It appears that the ASX has had to retreat slightly on its consultation proposal in a number of material respects following the extended consultation process with stakeholders, including ASIC.
ASX says that the new rules address the need to maintain appropriate listing standards and investor confidence in the ASX market, while providing a pathway for companies to list and access capital across their lifecycle. ASX believes that the new rules also keep its listing framework contemporary and aligned with evolving market trends.
The new rules are set to begin on Monday 19 December 2016.
Increased financial thresholds
For companies seeking to list under the profit test, ASX has increased the consolidated profit requirement in the year prior to admission from $400,000 to $500,000. This is consistent with the consultation proposal.
Reflecting ASX’s view that the profit test overall remains appropriate for the Australian market, the other requirements of the profit test remain unchanged.
Current 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.
ASX consulted on a proposed NTA of at least $5 million or market capitalisation of at least $20 million.
Under the new rules these thresholds have been increased to an NTA of at least $4 million or a market capitalisation of at least $15 million.
We believe that these thresholds strike a sensible balance between providing investors with confidence that a company will have sufficient resources to carry on its business for a reasonable period of time, and not making the assets test overly restrictive for certain companies to list and access capital.
Minimum free float of 20%
There is currently no listing rule that requires a company to have a minimum ‘free float’ on listing.
ASX is introducing 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 and are held by ‘non-affiliated’ security holders. This is consistent with the consultation proposal.
Standardised working capital requirement
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 has standardised 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).
New audited accounts requirement
The ASX has introduced a new requirement that all companies seeking admission under the assets test must produce audited accounts for the last two full financial years prior to admission.
Additionally, companies that have in the 12 months prior to applying for admission acquired, or are proposing in connection with their listing to acquire, another entity or business that is significant in the context of the company, are required to produce two full financial years of audited accounts for that significant entity or business.
If the company or significant entity or business is more than 6 months and 75 days into the current financial year, the company will also be required to produce audited or reviewed accounts for the last half year in respect of the company and the significant entity or business.
This will likely present challenges for roll-ups of small companies that would not ordinarily have audited accounts. It will be interesting to see how ASX exercises its discretion to accept less than two full financial years of audited accounts in certain circumstances.
ASX’s consultation proposal was to require companies seeking admission under the assets test to produce audited accounts on the last three years full financial years prior to admission for the company and any entity or business the company was proposing to acquire at or ahead of its listing.
Change to minimum spread
ASX has introduced a single tier spread test of at least 300 security holders each holding at least $2,000 of securities.
The new spread test will now only count non-affiliated security holders, so will exclude securities issued to related parties, their affiliates and other parties ASX deems to be affiliated with the company. The new test will also exclude holdings of restricted securities and securities that are subject to voluntary escrow. These exclusions are aimed at ensuring that the spread test is a robust and genuine test of investor interest.
ASX believes that the effect of these changes is that security holder spread of 300 under the new rules will be more demanding than an equivalent requirement under the current rules. We agree!
Policy change for back door listings
ASX announced in its consultation paper an immediate policy change whereby a company announcing a backdoor listing transaction would immediately have its securities suspended from trading. Prior to this, trading in a company’s securities was permitted to continue following the announcement of a backdoor listing transaction up until the shareholders approved the transaction. Following shareholder approval, the company was suspended until it had re-complied with ASX’s admission and quotation requirements.
Following consultation with the market, ASX is making a further policy change to prescribe new minimum disclosure requirements for the announcement of a backdoor listing transaction. Under these new arrangements, ASX will only allow a company’s securities to resume trading after the announcement if (and only if) the announcement contains certain prescribed information and ASX is otherwise satisfied that the announcement includes sufficient information about the transaction for trading in the company’s securities to take place on a reasonably informed basis.
The prescribed information includes information about:
- the material terms of the transaction,
- the targets principal activities and business model, including key risks,
- the impact of the transaction on the company’s capital and structure,
- any person who will acquire control of the company as a result of the transaction,
- whether the company or target has issued securities in the 6 months preceding the announcement, and the details of such issue,
- whether the company or target is proposing to issue securities, and the details of such issue, and
- the financial accounts of the target.
Where a company does not meet the prescribed disclosure requirements in its announcement:
- its securities will be suspended from quotation and will remain suspended until a supplementary announcement disclosing the information is given to ASX for release to the market, or
- the company has re-complied with ASX’s admission and quotation requirements, or
- has made an announcement that the transaction is no longer proceeding.
Discretion to refuse admission
ASX is amending the Introduction to the listing rules and Guidance Note 1 to emphasise its absolute discretion on admission and quotation decisions, and to confirm that ASX takes into account the reputation, integrity and efficiency of its market when exercising these discretions.
Guidance Note 1 will also be amended to provide:
- additional examples of when ASX may exercise its discretion not to admit a company to the official list, and
- additional examples of circumstances that may indicate that an applicant does not have an acceptable structure and operations for a listed entity.
Please contact us if you are considering an IPO or backdoor listing, or would like any further information on ASX’s changes to its admission requirements.