As part of its efforts to reduce red tape, ASIC has now made it possible to avoid the need to apply for two common forms of relief that many issuers require to conduct an IPO in Australia.
The relief, which takes immediate effect:
- facilitates voluntary escrow, by removing the requirement to specifically seek ASIC’s permission to impose disposal restrictions covering more than 20% of shares on issue (which are common) (Escrow Relief); and
- allows issuers to talk to their employees, former employees and shareholders about a potential IPO without the need to first obtain dispensation from the broad restrictions on pre-prospectus advertising restrictions contained under Australia law (Advertising Relief).
This relief is a positive development. It will reduce IPO costs by reducing fees payable to ASIC and the time spent preparing relief applications. More broadly, it demonstrates that ASIC is looking at ways to streamline the IPO process by avoiding standard applications for relief where possible.
Helpfully, the relief excludes a number of conditions that ASIC had originally proposed to include when it consulted on these changes earlier this year: these included a restriction on the total percentage of shares that could be subject to voluntary escrow arrangements (which would have had the effect of increasing the free float requirement from 20% to as much as 50%) as well as limiting the Advertising Relief to written statements.
The Escrow Relief does not go as far as industry had hoped as it does not cover escrow arrangements which contain carve outs for transfers of the escrowed shares to affiliates or which have “early partial release” mechanisms (where part of the shares are released in the event of share price outperformance following the release of future financial accounts by the issuer). Both exceptions are common in escrow arrangements with private equity sponsors. Whilst ASIC said it would be open to looking at granting relief on a case by case basis to facilitate affiliate transfers, it was silent on early partial release mechanisms. Where speed of IPO execution is important, structuring escrow terms to align to this standard relief will be worth considering.
The Advertising Relief will facilitate the usual communications that issuers need to make to their employees and shareholders, including to facilitate selldown processes (such as allowing IPO pricing information to be disseminated to assist in structuring and sizing the selldown). There are conditions – any statements cannot include the merits of the IPO and issuers need to update recipients on material changes to the information provided. ASIC has also clarified, through an update to Regulatory Guide 254, that communications between the issuer and its advisers for the purpose of conducting preparatory work related to an IPO are not caught by the pre-prospectus advertising restrictions.