ListCo will typically have comparatively small scale operations compared to AssetCo. In many instances, ListCo is a moribund entity without substantive business activities (eg a mining exploration company with a project that has been mothballed) and whose securities are suspended from trading, that is looking for an injection of a new business or assets. A backdoor listing is to be distinguished from a reverse takeover by a smaller listed company of a larger listed company by way of takeover bid or scheme of arrangement regulated by the Corporations Act 2001 (Cth).
A backdoor listing in Australia is a way for a private business or company (AssetCo) to obtain a listing on the Australian Stock Exchange (ASX) via a disposal of the business or shares in the company to a pre-existing ASX-listed entity (ListCo), as an alternative to undertaking a conventional initial public offering (IPO).
ASX will require a ListCo that is proposing to complete a backdoor listing transaction to seek shareholder approval of the transaction under ASX Listing Rule 11.1.2 and to re-comply with ASX’s IPO admission requirements in Chapters 1 and 2 of the ASX Listing Rules.
An ASX backdoor listing involves a significant change in the nature and/or scale of the activities of ListCo and typically involves:
- ListCo issuing securities to AssetCo or its shareholders as consideration for the acquisition of the assets or shares of AssetCo, resulting in a substantial dilution of ListCo’s existing shareholders and AssetCo or its shareholders acquiring control of ListCo; and
- a significant change to the composition of ListCo’s management and board of directors, with representatives of AssetCo being appointed to those positions.
A significant change to the nature of ListCo’s activities involves a major change in the character of ListCo’s business activities, whether as a result of one or a series of transactions. For example, an entity whose main business activity is mining exploration deciding to switch its main business activity to manufacturing consumer goods.
A significant change to the scale of ListCo’s activities involves a substantial or sizeable change to the size of ListCo’s business operations.
ASX has adopted 25% as the benchmark for determining whether or not a business/asset acquisition or disposal transaction involves a significant change to the scale of an entity’s activities that requires notification under ASX Listing Rule 11.1, having regard to the impact of the transaction on ListCo’s consolidated total assets, total securities on issue (on a fully diluted basis, including vendor consideration, deferred consideration, capital raisings, performance shares and options), consolidated total equity interests, consolidated annual revenue (or in the case of a mining or oil and gas exploration entity which is not earning material revenue from operations, consolidated annual expenditure) and consolidated annual profit before tax and extraordinary items.
Typically, a transaction that does not involve a doubling of one or more of any of these measures will not be regarded as a backdoor listing.
If ListCo proposes to make a significant change, either directly or indirectly, to the nature and/or scale of its activities, it must provide full details to ASX as soon as practicable. ASX recommends early consultation with ASX and that ListCo obtain in-principle advice on the application of Chapter 11 to the proposed transaction before an agreement is entered into and the transaction is announced.
The key advantages of an ASX backdoor listing in Australia over a conventional IPO include that:
- AssetCo is usually able to utilise a significant portion of ListCo’s share register for the purpose of satisfying the minimum spread requirement imposed by ASX;
- AssetCo may gain access to any cash sitting on the balance sheet of ListCo for its business;
- if ListCo is a moribund entity, a backdoor listing transaction will potentially enable shareholders of ListCo to preserve some of the value and the liquidity of their shares, which would otherwise be lost if ListCo were to de-list or be liquidated; and
- the capital raising undertaken in relation to a backdoor listing may, subject to shareholder approval and an ASX waiver being granted, be undertaken at an issue price of at least $0.02 rather than the usual $0.20 minimum, if ListCo’s securities have been trading at less than $0.20 in the lead up to the transaction . This enables ListCo to avoid the dilutionary consequences to existing shareholders of a capital consolidation to bring the price up to $0.20.
The key requirements for an ASX backdoor listing in Australia are as follows:
The timeframe for completing an ASX backdoor listing in Australia will vary depending on factors such as the nature of the business of AssetCo that is to be acquired by ListCo and whether the financial information of ListCo and AssetCo is audited and in order. Set out below is a highly simplified indicative timetable.
Preparatory work including:
Commence due diligence process, including:
11 - 13
Announce transaction and execution of Acquisition Agreement
14 - 16
Prospectus to be lodged with ASIC
17 - 19
Hold general meeting to obtain shareholder approval
20 - 22
Completion acquisition of AssetCo