ASX is mak­ing list­ing more dif­fi­cult for SMEs 

In Brief

An ASX Media Release on 12 May 2016 set out a num­ber of changes, both imme­di­ate and pro­posed, to the admis­sion require­ments to the offi­cial ASX list. The changes are intend­ed to ​“main­tain and strength­en the rep­u­ta­tion” of the ASX. How­ev­er one of the side effects is that the changes will make list­ings more dif­fi­cult for small companies. 

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REVERSE TAKEOVERS

Recent­ly there has been a per­cep­tion that RTOs are an eas­i­er and cheap­er way for small busi­ness­es to list. Because of this, the RTO path­way has been a pre­ferred list­ing option for many small businesses.

Some of the ASX rule changes relate to how the ASX reg­u­lates RTOs, oth­er­wise known as back­door listings.

The ASX no longer grants com­pa­nies waivers of the 20 cent min­i­mum price rule which, in cir­cum­stances where their secu­ri­ties are trad­ing at less than two cents each, will pre­vent those com­pa­nies from using the back­door list­ing process.

Pre­vi­ous­ly, trad­ing on the secu­ri­ties of an enti­ty which announced it was intend­ing to enter into an RTO con­tin­ued until the trans­ac­tion was approved by share­hold­ers. Now, trad­ing on the secu­ri­ties of the enti­ty will be sus­pend­ed from the time the enti­ty announces it will enter into the RTO which takes away one of the main advan­tages of RTOs.

The ASX are also propos­ing to push out the trans­ac­tion timetable for back­door list­ings by three weeks as it will require a min­i­mum of 15 busi­ness days to review the notice of meet­ing relat­ing to the trans­ac­tion, and it is propos­ing to charge a fee of $10,000 for this review. 

The ASX has also indi­cat­ed that it will scru­ti­nise more close­ly cap­i­tal rais­ings under­tak­en in advance of share­hold­er approval for the pro­posed trans­ac­tion. This scruti­ny will be on both the issue of secu­ri­ties by an unlist­ed enti­ty which become secu­ri­ties in the list­ed enti­ty once the trans­ac­tion is com­plet­ed, and on any cap­i­tal rais­ing by a list­ed enti­ty which occurs in the lead up to, or after, the announce­ment of the pro­posed transaction.

The addi­tion­al reg­u­la­tions for RTOs are like­ly to make RTOs less attrac­tive. This will dri­ve those com­pa­nies which were pre­vi­ous­ly plan­ning to list through an RTO into the ini­tial pub­lic offer­ing (IPO) process.

INI­TIAL PUB­LIC OFFERINGS 

Unfor­tu­nate­ly the pro­posed changes to ASX list­ing require­ments will put list­ing fur­ther out of reach for many small busi­ness­es. These changes include:

• Increas­ing the finan­cial thresh­olds for listing – 
  • lift­ing the ​“assets test” thresh­olds from net tan­gi­ble assets of $3 mil­lion or a mar­ket cap­i­tal­i­sa­tion of $10 mil­lion to an NTA of $5 mil­lion or a mar­ket cap of $20 million
  • increas­ing the con­sol­i­dat­ed prof­it require­ment under the ​“prof­it test” for the 12 months pri­or to admis­sion to at least $500,000
• Intro­duc­ing a 20% min­i­mum free float require­ment and chang­ing the spread test to bet­ter demon­strate a suf­fi­cient lev­el of investor inter­est in the enti­ty and its secu­ri­ties to jus­ti­fy listing
• Mak­ing the min­i­mum $1.5 mil­lion work­ing cap­i­tal require­ments con­sis­tent across all enti­ties admit­ted under the assets test
• Intro­duc­ing a require­ment for enti­ties admit­ted under the assets test to pro­vide audit­ed accounts for the last three full finan­cial years, unless ASX agrees otherwise.

These pro­posed changes com­pli­ment mod­i­fi­ca­tions that the ASX has already made to its list­ing rules to strength­en its absolute dis­cre­tion in decid­ing whether or not an enti­ty may be admit­ted to the offi­cial list.

If you are con­sid­er­ing an exit event such as an IPO or an RTO, it may be worth plan­ning ahead to ensure your busi­ness is in a posi­tion to com­ply with the new rules.