ASX, ASIC change the rules so stocks can raise money fast
Link copied to
Relaxed rules for listed companies wanting to raise capital should help those struggling to stay afloat, as experts recommend companies raise a lot of money, early.
The ASX has loosened rules temporarily to make raising capital easier and ASIC is allowing companies to do “low doc” offers, as the COVID-19 pandemic continues to put pressure on business models.
Lawyers from Gilbert & Tobin say there could also be other changes afoot that could force the ASX to digitise, including e-witnessing and e-execution of documents, and how to conduct AGMs.
As companies begin to frantically raise money to survive a prolonged downturn, the ASX has stipulated the new measures are temporary.
They include new guidance on what companies need to disclose to investors and emergency capital raising measures, ASX chief compliance officer Kevin Lewis said in a statement.
“ASX is offering companies the rule flexibility to deal with urgent financial needs, while ensuring ongoing fairness and protection for retail investors. We believe these measures are necessary and pragmatic, and will help ensure Australia’s capital markets continue to be well-functioning,” he said.
It has supersized the placement capacity limit from 15 per cent to 25 per cent a year. This limit is to ensure shareholders who are not among the select few with which shares are ‘placed’ are not unduly diluted by multiple capital raisings.
The 1:1 limit on larger non-renounceable entitlement offers has been removed entirely.
Normally these capital raises, which are for existing shareholders only, limit the number of shares they can buy to one for every one they already own. New Zealand recently lifted the cap to 2:1.
The ASX has confirmed that companies don’t need to try to “predict the unpredictable” for their investors, but has issued a general reminder that they still need to tell the market when something that is obviously “material” news happens.
And companies can now request back-to-back trading halts to prepare for capital raisings. Normally after a four day halt a company’s shares are suspended from trading.
Back-to-back trading halts tie in with ASIC’s new measures for listed companies, which may need to use its expanded “low doc” regime to sort out their finances.
The ‘low doc’ capital raising regime is normally not available if a company has been suspended for a total of more than five days in the previous 12 months. Those companies would need to issue a prospectus or ask ASIC for permission.
But these are costly and take time, so ASIC has expanded that regime to companies which have had shares suspended for 10 days or less in the last year.
“We want to give companies more fundraising flexibility in these circumstances. Many will need to seek a trading suspension to understand how COVID-19 will affect them and to put a capital raising in place,” ASIC commissioner John Price said.
“However, the usual rules still apply. Directors need to ensure the capital raising is in the best interests of the company and companies need to make sure they are keeping the market informed via continuous disclosure announcements, even when they are in suspension.”