As foreshadowed in our note of 24 March 2020 ASX and ASIC have released important amendments to the operation of the Listing Rules and Corporations Act to facilitate capital raising in the current environment.
In this update we consider the amendments, including increased 25% placement capacity, greater than one for one non-renounceable entitlement offers and being able to make ‘low doc’ offers despite 10 days of suspension.
We consider that this package of measures is a great response from ASX and ASIC and expect that more listed entities will now be able to use the placement and follow on entitlement offer / SPP offer structure to confidently and quickly raise funds through a placement while still giving retail shareholders an opportunity to participate through an entitlement offer or SPP.
We see a significant opportunity in volatile markets for participants in the SPP to be able to participate at the placement price or if the market has fallen at a price below the placement price – a benefit of this structure that is not available in a rights issue.
We have outlined the amendments below.
ASX has made the following amendments to the operation of the Listing Rules by a Class Waiver under Listing Rule 18.1.
Back-to-back trading halts
ASX will permit an entity to request two consecutive trading halts, allowing it a total of up to 4 trading days in halt to consider, plan for and execute a capital raising. Entities simply need to make it clear in their request for a trading halt that they are seeking two consecutive back-to-back halts of two days each for the purposes of considering a capital raising.
Increased placement capacity to 25%, provided an accelerated pro rata entitlement offer or SPP offer is also undertaken
- ASX has increased the 15% limit on placements in listing rule 7.1 to 25%, conditional on entities that use the increased placement capacity also undertaking an accelerated pro rata entitlement offer or SPP offer at the same or a lower price than the placement price. The relief only applies to a single placement of fully paid ordinary securities.
- Entities that already have the extra 10% placement capacity under rule 7.1A will be able to elect to use their existing rule 7.1A capacity or the extra 10% placement capacity available under this temporary measure but not both.
- Where the capital raising comprises a placement and pro rata entitlement offer, ASX has also granted a standard “super size” waiver to allow entities to calculate their placement capacity as if the underwritten component of the entitlement offer was completed before the placement. This effectively grosses up the entity’s placement capacity by 25% of the underwritten component of the entitlement offer.
- Entities that have already in the past 12 months used part of their existing placement capacity will need to deduct that when calculating their remaining placement capacity under the increased placement limit.
- ASX has waived the requirements that, in order to qualify for exemption from the listing rule 7.1 placement limit, an SPP be limited to a number of securities not greater than 30% of the securities on issue and a price that is at least 80% of the VWAP of securities before the day that the SPP is announced or the SPP securities are issued.
- If the SPP offer is not preceded by a placement, the price of the SPP offer may be reasonably determined by the directors of the entity.
- If the SPP offer is preceded by a placement, the price of the SPP offer must be at the same or a lower price than the placement price.
- If the entity imposes a limit on the amount to be raised under the SPP, it must use its best endeavours to ensure that SPP offer participants have a reasonable opportunity to participate equitably in the overall capital raising.
- ASX also requires that any scale-back arrangements are disclosed in the SPP offer documentation and are applied on a pro rata basis to all participants.
- While ASX will allow more than one SPP offer in a 12 month period, the $30,000 annual limit on participation in a SPP remains in place.
A temporary waiver of the one-for-one cap on non-renounceable entitlement offers in listing rule 7.11.3
This applies both to accelerated non-renounceable entitlement offers (ANREOs) and standard non-renounceable rights issues. ASX notes that entities are expected to elect an offer ratio that meets their capital requirements and that is fair and reasonable in the circumstances.
To take advantage of the increased placement capacity and removal of the one for one cap on non-renounceable entitlement offers, the entity must notify ASX of its intention to rely on these provisions and the circumstances in which it is doing so.
The amendments to the Listing Rules described above will apply until 31 July 2020. ASX will review the arrangements with industry participants closer to 31 July 2020 to determine whether they warrant being extended.
ASX reserves the right to withdraw the benefit of any of these capital raising amendments in a particular case if ASX considers that it is being abused by a listed entity or that the listed entity is otherwise acting unfairly or unreasonably in the circumstances.
Temporary relief for companies suspended from trading for more than 5 days
ASIC has provided temporary relief to allow entities to undertake placements, rights issues and security purchase plans using the “low doc” regime where the entity has been suspended for a total of up to 10 days (rather than 5 days) in the previous 12 month period. The entity must also not have been suspended for more than 5 days in the period commencing 12 months before the offer and ending 19 March 2020.
ASIC has not yet determined for how long the relief will be available but states that 30 days’ notice will be provided to the market before the relief is revoked.
Fairness in capital raisings during COVID-19
ASIC also issued a special update to remind entities considering raising capital in response to the COVID-19 pandemic that directors are expected to continue to act in the best interests of the entity when deciding the timing and structuring of the capital raising.
ASIC notes that this requires directors to balance a range of considerations such as the need for quick and certain capital, and fairness between securityholders and in particular in relation to security purchase plans to carefully consider the implications for fair treatment of retail securityholders if scale back of allocations is required.
To read further on the recent updates to the two temporary emergency capital raising relief class waivers granted on 31 March 2020 (being the temporary placement capacity waiver and the non-renounceable offers waiver), please click here.
The contents of this publication are for reference purposes only and may not be current as at the date of accessing this publication. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.
© Herbert Smith Freehills 2020