ASX strikes a balance for earlier stage IPOs

Following a lengthy consultation process, ASX yesterday released its Response to Consultation on updating its admission requirements and associated Guidance Notes for listing on the exchange.

The proposed changes (which were originally published on 12 May 2016), received a strong level of interest from a range of stakeholders including investors, listed companies, brokers and corporate advisory groups, with over 56 written submissions being provided to ASX.  This feedback, together with the feedback provided in a number of consultation meetings held by ASX, has shaped the final package of amendments.  The final position appears to have struck a balance which may assist early stage technology and innovation entities looking to list on the exchange.

In our earlier posts ASX to take a harder line on early stage IPOs and ASX continues to refine proposed changes to admission requirements, we highlighted some of the key changes proposed by ASX.

ASX has revised its initial position in respect of the following amendments:

• increasing the net tangible assets threshold to at least $4 million (rather than $5 million as previously proposed) or market capitalisation of at least $15 million (rather than $20 million as previously proposed)
• introducing a single tier spread test requiring at least 300 security holders, each holding at least $2,000 of securities.  This represents a change from ASX’s two tiered proposal to require either 200 security holders if the entity has a free float of less than $50 million, or 100 security holders if the entity has a free float of $50 million of more, with each of these security holders holding a parcel of securities with a value of at least $5,000.  The final position is simple to administer (and represents a reduction from current thresholds), and
• introducing new audited account requirements for entities listing under the assets test, requiring the disclosure to the market of two (rather than three) full financial years of audited accounts for the entity seeking admission and any significant entity or business that it has acquired in the 12 months prior to applying for admission or that it proposed to acquire in connection with the listing.  While still an additional hurdle, this should be more manageable, even for earlier stage companies.

As a reminder, other amendments to the rules (consistent with the initial proposals) are also being implemented.  These include:

• increasing the consolidated profit requirement under the profits test for the 12 months prior to listing from $400,000 to $500,000
• introducing a 20% minimum free float requirement (i.e. at least 20% of an entity’s securities must not be restricted securities, securities that are subject to voluntary escrow, or securities that are held by a related party), and
• introducing the minimum working capital requirement of $1.5 million across all entities listing under the assets test (after allowing for the first full financial year’s budgeted administration costs, and the costs of acquiring any assets referred to in the entities’ disclosure document, to the extent that those costs will be met out of working capital).

ASX is already applying the 20% free float requirement.  It has also advised that the policy changes set out in Guidance Note 12 in respect of backdoor listing transactions came into effect immediately following yesterday’s publication.

The remainder of the Listing Rule and Guidance Note changes are due to come into effect on 19 December 2016.  Applications for listing received prior to 19 December will be assessed against the current admission requirements.

Further details on the Listing Rule and associated Guidance Note changes are available here and relevant members of the McCullough Robertson team welcome any queries from readers considering the changes.

Reece Walker, Ben Wood and Naomi Benton