ASX and ASIC introduce temporary emergency capital raising relief for listed companies

06 April 2020

Sebastian Stevens, National Leader, Private Equity
Partner, Corporate Finance

As the economic and health implications of the COVID-19 pandemic continue to be realised, Australian and global equity capital markets remain significantly volatile. Many Australian listed companies and investors are finding themselves in considerable financial difficulties.

As such, the Australian Securities Exchange (ASX) and Australian Securities and Investment Commission (ASIC) have announced several temporary capital raising relief measures. These measures aim to support listed companies during these uncertain times and ensure Australia’s capital markets continue to function adequately.

These new temporary measures will apply to all Australian listed companies and have been implemented via class waivers which are effective immediately and will expire on 31 July 2020. We have detailed the new measures and changes below.

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Increased placement capacity of 25%

Placement capacity will be temporarily lifted from 15% to 25% under ASX Listing Rule 7.1 (Temporary Extra Placement Capacity) on the condition that entities either:

  • make a follow-on pro-rata entitlement offer; or
  • make a follow-on offer to retain investors under a share purchase plan (SPP).

In either case, the follow-on offer must be the same or at a lower price than the placement price. Some important things to note about this new measure:

  • This is a one-off measure – entities will only be allowed to do one placement under the Temporary Extra Placement Capacity which must also consist of fully paid ordinary securities. Entities therefore looking to do more than one placement under this rule, or issue a different class of securities will need to approach the ASX for an individual waiver.
  • There is an overall cap of 25% - if you are an entity that is already eligible for the additional 10% placement capacity under rule 7.1A, you will have the option to either use part of this new 10% capacity under the Temporary Extra Placement Capacity or the existing capacity under Listing Rule 7.1A capacity – not both.
  • If you have already used up some of the 15% placement capacity in the last 12 months, or part of the additional 10% placement capacity (if eligible), you will need to deduct the used amount when calculating your remaining placement capacity.  

Increased allowable suspension for ‘low doc’ offers

ASIC has announced that it will temporarily allow certain ‘low doc’ offers including placements, share purchase plans and rights offers to proceed where the entity:

  • was suspended for up to a total of ten days in the previous 12 months before the offer. This is an increase from the previous standard five days.
  • was not suspended for more than five days in the period commencing 12 months before the offer and ending 16 March 2020. This is the date when the Federal Government released its ‘Level 4 – Do not travel’ advice.

This relief will be critical as several entities have already been suspended for more than five days as capital raising preparations have taken longer due to the need to assess the impact of COVID-19.

However, in circumstances where an entity does not meet these above requirements, they will need to approach ASIC directly to undertake a ‘low doc’ capital raising.

Back-to-back trading halts extended

The ASX has announced that entities looking to undertake capital raising who require time extensions will now be able to request two consecutive trading halts – a halt of up to a total of four trading days. In the situation where an entity cannot complete the capital raising within the four-day halt, entities will need to consider a voluntary suspension.

It is also important to note, the halt will not be applicable for entities requiring more time to consider the disclosure of COVID-19 related matters.

Removal of the 1 for 1 limit for non-renounceable entitlement offers

ASX has removed the limit on non-renounceable entitlement rights offer to allow entities to exceed 1 share for 1 share held ratio which will apply to both accelerated and traditional non-renounceable entitlement offers. As ASX has not announced a replacement limit, Boards will be allowed to set their own ratio appropriate for meeting their capital raising needs.

Follow-on Share Purchase Plan (SPP) restrictions waived

The ASX has announced that it will waive SPP requirements. Shares issued as part of an SPP will no longer to be limited to 30% of the issued capital with the issue price being at least 80% of the Volume Weighted Average Price (VWAP).  

Instead, ASX has outlined that for follow on SPPs, the issue price must be equal to or lower than the placement price, with Boards permitted to determine the standalone the issue price.

How can we help?

While these measures will provide listed entities with greater flexibility and support throughout the capital-raising process, both ASIC and the ASX have emphasised the importance of Boards following best practice throughout this time. Boards should also carefully consider the entity’s current financial position and the pros and cons of different capital raising measures available – taking into account the time taken to raise capital and the likelihood of raising capital with the full economic extent of COVID-19 still unknown.

At BDO we have significant experience with capital raising and listing experience. Should you be interested in finding out further information on these measures in regards to your specific company, please don’t hesitate to contact our Corporate Finance team.