.
However, there's more sides to this story of course, for example: share purchase plans can make many retail shareholders whole; high net worth shareholders can often bid into placements directly or through brokers (and some smart minds are looking to enhance this ability); boards will generally look to encourage participation by existing shareholders; some institutional investors are quality long-term investors that will enhance a register for the benefit of all shareholders; new cornerstone investors can be necessary to get deals away; and covering a retail "tail" with sub-underwriting to promote deal certainty can be harder than you think. The list goes on, reflecting the reality that every deal is different and that the fundraising process can be more art than science.
ASX is attuned to these intricacies and, having moved with considered speed, has refined its model. It requires details in advance around the proposed use of the 25% placement waiver and is willing to refuse access to the waiver where it feels it is unwarranted. The changes made in the updated waivers include enhanced disclosure obligations that seek to promote transparency in relation to the allocation processes adopted by entities that rely on the increased placement capacity in a way that reflects multiple sides of the story.
What are the changes to the ASX relief?
The most significant changes to the temporary class waivers have been to include additional disclosure requirements for those listed entities relying on the temporary extra placement capacity waiver (which increases the limit on placements from 15% to 25%). ASX have also included a number of changes to clarify the operation of the temporary class waivers.
The amendments to the temporary extra placement capacity class waiver include the following:
Enhanced disclosure requirements
ASX has increased the disclosure requirements for entities wishing to rely on the increased placement capacity class waiver. Entities must announce to the market the following matters within 5 business days of completion of the placement:
- results of the placement;
- reasonable details of the identification and allocation processes, including details of the allocation objectives and criteria, whether there was an objective of pro rata allocation amongst existing shareholders and any significant exceptions or deviations from those objectives and criteria; and
- confirmation that, as far as the entity is aware, no related parties, shareholders holding more than 30% of the entity's securities, or shareholders holding more than 10% of the entity's securities that also hold a Board appointment right (together, being Listing Rule 10.11 Parties), participated in the placement, subject to certain exceptions.
Listed entities relying on the waiver must also provide ASIC and ASX with an allocation spreadsheet (not for release to the market) containing details of participants and the number of shares allocated to each participant.
These enhanced disclosure obligations have been supported by ASIC, stating that "ASIC will be reviewing the allocation spreadsheets and monitoring the disclosures made by companies about placements, rights offers and SPPs to ensure they are accurate, sufficiently detailed and provide meaningful, rather than ‘boiler plate’ disclosure".
Where there is a limit on the amount to be raised under an SPP, a listed entity must now disclose the reason for the limit, and how it was determined. A listed entity will also be required to use all reasonable endeavours to ensure that SPP offer participants have a reasonable opportunity to participate equitably in the overall capital raising.
SPP Scale Back
ASX have clarified that any scale back under SPPs must be applied on a pro rata basis, based on either the size of a participant's holding, or the number of securities applied for.
The changes that clarify or expand the existing temporary extra placement capacity class waiver include the following:
- entities are now able to conduct a follow-on standard entitlement offer, not just an accelerated entitlement offer or SPP (as contemplated by the initial temporary class waiver in ASX Compliance Update no 03/20). This will assist smaller listed companies that do not have a significant institutional shareholder base;
- Listing Rule 10.11 Parties (including Directors) are now permitted to participate in an SPP on the same terms as other shareholders, pursuant to the grant of a waiver of Listing Rule 10.12 Exception 4 equivalent to the waiver granted to Listing Rule 7.2 Exception 5;
- confirmation that any entity that has a waiver or exemption to allow it to make SPP offers of more than $30,000 to individual holders in any 12 month period will still satisfy the conditions of ASIC Corporations (Share and Interest Purchase Plans) Instrument 2019/547; and
- any existing Listing Rule 7.1 or 7.1A placement capacity that has been used is counted for the purposes of calculating the remaining temporary extra placement capacity.
In addition, as noted above, if an entity wishes to rely on either temporary class waiver, ASX has explained that the notice of reliance to be provided by listed entities is not for public release and must:
ASX has also stated in its Compliance Update no 04/20 that entities wishing to seek two consecutive trading halts must make this clear in the request (otherwise ASX will only grant a single trading halt of up to two trading days). ASX also expects any request for two consecutive trading halts to state that the trading halt is for the purpose of considering, planning and executing a capital raising.
What do ASX-listed entities need to consider?
No doubt in response to the numerous large scale capital raisings being undertaken in Australia since the announcement of ASX's capital raising relief, ASX has sought to further verify the purposes for which ASX-listed entities have sought to raise further capital, and the persons to whom the additional securities are being placed.
Ahead of launching a capital raising relying on ASX's temporary COVID19 relief measures, ASX-listed entities and arrangers will need to be prepared to be able to justify to ASX the reasons for the capital raise and expect further scrutiny from ASX and ASIC with respect to its allocation policies.