The Australian Stock Exchange (ASX) has long been a destination for overseas companies looking to take advantage of the benefits of an ASX listing. This can be either as a primary listing or as a secondary listing in conjunction with a listing on an overseas exchange.
As at April 2016, there were approximately 120 companies listed on the ASX incorporated in countries other than Australia (approximately 5% of the total number of ASX listed companies).
This guide provides an overview of the key issues facing a foreign company seeking to list on the ASX.
A foreign company wishing to list on the ASX will typically need to satisfy either:
- the ‘foreign exempt’ test; or
- the general listing requirements.
Foreign Exempt Listing for larger companies
The foreign exempt test allows companies that are already listed on a foreign exchange to have a secondary listing on the ASX, whilst being exempt from compliance with the majority of the ASX listing rules, on the basis that the rules of its home exchange will apply.
Except for certain companies listed on the New Zealand Stock Exchange, the financial thresholds for a company to be eligible for foreign exempt listing are net tangible assets of at least $2 billion or operating profits of at least $200 million before tax for each of the last three years.
Foreign companies which do not satisfy these tests will be required to comply with the ASX’s usual admission requirements which apply to all companies.
ASX listing requirements
The key requirements for a foreign company to be eligible to list on the ASX under the standard route are set out below.
Registration as a foreign company
Any foreign company seeking to list on the ASX will need to register with ASIC as a foreign company operating in Australia.
This requires the establishment of a registered office in Australia, the appointment of an Australian local agent and the translation into the English language of any foreign language company constituent documents (eg constitution or memorandum and articles of association) by a qualified translator.
This can be a long lead time action which should be commenced well in advance of the listing application lodgment date.
Profits Test or Assets Test
In order to be eligible to list under the standard process, a company must satisfy either a ‘profits test’ or an ‘assets test’.
- (Profits test) Under the ‘profits test’, the company must have at least A$1 million of profit over the past three financial years (in aggregate) and profit of at least A$400,000 for the last 12 months prior to listing (currently proposed to be increased to A$500,000).
- (Assets test) Under the ‘assets test’, the company must have net tangible assets of at least A$3 million or a market capitalisation of at least A$10 million (proposed to be increased to A$5 million and A$20 million respectively).
The company must issue a prospectus, which must be lodged with ASIC (even if no shares are being issued).
Among other things, the prospectus must contain all information that any investor in the company or their professional advisors would reasonably require to make an informed assessment of a decision to invest in the company.
The prospectus will need to contain at least three years of audited financial statements for the company which will generally need to be prepared in accordance with International Financial Reporting Standards (IFRS).
A company commonly includes forward looking financial information (such as earnings forecasts) in its prospectus. All forward-looking statements must be made on reasonable grounds which are fully disclosed in the prospectus. If the statement is not made on reasonable grounds it is automatically taken to be misleading.
The Australian corporate regulator, ASIC has issued guidance on what it considers reasonable grounds.
|(Contracts) Forward sales contracts, leases or other contracts that lock in future expenses and revenue of a product/service and the quantum of supply. For sales contracts or leases that have a renewal option at the end of the initial term, prospective financial information should only extend to the end of the initial term unless there are reasonable grounds to believe that the option will be exercised.||(Hypothetical assumptions) Prospective financial information supported only by hypothetical assumptions about future events and management actions that are not necessarily expected to take place.|
|(Independent industry report) Reliance on an independent industry expert’s report that sets out the underlying assumptions and makes a positive statement that both the prospective financial information and its assumptions are reasonable.||(Statements with no verifiable support) Mere statements asserting reasonable grounds for the inclusion of information, with no verifiable reasons to support such statements.|
|(Independent accountant’s report) A detailed review of the prospective financial information and underlying assumptions contained in an independent accountant’s report prepared in accordance with professional standards that makes a statement that there is no reason to believe that the prospective financial information is unreasonable or that the assumptions do not provide reasonable grounds for the preparation of the prospective financial information.||(Subjective statements) Statements along the lines of ‘this is the best estimate of the directors‘. Grounds for prospective financial information should be objectively reasonable.|
|(Short term estimates) Short-term estimates (not exceeding two years) relating to an existing business and based on events that management reasonably expect to take place.|
Prospectus Due Diligence
Directors of the company are personally liable for the content of the prospectus and for any omissions. However, there is a due diligence defence under which a person will not be civilly or criminally liable if that person can prove that they:
- made all inquiries (if any) that were reasonable in the circumstances; and
- after doing so, believed on reasonable grounds that there was no material omission from the prospectus or that the statement was not misleading or deceptive.
Adopting, documenting and implementing a market standard methodology to conduct due diligence investigations can assist to establish the due diligence defence.
Minimum Spread and Free Float
Companies must meet the minimum spread and free float requirements – i.e. a company wishing to list on the ASX must have at least:
- 400 shareholders who each hold at least A$2,000 worth of shares; or
- 350 shareholders who each hold at least A$2,000 worth of shares, provided that at least 25% of the shares in the company are held by holders who are not related parties of the company (the free float); or
- 300 shareholders who each hold at least A$2,000 worth of shares, provided that the free float is at least 50%.
The ASX is currently proposing to vary these requirements such that companies must have only either 200 shareholders or 100 shareholders (if the free float is at least A$50 million), but that these shareholders must hold at least $A5,000 worth of shares.
Typically, trading in shares of companies listed on the ASX is settled by way of the trading and settlement system maintained by the ASX known as the Clearing House Electronic Sub-register System (CHESS). However, trading in shares of companies that are not incorporated in Australia usually cannot be settled through CHESS.
In order to be able to participate in the CHESS system, a foreign company will typically need to enter into arrangements with a depositary nominee under which the depositary issues CHESS Depositary Interests (CDIs). CDIs entitle the holder to a beneficial interest in the underlying shares and can be traded on the ASX and settled under the CHESS system.
The company must provide details of the extent to which it complies with the ASX corporate governance recommendations. While it is not a condition of listing that a company comply with all of these recommendations, where it does not comply with any recommendation, it must explain why this is the case.
The company must satisfy the ASX of the good character of each of its directors or proposed directors. This can be quite a time consuming process, and will typically require the company to provide criminal history and bankruptcy checks for each director from each country that they have resided in for the past ten years.
The ASX may impose restrictions preventing trading in shares in the company which have been issued in certain circumstances for up to 24 months from the date of listing.
These requirements will typically be imposed in relation to shares issued to seed capitalists, promoters, under employee incentive schemes or vendors as consideration for the acquisition of assets that cannot be valued (known as ‘classified assets’).
Where restrictions are required, the company will need to enter into an ASX prescribed form of escrow agreement with each holder of the restricted securities and its controller.
A company proposing to list on the ASX will need to ensure that its constitution (or articles of association) is consistent with the ASX listing rules.
The key steps in the listing process are as follow.
|3 months prior to lodgment of prospectus with ASIC||Appoint advisors such as:
Appoint share registrar
Identify long lead time items such as:
|2 months prior to lodgment of prospectus with ASIC||Due diligence investigations and prospectus preparation.|
|1 – 2 weeks prior to lodgment of prospectus with ASIC||Pre-IPO roadshows and other institutional marketing.|
|Lodgment Date||Lodge prospectus with ASIC and listing application with ASX.|
|1 week after Lodgment Date||Prospectus exposure period ends and offer opens. The 7 day exposure period can be extended to 14 days.|
|4 weeks after Lodgment Date||Offer closes.|
|6 weeks after Lodgment Date||Completion of listing and commencement of trading of shares on the ASX.|
Post Listing – Continuing Obligations
The key obligation of a company post listing on the ASX is compliance with the continuous disclosure requirements of the ASX. The basic principle of the ASX listing rules is that, unless an exemption applies, listed companies must immediately disclose (by release through the ASX’s company announcements portal) any information it is aware of that would have a material effect on the price or value of its securities.
In addition to this, ASX listed companies must comply with financial reporting requirements, which will require release of audited annual accounts, reviewed half-yearly accounts and, for companies which do not have a track record of revenue or profit, quarterly cash flow statements.
A company listed on the ASX must nominate at least one person to discuss listing rule matters with the ASX. This person must be available for communication with the ASX at all times from 9am to 5pm Sydney time.
How we can help
This summary is by its nature only a guide to the issues facing a company considering an ASX listing.
Thomson Geer is highly experienced in managing all aspects of the legal process in connection with an ASX listing. Our corporate team has guided numerous foreign companies through an ASX listing and can provide strategic guidance and advice to any company considering the move to the ASX.