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18 July 2016 ASX IS MAKING LISTING MORE DIFFICULT FOR SMEs

By Euge Power, Solicitor and Alistair Jaque, Partner


IN BRIEF

An ASX Media Release on 12 May 2016 set out a number of changes, both immediate and proposed, to the admission requirements to the official ASX list. The changes are intended to "maintain and strengthen the reputation" of the ASX. However one of the side effects is that the changes will make listings more difficult for small companies. 


REVERSE TAKEOVERS

Recently there has been a perception that RTOs are an easier and cheaper way for small businesses to list. Because of this, the RTO pathway has been a preferred listing option for many small businesses.

Some of the ASX rule changes relate to how the ASX regulates RTOs, otherwise known as backdoor listings.

The ASX no longer grants companies waivers of the 20 cent minimum price rule which, in circumstances where their securities are trading at less than two cents each, will prevent those companies from using the backdoor listing process.

Previously, trading on the securities of an entity which announced it was intending to enter into an RTO continued until the transaction was approved by shareholders. Now, trading on the securities of the entity will be suspended from the time the entity announces it will enter into the RTO which takes away one of the main advantages of RTOs.

The ASX are also proposing to push out the transaction timetable for backdoor listings by three weeks as it will require a minimum of 15 business days to review the notice of meeting relating to the transaction, and it is proposing to charge a fee of $10,000 for this review. 

The ASX has also indicated that it will scrutinise more closely capital raisings undertaken in advance of shareholder approval for the proposed transaction. This scrutiny will be on both the issue of securities by an unlisted entity which become securities in the listed entity once the transaction is completed, and on any capital raising by a listed entity which occurs in the lead up to, or after, the announcement of the proposed transaction.

The additional regulations for RTOs are likely to make RTOs less attractive. This will drive those companies which were previously planning to list through an RTO into the initial public offering (IPO) process.

INITIAL PUBLIC OFFERINGS 

Unfortunately the proposed changes to ASX listing requirements will put listing further out of reach for many small businesses. These changes include:

  • Increasing the financial thresholds for listing –
    • lifting the “assets test” thresholds from net tangible assets of $3 million or a market capitalisation of $10 million to an NTA of $5 million or a market cap of $20 million
    • increasing the consolidated profit requirement under the "profit test" for the 12 months prior to admission to at least $500,000
  • Introducing a 20% minimum free float requirement and changing the spread test to better demonstrate a sufficient level of investor interest in the entity and its securities to justify listing
  • Making the minimum $1.5 million working capital requirements consistent across all entities admitted under the assets test
  • Introducing a requirement for entities admitted under the assets test to provide audited accounts for the last three full financial years, unless ASX agrees otherwise.

These proposed changes compliment modifications that the ASX has already made to its listing rules to strengthen its absolute discretion in deciding whether or not an entity may be admitted to the official list.

If you are considering an exit event such as an IPO or an RTO, it may be worth planning ahead to ensure your business is in a position to comply with the new rules. 

For further information, please contact:

Alistair Jaque, Partner  |  Phone: +61 2 9233 5544  |  Email: afj@swaab.com.au

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This article is not legal advice and the views and comments are of a general nature only. This article is not to be relied upon in substitution for detailed legal advice.

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