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ASX to raise the bar on admission requirements

ASX recently released a consultation paper on its proposed changes to the admission requirements for listing on ASX

Key Highlights

  • Increased financial thresholds
  • Minimum free float of 20%
  • Assets test - amended working capital and new audited accounts requirements
  • Change to minimum spread requirement
  • Suspension for back door listings
  • Discretion to refuse admission

ASX recently released a consultation paper on its proposed changes to the admission requirements for listing on ASX.

ASX cites that the changes are being implemented to “ensure that the ASX market continues to be a market of quality and integrity, and remains internationally competitive”.

The proposed changes will impact all entities seeking admission to the official list. However small-cap IPOs, start-ups and backdoor listings will be particularly affected, with some policy changes taking effect immediately.

A summary of the key highlights of the proposed changes is set out below.

Increased financial thresholds

For companies seeking to list under the profit test, ASX is seeking to increase the consolidated profit requirement in the year prior to admission from $400,000 to $500,000.

Currently, the minimum requirements for companies to meet the assets test are an NTA of at least $3 million, or a market capitalisation of at least $10 million.

The ASX proposes to increase these thresholds to an NTA of at least $5 million or a market capitalisation of at least $20 million.

The above thresholds do not apply to investment entities.

Minimum free float of 20%

There is currently no listing rule that requires a company to have a minimum ‘free float’ on listing.[1] ASX proposes to introduce a new listing rule that requires a company to have a minimum free float of 20%, being the percentage of the company’s quoted securities that are not subject to escrow[2] and are held by ‘non-affiliated’[3] security holders.

This change brings ASX generally in line with peer exchanges such as the HKEx, NSX and SGX.[4]

In practice, the minimum 20% free float at listing requirement takes effect immediately as ASX notes that it is currently exercising its discretion and administering the listing rules in this manner.

Assets test - Amended working capital and new audited accounts requirements

Currently, all companies admitted under the ‘assets test’ need to have at least $1.5 million in working capital, after taking into account budgeted revenue for the first full year after listing. For mining and oil and gas exploration companies, this $1.5 million in working capital must be available after allowing for budgeted administration costs, and the costs of acquiring plant, equipment and/or tenements.

ASX is proposing to amend this requirement so that all companies admitted under the assets test must have at least $1.5 million in working capital available after:

  • Taking into account the company’s budgeted revenue for the first full financial year after listing; and
  • Allowing for the first full financial year’s budgeted administration costs and the cost of acquiring any assets referred to in the prospectus, PDS or information memorandum (to the extent that those costs will be met out of working capital).

The ASX has proposed that all companies seeking admission under the assets test must produce audited accounts for the last three full financial years. However, if a company has been in operation for less than three full financial years, ASX will have discretion to accept audited accounts for a lesser period. ASX notes that it will generally only do so in the circumstances where ASIC will accept less than three full years of audited accounts in a disclosure document.

Change to minimum spread

ASX has also proposed to update the current minimum spread test requirements to demonstrate a sufficient level of investor interest in the company and its securities to justify listing.

Under the proposed changes, on listing a company must have at least:

  • 200 non-affiliated security holders where there is a free float of less than $50 million; or
  • 100 non-affiliated security holders where there is a free float of $50 million or more.

Each security holder must hold a parcel of securities with a value of at least $5000.[5]

Suspension for back door listings

ASX has changed its policy on backdoor listings. Trading in a listed company’s securities will now be suspended from the moment it announces a backdoor listing transaction until it has re-complied with ASX’s admission and quotation requirements.

This change in policy takes effect immediately and applies to all backdoor listing transactions announced after 12 May 2016.

Discretion to refuse admission

ASX has an absolute discretion to refuse to admit a company to the official list and quote its securities.

To reinforce this discretion, ASX is proposing to update the introduction to the listing rules and Guidance Note 1 to provide a non-exhaustive list of examples of when ASX may exercise this discretion, which includes:

  • If ASX is not satisfied that the company has an appropriate structure and operations for a listed entity.
  • ASIC or another corporate regulator has expressed concerns to ASX about the admission of the company to the official list.
  • The Company has been denied admission to the official list of another exchange.
  • ASX otherwise has concerns that admitting the company to the official list may put at risk the reputation of the ASX market as one of quality and integrity.

The updated Guidance Note 1 will also provide additional examples that may indicate that a company does not have an acceptable structure and operations for a listed entity, including where:

  • The company has a vague or ill-defined business model or its business operations do not appear to ASX to have any substance.
  • The company is established in an emerging market and ASX is not satisfied that the level of corporate regulation in that market is appropriate for a listed company.
  • The company’s board has no directors with experience directing or managing a listed company.

ASX notes that this change in policy should be regarded as coming into effect immediately.

The implications of this updated guidance will need to be carefully considered at an early stage when planning any IPO or back door listing.

When do the listing rule changes take effect?

ASX is seeking submissions on its consultation paper by 24 June 2016 before engaging with ASIC. ASX anticipates that the final listing rule changes will be released in early August 2016 and will come into effect on 1 September 2016.

However as set out above, a number of ASX’s policy changes have come into immediate effect.

Please contact us if you are considering an IPO or back door listing, or would like any further information on ASX’s changes to its admission requirements.

[1] Although ASX Guidance Note 1 states that ASX expects companies to list with a minimum free float of 10%.

[2] Either ASX imposed or voluntary.

[3] Not related parties of the company, associates of a related party or security holders ASX deems should be treated as affiliates.

[4] Both HKEx and NSX require 25% of a listed entity’s share capital at listing to be held by public shareholders, while SGX requires between 12% and 25% depending on the market capitalization of the entity.

[5] Up from the current requirement of $2000.

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