ASX has today announced a suite of temporary measures to facilitate capital raisings and assist listed entities to meet their obligations under the ASX Listing Rules amid the continuing challenges facing businesses as a result of the COVID-19 pandemic. ASIC has also announced temporary relief which will enable listed entities to undertake “low doc” offers where they would otherwise have been prevented from doing so as a result of expending their 5 day limit on trading suspensions whilst responding to the impact of COVID-19 on their businesses.
We expect that ASX’s temporary capital raising relief will result in institutional placements and ANREOs with an upfront placement being the preferred capital raising structures in the near-term (as we observed in our recent report to have been the case during the GFC).
We have summarised the key changes announced by ASX and ASIC below.
Temporary capital raising relief
To facilitate capital raisings during this period, ASX has implemented the following measures by way of class waivers (Class Waivers). The Class Waivers are effective immediately and will expire on 31 July 2020, unless ASX otherwise decides to remove or extend them:
- Higher placement capacity of 25%: There will be a temporary lift in placement capacity under Listing Rule 7.1 from 15% to 25% (Temporary Extra Placement Capacity), which will be accessible where any entity includes a follow on accelerated pro rata entitlement offer or SPP. There are some specific things to note about the ability for a company to use the Temporary Extra Placement Capacity:
- Entities that wish to do more than one placement using their Temporary Extra Placement Capacity or to issue something other than fully paid ordinary securities will need to approach ASX for an individual waiver to permit this.
- Entities already eligible to access the additional 10% placement capacity under Listing Rule 7.1A will, to the extent they have not already utilised that extra 7.1A capacity, have to choose whether to utilise part of this new 10% capacity or their remaining Listing Rule 7.1A capacity – they cannot use both (ie there is a 25% overall cap);
- An entity that elects to do a placement with a follow-on accelerated pro rata entitlement offer will qualify for the normal “supersize” waiver ASX grants where an entity is contemplating a placement followed by a pro rata entitlement offer. The supersize waiver is included in the Class Waivers and listed entities will not need to apply separately to ASX to get the benefit of this waiver. This will allow for large accelerated non-renounceable offers with an upsized institutional placement;
- An entity that elects to do a placement with a follow-on SPP:
- ASX will waive the sizing and pricing requirements for SPPs imposed under Listing Rule 7.2 in the Class Waivers, and substitute instead a requirement that the follow-on SPP offer must occur at a price equal to or lower than the placement price (as is customary). (Whether ASIC and ASX will also move to allow entities to utilise an SPP more than once in a 12 month period to facilitate this for entities who have already done an SPP are still outstanding).; and
- If there is a limit on the amount to be raised under the SPP offer, the entity must disclose any scale back arrangements and use its best endeavours to ensure that SPP offer participants have a reasonable opportunity to participate equitably in the overall capital raising. Any scale-back arrangements will be required to be pro rata to all participants. This will require some careful management for entities with large registers.
- There is also an option to do an SPP without the sizing and pricing constraints imposed under LR7.2 for entities unable to do a placement or entitlement offer. However, we note that all of the ASIC restrictions on low doc relief still apply, including that offers do not exceed $30,000 per shareholder so this will likely be a fairly limited option, albeit useful for smaller entities all the same.
- Larger non-renounceable entitlements offers possible: The ratio limit of 1:1 for non-renounceable entitlement offers has been removed (which goes beyond what the NZX recently did in New Zealand – which was to put in place a 2:1 cap). ASX will keep this position under review; and
- Back to back trading halts: Entities will be able to request back-to-back trading halts (i.e. a total of 4 days in halt) to consider and prepare for capital raisings. This will help entities who would otherwise be required to expend part of their 5-trading day limit on suspensions under the current ASIC relief for utilising the “low doc” regime. This will not be available for entities requiring more time to consider disclosure on other COVID-19 related matters, for example, where they are in negotiations with lenders around covenant relief.
The latter measure ties in with ASIC’s temporary relief for entities who may have become ineligible to utilise the “low doc” regime after 19 March 2020 as a result of entering into trading halts or suspensions in the past few weeks to assess the impact of COVID-19 and/or to prepare for a capital raising.
Under this new relief (which applies from 1 April), entities will be able to undertake “low doc” capital raisings provided that they have not been suspended for:
- more than a total of 10 days in the last 12 months; and
- more than 5 days in the 12 months to 19 March 2020 (the date that the Federal government updated its travel advice to Australians to not travel overseas). This is intended to avoid entities that have been in significant suspension prior to the impacts of COVID-19 began to be felt from accessing this relief.
ASIC will also consider, on a case-by-case basis, granting relief if a listed entity has been in a longer period of suspension than 10 days. Judging by ASIC’s press release, we expect such relief would only be granted where the entity urgently requires the funds and has structured the capital raising in a manner which allows for fair participation by all securityholders (for eg, it is in the form of an entitlement offer).
As a general comment in relation to capital raisings, we note that ASX has endorsed the sentiments in ASIC’s Market Integrity Update (also released today), that directors need to continue to focus on the best interests of the company when structuring a capital raising. In particular, ASX has commented that “this requires directors to balance a range of considerations, such as the need for quick and certain capital, and the cost to and possible dilution of existing security holders. ASX shares these [i.e. ASIC’s] expectations and may withdraw the benefit of a Class Waiver in any particular case if ASX considers it is being abused by a listed entity or that a listed entity is otherwise acting unfairly or unreasonably in the circumstances.”
Comfort around continuous disclosure practices in response to COVID-19
ASX has acknowledged the disclosure challenges for listed entities arising from the rapidly evolving and highly uncertain situation surrounding the COVID-19 pandemic.
Specifically, ASX has confirmed that a listed entity’s continuous disclosure obligations do not extend to “predicting the unpredictable”, noting the exception to Listing Rule 3.1 for information which comprises matters of supposition or that is insufficiently definite to warrant disclosure. In the context of a capital raising (where the exceptions to continuous disclosure are lost), consideration will need to be given to how to manage this uncertainty.
Other key guidance includes:
- ASX has strongly urged entities that have not reviewed their earnings guidance in light of COVID-19 to do so as soon as possible, and if their earnings guidance is not current, to withdraw or modify it (ASX has shown its support for the withdrawal approach, which has been the preferred approach to date by the market);
- ASX has reminded the market to immediately disclose operational decisions that are likely to have a material impact; and
- ASX has emphasised that, as a general rule, where entities do not have reasonable grounds to speak about the future, they do not have to say anything about it. This is of particular assistance to entities who have withdrawn their guidance.
We recently published some guidance regarding the impact of COVID-19 on companies’ continuous disclosure obligations and how ASX200 entities have responded to COVID-19 so far.
AGMs and financial reporting deadlines
ASX has announced its support of the “no action” position that ASIC has taken in relation to AGMs and the use of electronic communications to facilitate shareholder meetings. ASX has also published a class order to ensure that NZX dual-listed entities will be able to take advantage of financial reporting extensions recently announced in New Zealand.
ASX has stated it would consider requests for extensions to financial reporting deadlines for entities with a 30 September, 31 December or 31 March balance date, on a case-by-case basis (though not for quarterly reports and other unaudited information). ASX has indicated that it may agree to a short extension of the deadline for filing half yearly or annual financial statements where:
- ASIC (or the equivalent corporate regulator for overseas companies) has agreed to grant the entity an extension to the relevant reporting deadline under the Corporations Act (or overseas equivalent legislation) (note: ASIC has not published anything at the time of writing this on whether it will grant this but we are aware that it is under consideration);
- The entity’s auditor has confirmed in writing to ASX that they will not be able to complete their audit or review of the entity’s financial statements by the deadline in chapter 4 of the ASX Listing Rules;
- In the case of annual financial statements, the entity has released an Appendix 4E (Preliminary Final Report) with unaudited financial results for the financial year; and
- In the case of half yearly financial statements, the entity has released unaudited and unreviewed financial results for the half year.
Any such relief granted by ASX from the financial reporting deadlines under Chapter 4 for entities with a 30 September, 31 December or 31 March balance date will be conditional on the entity :
- announcing to the market the date by which it reasonably anticipates being able to lodge its audited or reviewed financial statements with ASX (as applicable);
- confirming to the market that it is in compliance with its disclosure obligations under Listing Rule 3.1; and
- immediately notifying ASX if there is a material difference between its unaudited results and its audited or reviewed financial statements.
Other potential regulatory changes
We are aware that ASIC and the Treasury are also considering additional temporary reforms to further assist listed entities and other corporates. It is hoped that these might address matters like an entity’s ability to withdraw or defer declared dividends, the notice period for shareholder meetings and the conduct of those meetings (ie legislative reform beyond ASIC’s previously disclosed no action position on AGMs), the electronic execution (and witnessing) of documents and certain matters in relation to the application of insolvency laws.