ASX class order waivers
On 31 March 2020, ASX introduced two class order waivers (Class Waivers) to facilitate temporary emergency capital raising measures to help listed entities affected by the COVID-19 pandemic to raise urgently needed capital. On 22 and 23 April 2020, ASX updated the Class Waivers and subsequently extended the emergency capital raising measures until 30 November 2020.
ASX announced in its Compliance Update on 15 September 2020 (September Update) that in light of significant stabilisation in market conditions since the extension of the Class Waivers, ASX considers it prudent and timely to further revise the settings for the availability of the Class Waivers.
Prior to the September Update, ASX’s position was that the volatile market environment presented significant challenges for many entities needing to raise capital, whether or not the entity was directly impacted by COVID-19. Accordingly, the Class Waivers facilitated a wider range of capital raisings that were potentially affected by dislocation in the broader market environment, and meant that the relief could be applied whether or not the entity was directly impacted by COVID-19. However, from 16 September 2020, entities seeking to rely on the Class Waivers must satisfy ASX that the entity is raising capital predominantly for the purposes of addressing the existing or potential future financial effect on the entity resulting from the COVID-19 health crisis and/or its economic impact.
In its September Update, ASX also warned that, where a capital raising appears to have inequitable features for existing security holders, ASX may withhold the benefit of the Class Waivers.
The changes apply to all relevant capital raisings announced on or after 16 September 2020 and on or before 30 November 2020. The amendments have been implemented by publication of two replacement Class Waivers.
ASIC relief for ‘low doc’ offers
ASIC previously announced temporary relief for companies to raise capital quickly and more cost effectively in light of the COVID-19 pandemic. The relief allows for certain ‘low doc’ offers (including rights offers, placements and share purchase plans) to be made without a prospectus, even if all normal requirements are not met.
On 23 September 2020, ASIC announced it was extending the temporary relief under ASIC Corporations (Share and Interest Purchase Plans) Instrument 2019/547 and ASIC Corporations (Trading Suspensions Relief) Instrument 2020/289, which will now be repealed on 1 January 2021, instead of 2 October 2020.
Changes to ASX Guidance Notes 12 and 19
On 28 August 2020, ASX released updates to Guidance Notes 3 (Co-operatives and Mutuals Listing on ASX), 4 (Foreign Entities Listing on ASX), 12 (Significant Changes to Activities) and 19 (Performance Shares), including substantial changes to Guidance Note 12 (GN 12) and Guidance Note 19 (GN 19).
Changes to Guidance Notes 3 and 4
Guidance Note 3 has been updated to reflect that co-operative companies can now issue co-operative capital units and mutual capital instruments. Guidance Note 4 has been amended to include the Tel Aviv Stock Exchange as an acceptable listing venue for foreign exempt listings and to reflect relief recently granted to US incorporated listed companies to allow them to prepare and file section 601CK accounts using US GAAP, as opposed to Australian IFRS.
Changes to Guidance Note 12
Key amendments to Guidance Note 12 include:
- New re-compliance process: Section 2.10 (Additional steps for transactions requiring re-compliance under listing rule 11.1.3) has been substantially amended to outline a new process that an entity must follow before and after announcing a transaction that requires re-compliance with ASX’s admission and quotation requirements under Listing Rule 11.1.3.
- Changes to minimum spread rule: section 8.5 of GN 12 has been amended to reflect standard conditions to be imposed in all re-compliance listings that:
- spread must come from subscriptions to the capital raising being conducted by the entity in connection with its re-admission (ie pre-existing holdings will not be counted); and
- in the case of emerging market issuers, 100% (rather than the current 75%) of spread must come from residents of Australia or other jurisdictions acceptable to ASX.
- Modified conditions for eligibility for the 2-cent waiver: the conditions to receiving a ‘2-cent waiver’ under section 8.8 of GN 12 has been amended to eliminate an emerging area of abuse, where entities were issuing shares at 2 cents to promoters and their associates at or shortly before the time of re-admission but then raising capital from investors at more than 2 cents. ASX will now not grant a ‘2-cent waiver’ unless:
- the price at which the entity’s securities traded on ASX over the last 20 trading days on which the entity’s securities have actually traded on ASX preceding the date of the announcement of the proposed transaction (or, if the entity was already suspended at the time of the announcement, the last 20 trading days on which the entity’s securities have actually traded on ASX prior to its suspension) was not less than the offer price; or
- the entity announces at the same time that it announces the proposed transaction that it intends to consolidate its securities at a specified ratio that will be sufficient, based on the lowest price at which the entity’s securities traded over the 20 trading days referred to previously, to achieve a market value for its securities of not less than the offer price.
Additionally, an entity will be disqualified for a ‘2-cent waiver’ if it has entered into a deed of company arrangement or a creditor’s scheme of arrangement in the two years preceding announcement of the proposed transaction, and been continuously suspended since the deed or scheme was effectuated. The conditions to receiving a waiver from the minimum option exercise price have been modified to include a similar disqualification.
These amendments to GN 12 will limit the ability of certain entities to undertake a ‘back door listing’ or readmission to the ASX. ASX also noted that receipt of favourable in-principle advice on an entity’s suitability for re-admission, by itself, is not to be taken as an indication that the entity will receive any other listing rule waiver or confirmation required or contemplated by the proposed transaction. The entity will need to separately apply to ASX for a specific in-principle advice regarding the waiver or confirmation.
Changes to Guidance Note 19
Key amendments to GN 19, formerly called ‘Performance Shares’ but now amended to be called ‘Performance Securities’, include:
- Expanding coverage of GN 19: GN 19 now covers performance options and performance rights, as well as performance shares. A new section 3 has been added to provide guidance on the different types of performance securities. A new section 7 also makes it clear that for the following types of performance securities, ASX in-principle advice does not need to be sought (i.e. is not covered by sections 8 to 15 of GN 19):
- cash-settled performance rights;
- an issue of performance shares, performance options or deliverable performance rights pursuant to a takeover bid or a scheme of arrangement; or
- an issue of performance shares, performance options or deliverable performance rights under an employee incentive scheme or as part of the remuneration package of a director or employee, where the issue has been made in the ordinary course of business of the entity and not in connection with a new or re-compliance listing, and has been approved by shareholders (where Listing Rule 10.11 or 10.14 applies) or the board or the remuneration committee (where Listing Rule 10.11 or 10.14 does not apply).
- Further information required for in-principle advice: the ASX has expanded the information an entity must give to the ASX in an application for in-principle advice on performance securities, by making amendments to section 8 of GN 19.
- Expanded guidance on appropriate terms: the ASX has expanded the matters it will have regard to when determining whether performance securities satisfy the requirement in listing rule 6.1 that their terms are ‘appropriate and equitable’.
- Requirement for independent expert’s report: new section 13 has been added to GN 19 which requires an independent expert to opine on whether an issue of performance securities is fair and reasonable to non-participating security holders where:
- if the entity is already listed, it is proposing to issue performance securities covered by sections 8 to 15 of GN 19 and the number of ordinary shares into which those performance securities will convert in aggregate if the applicable milestone is achieved is greater than 10% of the number of ordinary shares the entity proposes to have on issue at the date the performance securities are proposed to be issued (taking into account any ordinary shares that the entity may be issuing in connection with the same transaction); or
- if the entity is applying to be listed, it has or proposes to have performance securities covered by sections 8 to 15 of GN 19 on issue at the date of its admission to quotation and the number of ordinary shares into which those performance securities will convert in aggregate if the applicable milestone is achieved is greater than 10% of the number of ordinary shares the entity proposes to have on issue at the date of its admission to quotation (taking into account any ordinary shares that the entity may be issuing in connection with its listing).
This article is part of the October 2020 Equity Capital Markets Bulletin, click here to download.
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