Summary of Changes

  • Entities will have to have net tangible assets of a minimum of at least $5 million or a market capitalisation of at least $20 million.
  • Entities to have a minimum 20% free float at the time of admission to the official list.
  • Minimum spread requirements are set to change to require that entities have 200 security holders who each hold a parcel of securities with a value of at least $5,000 where there is a free float of less than $50 million; 100 security holders who each hold a parcel of securities with a value of at least $5,000 where there is a free float of $50 million or more.
  • Entities in emerging markets will be required to have 75% of their minimum spread coming from Australian resident investors.
  • All entities admitted under the assets test, no longer just oil, mining and gas exploration entities, will be required to have $1.5 million in working capital available after allowing for the first financial year’s budgeted administration costs and the costs of acquiring plant etc.
  • Entities seeking admission under the asset test will now have to produce audited accounts for the last 3 full financial years together with the audited accounts for 3 years for any business or entity to be acquired by the entity at or ahead of listing.
  • ASX will continue to use its general discretion to refuse admission applications on grounds such as the applicant’s structure and operations, its business and where it is conducted, its reasons for seeking the listing, the credentials of its promoters and management and any issues that have been raised by a regulator or another market operator.

On 12 May 2016, the ASX released a consultation paper in respect of amendments that it proposes to make to the ASX Listing Rules. The majority of the proposed amendments relate to the admission requirements for entities.

The amendments are still in the consultation stage but if adopted, it is proposed that the amendments will come into effect on 1 September 2016. However there are a number of proposals that may be implemented transitionally under ASX’s general overarching discretion.

Increasing the financial thresholds for listing

Entities seeking admission to the ASX must satisfy one of the following financial tests:

  1. the profit test; or
  2. the asset test.

Currently, the minimum requirements for entities (other than investment entities) to meet the assets test is:

  • net tangible assets of at least $3 million (after deducting the costs of the fundraising); or
  • a market capitalisation of at least $10 million.

The ASX proposes to increase these thresholds so that entities must have net tangible assets of at least $5 million or a market capitalisation of at least $20 million.

Minimum free float requirement

Currently, the ASX generally expects that entities will have a free float of at least 10% at the time of listing. The ASX has also been prepared to admit entities with a lower free float if the entity has detailed its plans to increase its free float to at least 10% and the timeframe in which this will occur in its prospectus or disclosure document.

Currently “free float” is interpreted as the percentage of the entity’s main class of securities held by parties other than related parties and the trustee or trustees of any employee incentive scheme.

There is no existing listing rule that addresses the 10% free float requirements, it is merely a condition that ASX takes into consideration when reviewing a listing application. The ASX now proposes to introduce a new rule which requires entities to have a minimum 20% free float at the time of admission.

It is proposed that “free float” will be defined in the Listing Rules to be the percentage of the entity’s main class of securities that are:

  1. not restricted securities or subject to voluntary escrow; and
  2. that are held by non-affiliated security holders.

A “non-affiliated security holder” will be defined as a security holder who is not a related party of the entity, an associate of a related party of the entity or a person whose relationship to the entity or to a related party of the entity or their associates is such that, in the ASX’s opinion, they should be treated as affiliated with the entity.

The ASX has confirmed that it is currently implementing this new listing condition under its general discretionary powers. As such, entities will be required to have at least a 20% free float at the time of admission.

Spread requirements

Currently the ASX’s spread requirements can be satisfied by meeting any of the following conditions:

  1. 400 security holders who hold a parcel of securities with a value of at least $2,000;
  2. 350 security holders who hold a parcel of securities with a value of at least $2,000, where there is a free float of at least 25%; or
  3. 300 security holders who hold a parcel of securities with a value of at least $2,000, where there is a free float of at least 50%.

The ASX now proposes to amend the minimum spread requirements as follows:

  1. by having 200 security holders who each hold a parcel of securities with a value of at least $5,000 where there is a free float of less than $50 million; or
  2. by having 100 security holders who each hold a parcel of securities with a value of at least $5,000 where there is a free float of $50 million or more.

ASX has also indicated that where an entity has its main business operations in an emerging market, it will require the entity to ensure that at least 75% of the minimum spread will come from investors who are resident in Australia.

Working capital requirements

Currently all entities admitted under the assets test are required to have at least $1.5 million in working capital (after taking into account any budgeted revenue for the first full financial year after listing). However, for mining and oil and gas exploration entities, the $1.5 million in working capital must be available after allowing for the first financial year’s budgeted administration costs and the costs of acquiring plant, equipment and/or tenements.

The ASX now proposes to extend the additional requirements imposed on mining and oil and gas exploration entities, to all entities admitted under the test.

Audited Accounts

Currently entities admitted under the assets test can provide unaudited accounts, provide accounts that are shorter than 3 full financial years and provide a pro forma statement of financial position that has been reviewed by an auditor or independent accountant.

ASX now proposes to require entities seeking admission under the assets test to produce audited accounts for the last 3 full financial years together with the audited accounts for 3 years for any business or entity to be acquired by the entity at or ahead of listing.

The proposed rules also require that the audit reports must be “clean” (i.e. not contain a modified opinion, emphasis of matter or other matter paragraph that ASX considers unacceptable).

The ASX will have a discretion to accept less than 3 full financial years of audited accounts (for example, if the entity has been in operation for less than 3 full years) but has indicated that it will generally only do so in the same circumstances where ASIC will accept less than 3 full years of audited accounts in a disclosure document.

ASX discretion

As previously noted, the ASX currently has a general discretion to refuse an admission application. Relevant factors that may be considered by the ASX, include the entity’s structure and operations, its business and where it is conducted, its reasons for seeking the listing, the credentials of its promoters and management and any issues that have been raised by a regulator or another market operator.

The ASX has confirmed that applications from entities who have their main business operations in an emerging market will be subject to this review process. This will apply to all current applications.

The ASX proposes to include a list of examples of when it will exercise its discretion.

Transitional arrangements

While not yet fully and officially implemented, it is recommended that entities contemplating applying for listing even in the lead up to 1 September 2016 should give due consideration to properly satisfying the new requirements.

Article collaborated by Harry Pratt, Fiona Rose and Alfonso Grillo

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