On 31 March 2020, ASX issued a class waiver implementing temporary emergency capital raising measures to help listed entities affected by the COVID-19 pandemic to raise urgently needed capital (see our alert of 1 April 2020, A capital idea - ASX and ASIC relax rules for COVID-19 raisings for further information).
These measures included increasing the limit on placements from 15% to 25%, and have been used with great success by a significant number of issuers.
In consultation with ASIC, ASX has updated the waiver to add disclosure requirements and to clarify certain matters. The disclosure requirements primarily relate to the allocation policy and process used by issuers for placements relying on the waiver. The inclusion of these requirements is driven by perceptions of a lack of fairness to existing shareholders in placements utilising the waiver to date.
In most cases, the issue was just that – perceived (as opposed to actual) unfairness. The market was increasingly moving to a practice of striving to allocate shares in placements pro rata to the pre-offer shareholdings of institutional and sophisticated shareholders (to the extent practicable). Also, the features of the original waiver requiring the placement to be followed by a share purchase plan (SPP) or rights issue (which remain in the waiver as amended), substantially mitigated unfairness for retail shareholders.
While we welcome the clarifications (which include extending the waiver to allow traditional rights issues and other helpful changes), we can hope that the disclosure requirements (which call for information which is not useful for investors in terms of their investment decisions and merely increase the exposure of the issuer's directors) do not adversely impact issuers' willingness to use the additional placement capacity (particularly where there is an urgent need for capital).
The amendments to the waiver which impose additional requirements include:
- The requirement, within five business days of completing a placement made in reliance on the waiver, to:
- Announce the results of the placement to the market together with details of the approach it took to identify investors to participate in the placement and how allocations between investors were determined;
- Disclose to the market that, as far as the entity is aware, no securities are to be issued in the placement to a related party, a shareholder holding more than 30% of the entity's securities or a shareholder holding more than 10% or the entity's securities with board appointment rights (or any of their associates)) unless such issue is conditional on shareholder approval or is able to be made in accordance with the ASX Listing Rules; and
- Provide ASIC and ASX (on a confidential basis) with details of allocations made under the placement (eg. names of persons participating in the placement, their existing holding in the entity, the number of securities they applied for / were offered and the number of securities they were allocated (including any zero allocations));
- The requirement to disclose, if there is a cap on the amount to be raised under an SPP accompanying the placement, why the cap is in place and how it was determined;
- The requirement that any scale-back arrangements for SPPs to be applied on a pro rata having regard to the size of a shareholder's existing holding or the number of securities they have applied for; and
- The requirement that the written notice to ASX that the entity intends to rely on the waiver to state whether the capital raising is being undertaken as a result of COVID-19 and/or its economic impact or for some other purpose. The notice must be given to ASX, on a confidential basis, prior to undertaking a capital raising.
The amendments to the waiver which provide clarifications or accommodations include:
- Addition of the ability for ASX to withdraw an entity's ability to rely on the waiver and to withdraw the waivers prior to their scheduled expiry date of 31 July 2020;
- Addition of the ability for an entity to undertake a traditional rights issue after the placement. Previously the temporary extra placement capacity waiver only provided for a follow-on SPP or an accelerated right issue); and
- Confirmation that where relief has been granted by ASIC to modify ASIC Corporations (Share and Interest Purchase Plans) Instrument 2019/547 to allow eligible shareholders to subscribe for more than $30,000 under an SPP in any 12 month period, the SPP will still satisfy the requirements of this instrument,
The above amendments take effect for capital raisings announced on or after 23 April 2020.
MinterEllison has been involved with a number of clients seeking to raise emergency capital in the light of COVID-19 and has assisted with obtaining critical relief from ASX and ASIC to facilitate such raisings. Should you have any questions or would like to discuss, please reach out to us.