On 12 May 2016, the Australian Securities Exchange (ASX) issued for comment a Consultation Paper Updating ASX’s admission requirements for listed entities which seeks input on its proposed changes to requirements for admission to the official ASX list.
Some of the key proposals include:
These are discussed briefly below.
The Consultation Paper proposes amending the financial thresholds for admission as follows:
While the ASX has a long history of supporting listings of early stage and start-up entities which may not have a track record of profitability but have significant intangible assets, it considers it necessary to increase the NTA threshold to maintain quality of the market and to provide greater surety that the listed entity will have sufficient resources to carry on its business for a reasonable period.
The Consultation Paper proposes a minimum ‘free float’ requirement of 20% (refer proposed definition below) in Condition 7 of Listing Rule 1.1.
Proposed definition of ‘free float’ in Listing Rule 19.12
The percentage of the main class of securities of an entity that:
Proposed definition of ‘non-affiliated security holder’ in Listing Rule 19.12
Security holders who are not:
The ASX Listing Rules currently do not contain minimum requirements for the proportion of securities that can be freely traded (i.e. not restricted or subject to voluntary escrow). Guidance 1 to the Listing Rules generally expects a free float of at least 10%, or an explanation of how a 10% free float will be achieved and in what time frame.
The ASX is currently exercising its discretion under Listing Rule 1.19 and requiring a free float of 20% so this rule change will merely formalise this position.
The Consultation Paper proposes changing the minimum credit spread in Listing Rule 1.1, new Condition 8, as follows:
There will not be a rules-based residency requirement for the spread, but the ASX will retain its existing discretion to impose such a requirement.
Listing Rule 1.1, Condition 7, currently allows the credit spread to be achieved by having either:
The aim of this proposal is to support liquidity following listing in order to attract sufficient investor interest in the Australian investor community to justify listing.
All entities admitted under the ‘assets test’ will be required to meet the $1.5 million minimum working capital requirement, after taking into account:
Listing Rule 1.3.3(b) currently requires all entities admitted under the ‘assets test’ to have at least $1.5 million in working capital, after taking into account any budgeted revenue for the first full financial year after listing.
It is only mining and oil and gas exploration entities that must have $1.5 million in working capital available after also allowing for the first full financial year’s budgeted administration costs, and the costs of acquiring plant, equipment and/or tenements.
Extending these minimum working capital requirements to all entities is intended to increase the likelihood that the business has sufficient working capital to carry on its business for a reasonable period.
Listing Rule 1.3.5(a) currently does not require the accounts to be audited (or reviewed).
ASX will have discretion to accept less than three full years of audited financial statements, for example, start-ups that have been operating for less than three full years.
This change will more closely align with the audit requirements for entities being admitted under the ‘profits test’ in Listing Rule 1.2.3.
The ASX has requested submissions to be made by 24 June 2016.