In brief - Listed entities need to be aware of the latest changes to temporary emergency capital raising relief announced by ASX on 15 September 2020
The emergency additional 10% placement capacity can now only be used where the raising is predominantly for the purposes of addressing the existing or potential future financial affect on the entity resulting from the COVID-19 health crisis, and/or its economic impact.
ASX Class Waivers Compliance Updates from March and April 2020
In response to the uncertainty caused by the onset of the COVID-19 pandemic, ASX announced temporary emergency capital raising measures (Class Waivers) in its Compliance Update no 03/20 dated 31 March 2020.
The Class Waivers were updated on 22 and 23 April 2020, and in Compliance Update no 07/20 dated 13 July 2020, ASX announced that its temporary emergency capital raising measures had been extended until 30 November 2020.
Summary of Class Waivers Relief
In short, the emergency relief involves:
(additional 10) a lift in the LR 7.1 15% placement capacity from 15% to 25%, subject to a follow-on accelerated pro-rata entitlement offer, traditional non-renounceable entitlement offer or Share Purchase Plan (SPP) offer at the same price as the placement.
This increased capacity can only be utilised once and cannot be refreshed by ratification.
(removal of rights offers 1:1 cap) waiver of the 1:1 ratio cap that is applicable to non-renounceable rights offers in ASX Listing Rule 7.11.3 for accelerated non-renounceable entitlement offers (ANREOs) and traditional non-renounceable rights issues.
(trading halts) Back-to-back trading halts (usually, consecutive trading halts are not permitted).
Requirements for access to the capital raising relief
1. Assessment of the fairness of the raising - structure and purpose
ASX guidance on 05/20 1 May 2020, stated (paraphrased): To assess whether a capital raising qualifies for the relief, ASX needs to understand the structure and purpose of the total capital raising, including the intended recipients of, and proposed allocation policy for, any placement:
especially where the capital raising appears to ASX to be neither COVID-19 related nor urgently needed;
where a capital raising appears to have been structured equitably from the stance of existing security holders, ASX is unlikely to have issues, even where the capital raising is not specifically COVID-19 related or urgently needed;
conversely, however, where a capital raising appears to ASX to have inequitable features from the stance of existing security holders, ASX is likely to withhold the benefit of the Class Waivers for that capital raising, especially (but not only) where the capital raising is not specifically COVID-19 related and not urgently needed.
2. ASX narrows scope for the purpose of the capital raising
Initially, the volatile market environment meant that the relief could be applied whether or not the entity was directly impacted by COVID-19.
Now, in the 15 September 2020 Compliance Update, ASX has modified its policy position and as from 16 September 2020, any entity wishing to rely on the Class Waivers must satisfy ASX that the entity is raising capital predominantly for the purposes of addressing the existing or potential future financial affect on the entity resulting from the COVID-19 health crisis, and/or its economic impact, along with satisfying the other conditions set out in the Class Waivers.
Other compliance issues
1. Compliance Update 02/20 22 April 2020 - required non-market disclosures
If an entity relies on the relief, among other things, it must within five business days of completing the relevant placement, give ASIC and ASX a detailed allocation spreadsheet in electronic format with specified detailed information.
2. Issues of securities made under listing rule 7.1 class waiver cannot be ratified
ASX has had a number of queries from listed entities about whether the additional 10% relief permitted can be replenished.
The short answer is no.
Entities that had a valid 7.1A mandate and used it to issue shares in the preceding 12 months, rather than the additional 10% temporary extra placement capacity provided for in the class waiver, can approve or ratify the issue under listing rule 7.1 or 7.4 in the usual way. However, in this case, the issue must have complied with all of the requirements in listing rule 7.1A, including the pricing constraints in listing rule 7.1A.3.
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.