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29 April 2020

In consultation with the Australian Securities and Investments Commission (ASIC), the Australian Securities Exchange (ASX) has revised certain aspects of its temporary relief measures previously introduced to permit ASX-listed entities to undertake emergency capital raisings, being the temporary extra placement capacity waiver, and the non-renounceable offers waiver. Follow-through revisions have also been made to the back-to-back trading halts relief and other related relief. 

Should an ASX-listed entity seek to rely on the temporary relief measures in order to raise equity, then it must have regard to these revisions which take effect for capital raisings announced on or after 23 April 2020.

These revisions provide key insight into the regulators’ views that the ‘fairness’ agenda is not just a concept for boards to consider with respect to its retail shareholder constituents, but just as importantly, its institutional shareholders. We explain this further below.

Disclosure is the cure for lack of transparency

Advanced notice to ASX

An ASX listed entity that seeks to rely on these temporary relief measures must now provide in advance, notice to the ASX that it intends to utilise the relevant relief and provide its reasons for doing so, specifically whether the raising is to be made to raise urgently needed capital as a result of, or somehow related to, the impacts of COVID-19.

We note the ASX does not intend that this notice be released to the market. However, it must be provided in advance of the capital raising launch.

It goes without saying that one of the most important relationships for an ASX-listed entity is its relationship with its ASX Issuers adviser. Early discussions in this regard and the provision of the notice to its ASX Issuers adviser should be well-planned.

Pro-rata allocations a key agenda item in the institutional bookbuild paradigm

The ASX will now require an entity that completes an emergency raising in reliance on any of the relief measures, within five business days of completing the relevant placement:

To announce to the market: 
The results of the placement and reasonable details of the approach it took in identifying institutional investors to participate in the placement and how it determined their respective allocations including the key objectives and criteria it adopted in the allocation process. Importantly, the ASX wants to know if the entity adopted a best effort to allocate pro-rata to existing institutional investors and any significant exceptions or deviations from this methodology.

To provide to ASX and ASIC (not for release to the market): 
A detailed allocation spreadsheet with full details of the persons to whom securities were allocated, inclusive of name, current holding (prior to any allocations under the placement), number of securities applied for under the placement at or above the final price or were offered in the placement, and final allocation figures (even if no allocations were received).

The above two particular revisions follow certain concerns raised by a number of investors and their representatives that they have had limited opportunity to participate in recent raisings undertaken in reliance on the previous temporary relief measures. In this regard, the sentiment has been that new institutional investors and/or limited existing institutional investors have been given preference over the broader existing institutional shareholder base.

The market is well-aware that ASIC supports transparent disclosure to the market about capital raising decisions. Following its detailed report (ASIC Report 605) in relation to “Allocations in equity raising transactions”, it is therefore not surprising to see a consistency in approach by ASX with respect to requiring an Issuer that is seeking to rely on the temporary relief measures to provide insight into its allocation process as a way to stem discontent amongst investors. It is also not surprising to see that for the regulators, the fairest methodology of allocation is premised on a pro rata basis, even in the institutional placement landscape. In any case these revisions, have ensured that the regulatory fairness agenda continues to be a key consideration for boards in their fundraising activity.

Whether or not best price prevails in the institutional bookbuild process, the Regulators appreciate that various matters are considered with respect to allocations – this is highlighted in the ASIC Report 605. In any case, it is important for the board, together with its advisor, to be clear on the methodology applied with respect to allocations – see further below.

To also announce to the market: 
To effectively confirm that there were no issues of shares in the placement to certain related persons for the purpose of ASX listing rule 10.11 (noting the recently introduced substantial shareholder thresholds that apply for the purposes of this rule) other than for any issues approved by the shareholders, exempt issues or issues in reliance on previous waivers granted.

This is a reminder by ASX that: (i) directors of the issuer (or its controlling entity); and (ii) certain substantial shareholders (on the basis of the recently introduced thresholds applying), and their associates, cannot, without prior approval and/or a waiver, participate in the placement or any entitlement offer shortfall – they would only be able to participate in the follow-on entitlement offer on the basis of their pro rata entitlement and on the same terms and conditions as other investors.

In this regard, the regulators also like to see transparency around director commitments with respect to participation in an entitlement offer (on the basis of pro rata entitlement).

The board

These revisions further emphasise the requirement for the Issuer Board to have oversight of, and approve, the methodology applied, and the final allocations made, in the institutional bookbuild.

The board must approve any issue of new securities. As part of these fundraising transactions, the Board will also resolve on, among other things, the entry into the relevant broker agreement and also the relevant final allocations.

Documenting its allocation methodology and its reasoning consistently throughout the fundraising documents and relevant disclosures, and in particular, making it clear that it is the board (with the advice of its advisor(s) or otherwise) that has the final say on allocations, will serve the board well in demonstrating its oversight over these critical matters of the fundraising process.  

ASX’s discretion to revoke relief

ASX continues to make more express its ability to exercise its unfettered discretion. In this regard, ASX has left no room for doubt that it can withdraw these relief measures with respect to any ASX-listed entity, at any time, and for any reason. The ASX has also advised that it can withdraw these relief measures in their entirety prior to their scheduled expiry date of 31 July 2020.

KPMG Law equity capital markets specialists would be pleased to talk through any questions you may have on these revisions to the temporary relief measures.

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