By Iain Laughland, Partner, Corporate Advisory
In these unprecedented times, the co-operation and understanding of regulators is paramount to allowing businesses to survive and to outlast the challenges of the impact of COVID-19.
That is why it is pleasing to see both ASIC and ASX release updates in the last few days providing temporary relief from certain existing listed entity capital raising requirements while the impact of COVID-19 continues.
ASIC relief with respect to the requirements for a ‘low doc’ offer
ASIC has announced that it will extend the period during which a listed entity may be suspended from quotation and still be capable of satisfying the conditions to issue a cleansing statement and to rely on the ‘low doc’ capital raising regime.
‘Low doc’ regime
The ‘low doc’ capital raising regime has been a linchpin of the Australian equity capital markets for a number of years, and was able to be utilised by listed entities to great effect in allowing them to raise emergency capital quickly during the GFC. The ‘low doc’ regime allows listed entities to raise capital without the need to issue a formal disclosure document (eg a prospectus) under the Corporations Act, instead relying on a form of offer document supported by a cleansing statement issued to the market at the time of the raising that confirms that all material information relating to the entity is already in the market.
However, a condition to being able to issue a cleansing statement is that the listed entity’s shares cannot have been suspended on ASX for a period of more than 5 days in the last 12 month period.
COVID-19 issues that have arisen
This has proved challenging for some listed entities during this COVID-19 period, particularly where some entities sought an immediate trading halt on their securities upon the Federal Government’s announcement of travel bans or border lockdowns, while the impact of those announcements on the business were digested. Due to the complex circumstances and unpredictability of the situation, upon the expiry of the trading halt period a number of entities have had to seek a voluntary suspension of the entity’s securities, while the entity sought to raise capital before lifting the suspension. Raising capital in these times has not been easy for certain entities and so, in some cases, the suspension has extended beyond the 5 day period permitted to allow a ‘low doc’ offer to proceed meaning that, absent ASIC case by case relief, the entity may be required to issue a prospectus with respect to the capital raising.
ASIC response to COVID-19 issues
ASIC is alert to this issue and by virtue of its announcement on 31 March 2020, it has advised that it will help listed entities to continue to raise capital quickly by providing temporary relief to enable certain ‘low doc’ offers (rights issues, placements, share purchase plans) to be made to investors even if they do not meet all the normal requirements.
ASIC has provided temporary relief to allow ‘low doc’ placements, rights issues and share purchase plans (SPP) where a listed entity has been suspended for a total of up to 10 days in the previous 12 month period. Companies can rely on ASIC Corporations (Trading Suspension Relief) Instrument 2020/289 and ASIC Corporations (Amendment) Instrument 2020/290 without making an individual application to ASIC for relief.
Listed entities will be able to rely on ASIC’s regulatory relief if:
- they have been suspended for up to 10 days in the 12 months before the offer, and
- they were not suspended for more than five days in the period commencing 12 months before the offer and ending on 19 March 2020.
If, for example, an entity has been suspended for 3 days before 19 March 2020, then provided it is not suspended for more than 7 days after 19 March 2020, it will still be able to take advantage of the ‘low doc’ capital raising regime. Even if the entity does not satisfy the 10 day criteria, it may still rely on the ‘low doc’ regime, but it will need to seek case by case relief from ASIC in accordance with the normal guidelines for this relief (see, for example, RG173, RG189 and RG125).
ASX temporary emergency capital raising relief
ASX has also agreed to grant a class order waiver under Listing Rule 18.1 to facilitate urgent capital raisings by listed entities in the short term.
ASX has implemented a number of waivers of the Listing Rules to assist listed entities:
- back-to-back trading halts – ASX will permit an entity to apply for two consecutive trading halts, allowing the entity a total of up to 4 trading days in halt to consider, plan for and execute a capital raising.
- temporary uplift in the 15% placement capacity to 25%, provided there is a follow-on accelerated pro rata entitlement offer or SPP – all entities can take advantage of the increased 25% placement capacity provided there is a follow on offer under an accelerated pro rata entitlement offer or SPP at the same or a lower price than the placement. The placement must be of fully paid ordinary securities and ASX makes it clear that this is a one off temporary relief measure and it cannot subsequently be ratified by shareholders to be used again during the temporary relief period. Entities that already have shareholder approval for the additional 10% placement capacity under Listing Rule 7.1A can elect whether to use their existing 7.1A capacity or the temporary increase in capacity provided by ASX’s relief, but not both. Any use by an entity of its 15% placement capacity or additional 10% placement capacity prior to 1 April 2020 will need to be deducted before relying on ASX’s temporary relief.
- ‘super-size’ waivers to apply automatically – the normal ‘super-size’ waiver that ASX grants where a company is undertaking a placement followed by an accelerated pro rata entitlement offer (being a waiver that allows the entity to calculate its 15% placement capacity based on its issued capital following the entitlement offer, rather than before) will be automatically included in the class waiver and does not need to be applied for separately to ASX.
- share purchase plans (SPP) – if an entity plans to undertake a follow-on SPP, ASX will waive the requirements in the Listing Rules that the issue be not more than 30% of the entity’s issued capital and that the price is not less than 80% of the entity’s 5-day VWAP before the raising. However, the SPP must be made at a price that is the same as or lower than the placement price. Any scale back under the SPP must be pro rata to all participants. If the SPP is an entity’s only means of capital raising (ie there is no separate placement or entitlement offer) then ASX will waive the size and price requirements and allow the SPP to be undertaken at any price determined by the board provided any scale back is pro rata to all participants.
- 1 for 1 cap on non-renounceable entitlement offers – ASX has agreed to a temporary relaxation of the 1 for 1 cap on non-renounceable entitlement offers that is a requirement in the Listing Rules. This applies to both accelerated and traditional forms of non-renounceable offers. Currently ASX is not imposing any cap limits but it expects that the ratio chosen by the entity meets the entity’s capital raising requirements and is fair and reasonable in the circumstances. To this end, ASX specifically draws entities’ attention to ASIC’s guidance in its Market Integrity Update – COVID-19 Special Issue (released on 31 March 2020) and advises that its class waiver may be withdrawn from certain entities if it considers that it is being abused by a listed entity or that the listed entity is acting unfairly on unreasonably in the circumstances.
The above measures by ASIC and ASX are to be welcomed and are evidence of the regulators’ willingness to support listed entities through these challenging times. They will hopefully help to alleviate some of the initial issues that are arising as entities work through the full impact of the COVID-19 crisis.
If you require any assistance with capital raising initiatives, please contact your principal Mills Oakley contact for further specific advice.
 19 March was when the Federal Government changed its travel advice to the most severe Level 4 warning: ‘do not travel’ overseas.
 Entities should note that this variation, coupled with ASIC’s 10 day relief, effectively allows an entity up to 14 trading days in which to implement its capital raising and still be able to rely on the ‘low doc’ regime. A trading halt does not constitute a suspension of a listed entity’s securities.