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In this edition, we consider the key messages from ASIC’s corporate finance liaison meeting and the Takeovers Panel’s decision to decline to conduct proceedings in respect of the affairs of both Virtus Health Limited and Bullseye Mining Limited.
In Over the Horizon, we consider the impacts of the RBA’s decision to increase the cash rate and potential implications of rising rates for crypto assets.
GOVERNANCE & REGULATION
ASIC corporate finance liaison meeting identifies key issues. Approximately every quarter ASIC conducts a corporate finance liaison meeting with key industry stakeholders and advisers. At the May meeting, ASIC provided an overview of recent trends in fundraising and M&A, noting that capital raising activity seems to be easing after one of the strongest periods in recent history in the last quarter of 2021. With pandemic-related volatility also easing, ASIC is likely to tighten its approach to forecast financial information in fundraising documents, preferring “point-estimate” rather than earnings range forecasts. With respect to M&A, ASIC warned Directors about obligations under Chapter 6 when considering not to proceed with a bid or withdrawing a bid; a warning provided in the context of ASIC’s observation of a developing trend of acquirers employing concurrent transaction structures. ASIC also flagged the implementation of employee incentive scheme reforms that comes into effect on 1 October 2022 which will replace the existing class orders on which both listed and unlisted entities tend to rely - with the key change being that equity issued for no consideration (such as most performance-based securities) will not be counted towards the issuance caps imposed by the class orders. Finally, ASIC noted that it remains concerned by “greenwashing” and is conducting a review to establish whether the practice and promotion of managed investments and superannuation funds are aligned with climate related disclosures.
The affairs of Virtus Health Limited remain under the Takeovers Panel’s scrutiny. The Panel has declined to conduct proceedings in relation to the affairs of Virtus Health Limited (Virtus) which is the subject of competing control proposals by CapVest Partners LLP (CapVest) and BGH Capital Pty Ltd (BGH). In a previous edition of Boardroom Brief, we considered CapVest’s application to the Panel seeking a review of the initial Panel decision. That decision was to not declare unacceptable circumstances relating to BGH acquiring shares on-market above the bid price via its broker given the Panel had received an undertaking from BGH which alleviated its concerns. The review Panel agreed with the conclusions of the initial Panel that BGH’s proposal did not undermine the existence of an efficient, competitive and informed market given BGH’s undertaking and the reasons for its decision. The interim orders made by the review Panel while it considered this review application therefore cease to have effect, but BGH’s undertaking to immediately announce any acquisition of Virtus shares remains in place. Bidders considering similar proposals in future should make a similar announcement as required by the Panel in BGH’s undertaking to avoid any suggestion of unacceptable circumstances. See the Panel’s media release.
Takeovers Panel declines to conduct proceedings in relation to the affairs of Bullseye. In a previous edition of Boardroom Brief, we considered Au Xingao Investment Pty Ltd’s (Xingao) application in relation to the affairs of Bullseye Mining Limited (Bullseye), which is currently the subject of takeover bids by Emerald Resources NL (Emerald) and Xingao. To recap, Xingao submitted to the Panel that Bullseye had, among other things, failed to register share transfers, disclose information related to a joint venture agreement and an ongoing dispute and make supplementary disclosure about an executive of the company. The Panel considered that the matter of the unregistered share transfers would be more appropriately dealt with by the Court and was not satisfied on the information provided that the disclosure issues were material or had a frustrating or impeding effect or were matters for the Panel. The Panel concluded there was no reasonable prospect that it would make a declaration of unacceptable circumstances and therefore declined to conduct proceedings. The Panel will publish its reasons for the decision in due course. See the Takeovers Panel’s media release.
OVER THE HORIZON
Cash rate rises for first time in 11 years. On Tuesday, the RBA increased the cash rate to 0.35% in response to rising in inflation. Concerns about rising costs of living are increasing due to world events causing major disruptions to supply chains, increased costs of inputs and petrol, and unprecedented low unemployment rates meaning the economy is reaching its production limits while demand remains strong. The RBA has defended its position (and timing) as both necessary and vital in policy attempts to normalise the Australian economy. In an uncertain and volatile economy, the RBA gave us something we can be certain about in its Statement on Monetary Policy – that a further lift in interest rates will be announced in the near term. Economists predict that the cash rate will increase to around 2.5% within the next year. In a similar stance to the RBA, the Federal Reserve and Bank of England are among numerous others to have raised interest rates from 0.5% - 1% (US) and 0.75% - 1% (UK) as inflation rates peak to a 40-year and 30-year high respectively, demonstrating that peaking inflation rates are a truly global issue. The initial impacts of the global pressure on interest rates have already been seen in equity markets over the past week, with Friday’s S&P/ASX 200 Index experiencing its largest drop since the early signs of Russia / Ukraine conflict earlier in the year.
Rates a test for crypto? A test of the “alternative” status for crypto-assets looms with rising rates appearing to take the shine off Bitcoin and with it the valuations of businesses exposed to the burgeoning trade in crypto-assets. The chart below demonstrates a strengthening inverse correlation between US Treasury yields and Bitcoin developing in recent weeks, suggesting the bellwether cryptocurrency could be in for hard times ahead if rates continue to rise.