• Amendments to listing rules facilitate capital raising

Amendments to listing rules facilitate capital raising An easy and common way for entities listed on the ASX to raise money is by issuing up to 15% of their issued capital under Listing Rule [LR] 7.1.

An easy and common way for entities listed on the ASX to raise money is by issuing up to 15% of their issued capital under Listing Rule [LR] 7.1. In 2012, ASX amended its Listing Rules to facilitate capital raising by small and mid-cap listed entities and strengthen ASX’s position as a leading global exchange for emerging companies. The framework allows small and mid-cap listed entities to issue a further 10% of their issued capital each year under LR 7.1A. This is useful for organisations looking to expand their operations that do not have access to the necessary cash or debt facilities.

We have noticed that more small, listed entities are taking advantage of this opportunity to help complete transactions and raise working capital. What we have also seen with this increased activity is the ASX enforcing its requirements and audits related to LR 7.1A.

What do I need to do?
If your organisation is considering the issue of securities under listing rule 7.1A as a way to acquire assets in the next 12 months, you need to include the appropriate notice in your upcoming Annual General Meeting (AGM) to obtain shareholder approval for such an issue. The issue of securities under LR 7.1A can only be proposed as a special resolution and, it can only be in an existing quoted share class. There is also a 25% limit on the discount to the volume weighted average price [VWAP] at the time of issue.

More importantly, you will also have to release a valuation of the non-cash consideration to the market. Under LR 7.1A.3, where the equity securities are issued for non-cash consideration i.e. to acquire an asset, the eligible entity must release to the market a valuation of the non-cash consideration. This valuation must demonstrate the issue price of the securities is not less than 75% of the VWAP of the securities over the 15 trading days on which trades were recorded immediately before:

  • The date on which the price at which the securities are to be issued is agreed; or
  • If the securities are not issued within 5 trading days of the above, the date on which the securities are issued.

This means your organisation must determine the value of the asset being acquired by the issue of securities. It must also demonstrate that the deemed issue price of any securities issued in consideration of that asset (the value of the non-cash consideration divided by the number of securities issued) is no lower than 75% of the VWAP calculated over the 15 trading days on which securities are recorded immediately before the securities are issued.

The valuation can come from an independent expert or from the directors of the listed entity so long as they have appropriate expertise to carry out the valuation, and their report contains a similar level of analysis to that of an independent expert’s report [IER].

The listed entity must release to the market the valuation of the non-cash consideration before the issue of the securities.

Time is money
Raising additional capital is a time critical function. This means small and mid-cap firms must plan ahead and seek shareholder approval in advance and appoint an Independent Expert prior to issuing shares under this provision. To fast track the process, we are able to prepare Independent Expert Reports which comply with both ASX and Corporation Act requirements.