ASIC and ASX measures to assist with capital raisings during COVID-19

ASX and ASIC yesterday announced welcomed new measures to facilitate listed entities raising capital, in response to COVID-19. The key measures include:

1. Temporary relief to increase the placement capacity limit under ASX Listing 7.1 from 15% to 25%, subject to conditions explained below;
2. Temporary relief to allow cleansing notices to be issued by listed entities that have been suspended for a total of up to 10 days in the previous 12-month period (up from 5 days);
3. The ability to request back-to-back trading halts; and
4. The ability to undertake non-renounceable entitlement offers with ratios of greater than 1:1.

Increase to placement capacity

The relief to increase the placement capacity limit under ASX Listing 7.1 from 15% to 25% is granted on the condition that entities that utilise the temporary extra placement capacity either make a follow-on:

1. Accelerated pro-rata entitlement (that conforms with ASX Listing Rule 7.2); or
2. Share purchase plan offer to retail investors,

in each case at the same or a lower price than the placement price.

The temporary extra placement capacity can only be used for a placement of fully paid ordinary shares and cannot be subsequently ratified. An entity can only use the extra capacity under a single placement, and entities who have already used part of their Listing Rule 7.1 or 7.1A capacity will need to deduct what has already been utilised from their ability to use the temporary Listing Rule 7.1 expanded capacity.

Eligible entities that have an additional 10% placement capacity pursuant to Listing Rule 7.1A will be able to elect to use their existing Listing Rule 7.1A capacity – or the temporary extra placement capacity – but not both. In the current climate, we expect Listing Rule 7.1A entities are more likely to use the temporary Listing Rule 7.1 expanded capacity as it is not subject to the discount and timing limitations in Listing Rule 7.1A.

An entity that has recently conducted a share purchase plan offer may still access the relief, but may be subject to other limitations, for which further regulatory relief will need to be sought. These will be considered on a case by case basis by the regulators.

The temporary increase to placement capacity applies until 31 July 2020, unless extended by ASX.

Entities making placements under the temporary measures need to be mindful in respect of how allocations are made, and be cognisant of ASIC’s recent better practice recommendations in ASIC Report 605 regarding allocations in equity raising transactions. ASX has warned that they may withdraw an entity’s ability to rely on the temporary relief where they feel the allocation process is abused.

Those entities seeking investment from overseas also need to be mindful of the recent amendments to FIRB policy, which our colleagues wrote about yesterday.

More comprehensive risk disclosure is likely to be required by entities undertaking placements than is customarily provided. Given the uncertainty in respect of the length and effect of the COVID-19 pandemic and constantly changing measures imposed by Governments to combat the crisis, capital raised by entities under the temporary relief may be just that – temporary relief – with entities possibly requiring further capital in the short to medium term.

Further ASX guidance and relief

ASX also announced additional relief and guidance, including:

1. The ability to undertake a non-renounceable rights issue at a ratio greater than 1:1;
2. To permit an entity to request a back-to-back trading halt, allowing it to call a trading halt for up to 4 trading days, in order to plan and execute a capital raising;
3. In relation to an entity’s continuous disclosure obligations. Much of ASX’s guidance on disclosure obligations we covered in our recent article, though ASX has provided a stern warning to those making COVID-19 announcements to ensure any claims made are adequately supported and are not misleading; and
4. Reporting deadline relief (on a case-by-case basis) for listed entities with a 30 September, 31 December or      31 March balance date (those with a 31 May or 30 June balance date will be reviewed in due course).

ASX has also put long term suspended entities on notice – ASX is unlikely to change its policy or grant relief from it.

Increase to suspension period for issuing cleansing notices to 10 days

ASIC also announced temporary relief to allow cleansing notices to be issued by listed entities that have been suspended for a total of up to 10 days in the previous 12-month period (up from 5 days). ASIC’s relief applies to the issue of cleansing notices under placements, ‘low doc’ rights issues and share purchase plans.

Listed entities will be able to rely on ASIC’s relief if they:

1. Have been suspended for up to 10 days in the 12 months before the offer; and
2. Were not suspended for more than 5 days in the period commencing 12 months before the offer and ending    19 March 2020.

With dozens of companies presently in or entering voluntary suspensions to undertake capital raisings, the news yesterday from ASIC and ASX will be well received as it practically provides listed entities with another week to close out capital raisings before having to issue a prospectus to cleanse any quoted securities issued. If an entity has been suspended for more than 10 days, it may still be possible to obtain relief from ASIC which will be considered on a case by case basis.

Further information

For further information on ASIC’s position, see ASIC Media Release 20-075MR.

For further information on ASX’s new relief and guidance, see ASX’s COVID-19 update.

Our teams across the nation are available to advise on all these new measures. Please contact us if you have any queries.

This article was written by Deanna Carpenter, Partner, and David Naoum, Special Counsel.