28/04/2020

This is a service specifically targeted at the needs of busy non-executive directors. We aim to give you a “heads up” on the things that matter for NEDs in the week ahead – all in two minutes or less.  

In this Edition, we consider ASX’s latest compliance update, recent ASIC pronouncements and potential developments in the energy market.

A short week this week due to Anzac Day.

YOUR KEY BOARDROOM BRIEF

ASX releases compliance update for April 2020.  ASX’s latest compliance update sets out changes to ASX’s temporary capital raising relief measures, which were introduced on 31 March 2020, to address concerns that worried boards are opting for quick deals that favour certain institutional investors and result in dilution for smaller shareholders.  The temporary lift in placement capacity from 15% to 25% applied if entities do a follow-on accelerated pro rata entitlement offer or a SPP at the same or a lower price than the placement.  ASX has now extended the relief to placements followed by a standard rights issue; to allow all shareholders to participate in the overall capital raising at a price at least as favourable as the placement.  The other main changes to the measures are new requirements that an entity taking advantage of the relief: (i) notify ASX before the capital raising whether the raising is proposed to be made to raise urgently needed capital to address COVID-19 related issues and/or its economic impact or for some other purpose; (ii) announce to the market the results of the placement and reasonable details of the approach taken in identifying investors to participate in the placement and how it determined their respective allocations; (iii) supply to ASIC and ASX (on a confidential basis) a detailed allocation spreadsheet showing the full details of the persons to whom securities were allocated in the placement and the number of securities they were allocated; and (iv) if there is a limit on the amount to be raised under a follow-on SPP offer, disclose the reason for the limit and how the limit was determined in relation to the total proposed fundraising.  The update also provides guidance on requesting back-to-back trading halts and the cancellation of dividends or distributions.  You can access Compliance Update No. 04/20 here.  See G+T article “Market activity since announcement of ASX temporary relief measures and important new regulatory developments” for our analysis of how the market has responded to these measures and ASX’s changes.

ASIC welcomes enhanced capital raising disclosure requirements.  ASIC has released a statement in support of new disclosure rules rolled out by ASX forcing companies to be more transparent about stock placements and allocations in the wake of a flurry of COVID-19 capital raisings (see update above).  In recent weeks, there have been more than 20 equity raisings by S&P/ASX 300 companies — a level of activity not seen since the Global Financial Crisis in 2008.  The Australian Financial Review also reported last week that, according to data analysis by capital markets advisory firm Vesparum, for COVID-19 institutional placements, the discount median sits at 15% (up from 11% in the GFC and 8% normally).  ASIC Commissioner John Price has put issuers on notice that ASIC will be conducting specific surveillance of the allocation spreadsheets required to be provided and warned against “boilerplate” disclosures (for example, stating a placement was made “largely on a pro-rata basis to existing shareholders”  or to “80% of existing holders” without explaining why some existing investors were treated differently or the basis for the allocation).  In this respect, he directed market participants to ASIC’s 2018 report 605 on best practice for equity raising transactions.  ASIC’s statement is a timely reminder to Directors of the regulator’s focus on fairness in capital raisings, although its position has drawn both support and criticism.  Clearly, when raising capital there is a delicate balance between speed and certainty on the one hand and fairness considerations on the other, and this can be a hard balance to get right in a volatile market. 

ASIC releases report on corporate finance regulation.  ASIC’s report — directed at companies, lawyers,  corporate advisers and compliance professionals working in corporate finance — sets out its key observations on fundraising, mergers & acquisitions and corporate governance issues for the period from 1 July to 31 December 2019 as well as its areas of focus for the next six months.  Unsurprisingly, the report details the various COVID-19 related measures including financial reporting lodgement extensions, AGM guidelines and relief measures to enable both emergency and low-doc capital raisings.  More generally, for Directors involved in, or contemplating, an IPO, takeover or similar transaction, the report provides a helpful overview of the typical disclosure concerns ASIC raises and circumstances in which ASIC may intervene.  ASIC has advised that, going forward, it will provide corporate finance updates through quarterly newsletters to allow for timely guidance on regulatory issues. 

Energy market developments.  The Energy Security Board (ESB), in response to directions from the COAG Energy Council, has issued two papers — Moving to a Two-Sided Market and System Services and Ahead Markets — which set out a framework for a new energy system that accommodates and facilitates key changes in the Australian energy market.  See G+T article “Flicking the switch: one step closer to a two-sided energy market” for observations on the new business models and types of market players we see emerging.

THE WEEK AHEAD

ASX defers Listing Rule compliance course.  ASX Listing Rule 1.1, condition 13 and Listing Rule 12.6 require persons responsible for communicating with ASX in relation to listing rule matters appointed to that role on or after 1 July 2020 to complete an approved listing rule compliance course and attain a satisfactory pass mark in the examination for that course.  The requirements will now not come into effect until 1 July 2021 (ie, a one year deferral) to allow more time for ASX to finalise its online education course and examination, which, when ready, will be available on the ASX website free of charge. 

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