Following the release by the ASX of their initial consultation paper back in May 2016, it is fair to say that there has been significant public criticism of the ASX’s proposed changes. The original proposed changes would have had a noticeable effect on capital raisings, especially reverse takeovers (RTOs), otherwise known as back-door listings, together with IPOs of smaller ventures.
Western Australian (WA) registered companies represent around 1/3 of the companies on the ASX, and the downturn in the resources market has seen several junior resource exploration companies resurface as technology companies. Given the weighting to such companies in WA, this may have had significant ramifications to an already tough market.
On Wednesday 2 November 2016, the ASX released its long-awaited Response to Consultation on the proposed listing rule changes, which are scheduled to commence on 19 December 2016.
The ASX’s final position does show some compromise from the initial consultation paper, and is summarised below:
Asset Test (LR 1.3)
- An increase in the net tangible assets test (“NTA”) from $3 million to $4 million, rather than the $5 million threshold proposed in the initial consultation paper.
- An increase in the market capitalisation test from $10 million to $15 million was originally proposed to $20 million).
Profits Test (LR 1.2)
- There has been an increase in the requirement for consolidated profits for the 12 months prior to admission from the previous $400,000 to $500,000. This is consistent with the initial consultation paper.
Spread requirements (LR 1.1, condition 7)
- A single tier spread test with applicants now required to demonstrate 300 holders with parcels of a minimum of $2,000. This represents a significant departure from the initial consultation paper, which proposed a requirement for 200 holders holding a minimum parcel of $5,000.
Free float (new LR 1.1, condition 7)
- A new 20% minimum free float requirement has been included. This is consistent with the initial consultation paper. “Free float” means the percentage of the entities main class of securities that are not “restricted securities” or subject to voluntary escrow; and are held by non-affiliated security holders.
Financial accounts (LR 1.3.5)
- Applicants must show audited accounts for two full financial years for the entity seeking admission, and any significant entity or business that it has acquired in the 12 months prior to applying for admission or that it proposes to acquire in conjunction with its listing. This is a reduction on the initial consultation paper, which suggested three full financial years of audited accounts.
Working capital (LR 1.3.3)
- A standardised $1.5 million working capital requirement for all entities – this previously applied to mining companies only. This is consistent with the initial consultation paper.
Policy change for back-door listings
- A new policy providing listed companies with the choice to either continue trading by releasing an announcement to the market which contains all the information prescribed in Annexure A to Guidance Note 12, or go into suspension until the re-compliance process is complete.
Conclusion
Whilst there has been some tightening to the admission requirements for new listings, the impact of the ASX changes appears considerably less onerous to that originally proposed. Heading into 2017 this will undoubtedly provide a level of relief to an already difficult market.
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