- The ASX has released a Consultation Paper in relation to its requirements for frontdoor and backdoor listings – ‘Updating ASX’s admission requirements for listed entities‘.
- It is proposed that the changes will take effect on 1 September 2016 and be applied to all listing applications received after that date.
Under the proposal:
- financial thresholds for listing increased – both for the profits test and the assets tests;
- new minimum free float requirement introduced;
- ‘spread test’ changed to better demonstrate a sufficient level of investor interest in the entity and its securities to justify listing;
- minimum working capital requirements made consistent across all entities admitted under the assets test; and
- new requirement for entities admitted under the assets test to provide audited accounts for the last three full financial years.
The proposed changes would, if adopted, represent a major change to current practice, particularly for backdoor listings.
Case for change
The ASX’s package of measures seeks to strengthen the ASX listing rules framework and maintain an appropriate balance between the interests of issuers and investors in promoting efficient capital raising, maintaining market integrity and providing a market that is internationally competitive.
The key changes proposed relate mostly to entities seeking to list in the ‘ASX listing’ category.
New financial thresholds
- Profits test: consolidated profit requirement under the profit test for the 12 months prior to admission to increase to at least A$500,000 (up from A$400,000).
- Assets test: increases to the net tangible asset threshold to at least A$5 million (up from A$3 million) and the market capitalisation threshold to at least A$20 million (up from A$10 million).
New rules-based minimum free float requirement
Proposed rules-based 20% minimum free float requirement for ASX listings at the time of admission. This formalises current ASX practice which uses its discretion to apply this requirement to all listing applications.
Minimum spread requirement for ASX listings to require:
- 200 security holders if the entity has a free float of less than A$50 million, or 100 security holders if the entity has a free float of A$50 million or more (change from the current three prong test based on % free float); and
- each security holder counted towards spread must hold a parcel of securities with a value of at least A$5,000 (up from A$2,000).
Current minimum working capital requirement to be standardised by requiring all entities admitted under the assets test to have at least A$1.5 million in working capital available after taking into account the entity’s budgeted revenue for the first full financial year that ends after listing and allowing for the first full financial year’s budgeted administration costs and the cost of acquiring any assets referred to in the prospectus.
Entities seeking admission under the assets test will be required to produce audited accounts for the most recent three full financial years and, if the accounts for the last full financial year are more than eight months old, the entity also be required to produce audited or reviewed accounts for the last half year.
The ASX’s absolute discretion on admission and quotation decisions to be reinforced and may be exercised even if the technical listing conditions are met.
Backdoor listings – immediate suspension on announcement
The ASX is also proposing a number of other changes to update the listing rules and associated guidance notes. One of the key changes is that the ASX will now suspend trading in the securities of a listed entity immediately when that entity announces a proposed transaction which constitutes a significant change in nature or scope under Chapter 11 of the Listing Rules. Where shareholder approval for the significant change is required, the suspension is likely to continue for 5 – 6 weeks. Previously, ASX practice has been to suspend trading on shareholder approval of the proposed transaction.
This is a material change which will need to be managed through effective communication with shareholders and other stakeholders.
The ASX is seeking feedback on its proposals and will consult with ASIC before confirming what the final changes will be. The consultation paper is available here.
Written by: Eugene Fung | Partner | +61 7 3338 7524 | firstname.lastname@example.org