In our Insights paper dated 6 April 2020, Capital Raising During COVID-19, we unpacked recent temporary emergency capital raising relief measures granted by ASIC and ASX in response to the COVID-19 pandemic. Following consultation with ASIC, in its Compliance Updates of 22 April 2020 (April Compliance Update) and 1 May 2020 (May Compliance Update) ASX announced that it has amended the two class order waivers implementing these measures (Class Waivers) to clarify certain matters and improve their overall operation. This paper provides insight into these amendments.
Notification requirement for relying on the Class Waivers, and ASX’s power to withdraw the Class Waivers
The Class Waivers have both been amended to expand on the requirement for an entity taking advantage of the Class Waivers to give written notice to ASX that it intends to rely on the waiver and to explain the circumstances in which it is doing so. The ‘circumstances’ to be explained include whether or not the entity is relying on the Class Waivers as a result of issues arising out of COVID-19 and/or its economic impact, or for some other purpose. The Class Waivers have also been amended to clarify that ASX can withdraw the Class Waivers in respect of an individual entity, or all entities, for any reason and at any time by giving notice to that effect.
Temporary Extra Placement Capacity Waiver (Capacity Waiver)
In a change intended to benefit smaller listed entities without institutional backing, the ASX has amended the Capacity Waiver to allow entities to conduct a placement followed by a standard rights issue, as well as a placement followed by an accelerated pro rata entitlement offer or a placement followed by a share purchase plan (SPP).
The Capacity Waiver has also been amended to require an entity to, within 5 business days of the relevant placement, announce to the market:
- the results of the placement;
- reasonable details of the approach the entity took in identifying participants in the placement and how the respective allocations were determined; and
- that, as far as the entity is aware, no securities were issued or agreed to be issued to related persons, or otherwise whether related party participation was permitted in accordance with the listing rules.
Other amendments to the Capacity Waiver include:
- requiring an entity that takes advantage of the Capacity Waiver to provide ASIC and ASX a detailed allocation spreadsheet in electronic format outlining details of the placement;
- expanding the existing requirement that if there is a limit on the amount to be raised under an SPP offer, the entity must use all reasonable endeavours to ensure that SPP offer participants have a reasonable opportunity to participate equitably in the overall capital raising; and
- to expand the existing provisions requiring the scale-back arrangements for SPP offers to be applied on a pro rata basis to all participants to allow that to be based either on the size of their existing security holdings or the number of securities they have applied for.
In the May Compliance Update, ASX made further minor drafting amendments to:
- Resolution 1.1.6 of the Capacity Waiver to clarify the information to be provided in an allocation spreadsheet; and
- Resolution 3 of the Capacity Waiver (the obligation to notify ASX in advance that the entity is relying on the Class Waiver) to change the words ‘before making the placement’ to ‘before offering any securities in the Placement’.
In its May Compliance Update, ASX also cautioned entities against first notifying ASX of their intention to rely on the Class Waivers the evening before proposing to announce and launch a capital raising relying on the Class Waivers. ASX described this as a “risky strategy” and reinforced that it has the power to withdraw the Class Waivers on an individual basis, and that entities will benefit from discussions held with the ASX as early as possible.
ASIC’s recent media release 20-097MR ASIC supports increased transparency in capital raisings (ASIC Media Release) further reinforces the requirement for transparency in relation to entities taking advantage of the Class Waivers, and the expectations ASIC has of directors. The recent amendments to the Class Waiver, together with the ASIC Media Release, indicate that that both ASX and ASIC have concerns that companies are utilising the increased placement capacity under the Capacity Waiver for improper placements, whether as a mechanism to dilute retail investors or as a way to introduce new strategic investors. We note that the Australian Financial Review has been especially critical of the NextDC $672m raising in which NextDC deliberately chose to allocate 20% of its placement to new investors, rather than existing hedge funds on its register.1 As noted above, amendments to the Capacity Waiver make it clear that where ASX considers the Capacity Waiver to be used improperly, it has the power to withdraw the relief on an individual basis.
The ASIC Media Release also states that ASIC will be reviewing allocation spreadsheets and disclosures made by entities about capital raisings to ensure they are accurate, sufficiently details and provide meaningful, rather than ‘boiler plate’ disclosure.
Back-to-back trading halts
ASX has also clarified that entities seeking to take advantage of the back-to-back trading halt relief must state that the consecutive trading halts are for the purpose of considering, planning and executing a capital raise and that an entity is not permitted to request a single trading halt and then subsequently request a second.
If you have any questions about the emergency capital raising relief measures, please contact us.
Please also contact us if you would like to receive our Equity Capital Markets Bulletins, in which most recently, we answered some common questions regarding conducting placements and rights issues.
We note that this publication reflects the law as at 19 May 2020.
1.Australian Financial Review, “Why NextDC’s $672m raising leaves fundies furious”, 21 April 2020.
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