ASX’s new rules which affect capital raisings

On 1 December 2019 the ASX introduced major changes to its Listing Rules to implement the reforms set out in its consultation paper Simplifying, clarifying and enhancing the integrity and efficiency of the ASX listing rules.

The final Listing Rules, various new and amended Guidance Notes and Listing Rule Appendices are available via the Public consultations page on the ASX website.

1. The Listing Rule changes are extensive. This note focuses on some changes relevant to a listed entity seeking to raise capital:The ASX now requires an entity seeking to raise capital to complete and lodge with the ASX a work sheet on their compliance with Listing Rule 7.1 at the same time the entity is lodging their Appendix 3B or 2A with the ASX.

In relation to the work sheets Guidance Note 21 says:

“The work sheets provided to ASX Listings Compliance are for the internal use of ASX Listings Compliance and are not released by ASX to the market. ASX Listings Compliance does not “pre-vet” these work sheets and an entity does not have to wait after lodging the work sheets for any confirmation from ASX Listings Compliance before it can proceed with the proposed issue of equity securities.

ASX Listings Compliance will review the work sheets in due course and, if it identifies any issues with the calculations in the work sheet, it will take those issues up with the entity.

It is the responsibility of the entity to correctly calculate its placement capacity under Listing Rules 7.1 and 7.1A.2 and to ensure that a proposed issue of equity securities will not exceed that capacity. An entity should not be relying on ASX Listings Compliance to identify errors in its work sheets or calculations”

2. If an issue is to be underwritten, the issuing entity must make sure to include the following disclosures which are now required for all underwritten issues:

  • the name of the underwriter;
  • the extent of the underwriting;
  • the fee, commission or other consideration payable to the underwriter; and
  • a summary of the significant events that could lead to the underwriting being terminated.

3. Generally, in seeking to fall within one of the exceptions relevant to the issue of convertible notes, options or where shareholder approval is generally being sought to an issue, the identity of the security holder or likely security holder will be relevant to disclose if they are:

  • a related party of the entity;
  • a member of key management personnel;
  • a substantial holder in the entity;
  • an adviser to the entity; or
  • an associate of any of the above,

    and more than 1% of the capital or anticipated capital is being issued to them.

4. There are new smart forms which need to be used: Appendices 2A (Application for Quotation of Securities), 3B (New issue announcement, application for quotation of additional securities and agreement) and 3G (Notification of Issue, Conversion or Payment up of Equity Securities).

5. Subject to certain transitional arrangements, from 1 December 2019 a listed entity must notify ASX:

  • immediately, via an Appendix 3B, of a proposed issue of:
    • equity securities (other than an issue to be made under a dividend or distribution plan or an employee incentive scheme (‘EIS’) or as a consequence of the conversion of any convertible securities), or
    • debt securities intended to be quoted on ASX;
  • within 5 business days of an issue of equity securities under an EIS;
  • within 10 business days of an issue arising from the conversion of convertible securities; and
  • within 5 business days, if unquoted partly paid securities become fully paid securities in the same class as quoted fully paid securities.

6. Listing Rule 10.11 has been amended so that, unless an exception in Listing Rule 10.12 applies, in addition to a prohibition on issuing equity securities to related parties (and their associates) without shareholder approval, a listed entity cannot issued equity securities to any of the following without shareholder approval:

  • a person who is, or was at any time in the 6 months before the issue or agreement, a substantial (30%+) holder in the entity;
  • a person who is, or was at any time in the 6 months before the issue, a substantial (10%+) holder in the entity and who has nominated a director to the board of the entity (or, in the case of a trust, to the board of the responsible entity of the trust) pursuant to a relevant agreement which gives them a right or expectation to do so; and
  • an associate of such persons.

For this purpose, the Listing Rules defines a “Relevant agreement” as having the same meaning as in section 9 of the Corporations Act. It includes an agreement, arrangement or understanding:

  • whether formal or informal or partly formal and partly informal;
  • whether written or oral or partly written and partly oral; and
  • whether or not having legal or equitable force and whether or not based on legal or equitable rights; and

Under the Listing Rules, a person’s associates include:

  • if the person is a natural person, any entity the person controls;
  • if the person is an entity:
    • any entity the person controls;
    • any entity that controls the person;
    • any entity that is controlled by an entity that controls the person;
  • any person with whom the person has, or proposes to enter into, a relevant agreement for the purpose of controlling or influencing the composition of the listed entity’s board or the conduct of the listed entity’s affairs; and
  • any person with whom the person is acting, or proposing to act, in concert in relation to the listed entity’s affairs.

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