In brief - Listed entities with plans to raise urgent capital should be aware of the changes, which apply to capital raising announced from 23 April 2020
On 31 March 2020, ASIC and the ASX announced temporary emergency capital raising relief to help listed entities affected by the COVID-19 pandemic raise urgently needed capital.
In particular, the emergency capital raising relief involved granting class waivers providing:
a temporary uplift in the 15% placement capacity in Listing Rule 7.1 to 25% (subject to there being a follow-on accelerated pro-rata entitlement offer or share purchase plan offer (SPP)), and
temporary relief from the one-for-one cap on non-renounceable entitlement offers in Listing Rule 7.11.3
These temporary COVID-19 changes have triggered concerns that increased share placements may disadvantage existing and retail shareholders. Some media outlets have reported what they claim to be a number of examples of existing shareholders being "ripped off" by being left out of capital raises made under the COVID-19 rules, and suggested that some placements have been undertaken without genuine connection to Coronavirus or the associated economic conditions.
The Australian Financial Review also reported that Federal LNP Members of Parliament raised concern "about the potential for the larger placements to dilute retail shareholders", and "that the measures could lead to opportunistic and unfair capital raising by companies and unfair treatment of investors".
This resonates in the light of ASIC's reviews of allocation practices in capital raisings, raised as early as 2016. ASIC has commented that:
"directors must provide transparent disclosure to the market about the capital raising decisions they are making which are required to be in the best interests of the company",
issuers and licensees should consider the findings of its 2018 Report Allocations in Equity Raising Transactions, and
they "encourage companies to make these types of disclosures for all placements and SPPs"
On 22 April 2020, the ASX announced changes to the emergency measures intended to address these concerns. These latest changes apply to capital raising announced from 23 April 2020. The key amendments are summarised below.
Temporary extra placement capacity and private allocation spreadsheet
Within five business days of completing a placement made under the temporary extra placement capacity, the entity must publicly announce to the ASX:
the results of the placements
reasonable details of the approach the entity took in identifying investors to participate in the placement and how it determined their respective allocations in the placements, and
that as far as the entity is aware, no securities were issued to any persons who fall under ASX Listing Rule 10.11 without shareholder agreement or approval, under a Listing Rule 10.12 exception or ASX waiver. Persons under Listing Rule 10.11 include a party related to the entity, a substantial (30%+) holder and their associates.
At the same time, the entity must also privately supply to ASIC and the ASX a detailed "allocation spreadsheet" showing:
full details of the persons to whom securities were allocated in the placements (including their name, existing holding as understood by the entity, the number of securities they applied for or were offered in the placements), and
the number of securities they were allocated in the placements (including zero allocations)
Note, this spreadsheet is not for public announcement.
Temporary class waivers
If an entity wants to use one of the temporary class waivers, under the changed rules an entity must now:
notify the ASX prior to capital raising (the notification will not be released to the market)
include details in the notice explaining the circumstances on which the entity is relying and whether the capital raising is raising urgently needed capital to address issues arising from the COVID-19 pandemic and/or its economic impact or some other purpose
In response to the notice, the ASX can withdraw the class waivers:
from a particular entity at any time and for any reason by giving notice to the entity, and
for all listed entities prior to their scheduled expiry date of 31 July 2020 by a market notice
References to COVID-19 and business initiatives
In addition to the changes to the emergency measures noted above, the ASX has been monitoring announcements by listed companies linking business initiatives to COVID-19.
Companies should be precise when making any announcement that refers to COVID-19, both in the context of capital raising as well as potential business opportunities and innovations. Entities that have attempted to link their business to the Coronavirus or the virus response have been placed into a trading halt whilst the ASX investigates the veracity of their claims. Entities that have made announcements containing tenuous links to COVID-19 business opportunities have been forced to issue a clarifying announcement.
Despite these recent changes and developments, the temporary COVID-19 capital raising measures can still assist to facilitate urgent capital raising. Entities should not be deterred from plans to raise capital made under the 31 March rules, but should be conscious of how the 22 April amendments and ASIC's recent statements will impact those plans.
This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2020.