Proposed ASX Listing Rule amendments facilitating accelerated rights issues

In January 2011, ASX issued a consultation paper and exposure draft containing proposed listing rule amendments to facilitate commonly used forms of rights issues known as 'accelerated offers'. Listed entities undertaking accelerated offers frequently request certain Listing Rule waivers (which are routinely granted by ASX) to facilitate the offer without shareholder approval and, as part of the waiver process, agree with ASX a timetable for the offer.

To the extent that an accelerated offer is eligible for ASIC relief from prospectus disclosure (pursuant to ASIC Class Order 08/35 - Disclosure relief for rights issues), the proposed Listing Rule amendments will remove the need to seek certain ASX waivers, and provide standard (but flexible) ASX timetables, with respect to such an offer.

The proposed amendments also introduce a notification requirement (and associated fee) as a mechanism to assist ASX to manage where an expiry of Exchange Traded Options (ETOs) occurs during a trading halt called in relation to an offer of the securities underlying the ETOs (ordinarily ASX manages this situation, if applicable, as part of the waiver application process).

Accelerated offers

Accelerated offers are commonly known as:

• Jumbo offer - a non-renounceable offer made first to institutional investors (over a short, say 2 day, period), and second to retail investors, on the same terms as the institutional offer.
• RAPIDS (renounceable accelerated pro-rata issue with dual book-build structure) or AREO (accelerated renounceable equity offer) - a renounceable offer made first to institutional, and second to retail, investors with two subsequent (separate) book-builds first of institutional, second of retail, rights not taken up (with any premium above the offer price paid to the investors that did not take up the rights).
• SAREO (simultaneous accelerated renounceable equity offer) - a variation of the AREO structure, where rights not taken up are sold through a single institutional only book–build after the institutional and retail offers have been completed.

These types of offers, initially novel and non-traditional, are now considered by ASX to be commonplace.¹ As such, ASX proposes that the Listing Rules be amended to accommodate such offers.

Proposed ASX Listing Rule amendments

The proposed amendments are to:

• Listing Rule 7.1 - this rule requires that a company not issue (or agree to issue) securities amounting to 15% or more of its issued capital in any 12 month period without shareholder approval, subject to certain exceptions. An issue of securities on a pro-rata basis is an exception. However, accelerated offers do not fall within the exception, which requires that an issue (to be prorata) be "an issue which has been offered to all holders of securities in a class on a pro rata basis". Accelerated offers distinguish between retail and institutional investors with respect to the timing of the offer, length of the offer period and the book-build.
  ASX recognises that accelerated offers are functionally equivalent to pro-rata offers and therefore proposes to introduce a new exception to Listing Rule 7.1 for issues that qualify for the relief provided under ASIC Class Order 08/35.
  ASIC Class Order 08/35 permits accelerated and associated book-build offers (which do not otherwise fall within an existing prospectus exception) to be undertaken without a prospectus. The Listing Rule exemption will apply whether or not an entity actually chooses to rely on the Class Order relief (or instead issues a prospectus).
• Listing Rule 10.11 - this rule requires that an entity not issue (or agree to issue) securities to a related party without shareholder approval, subject to certain exceptions. An issue to a related party under a pro rata issue is an exception, but (as with Listing Rule 7.1) an accelerated offer does not qualify as a pro rata issue.
  ASX proposes to introduce the same exception to Listing Rule 10.11 as applies to Listing Rule 7.1, that is, to exempt accelerated offers to the extent they qualify for ASIC Class Order 08/35 relief (whether or not an entity actually relies on that relief).
• Timetables - there are currently no standard ASX approved timetables for accelerated offers. ASX approves timetables for these offers on a case by case basis as part of the waiver process. ASX intends for the proposed timetables (one for Jumbo offers, one for RAPIDS/AREOs and one for SAREOs) to contain flexibility to allow entities to tailor the offer timing to their needs.

Listed entities will, regardless of the Listing Rule changes, be entitled to seek ASX waivers where for example, the entity is not eligible for ASIC Class Order relief, proposes to use a timetable that does not accord with the applicable ASX standard timetable or forms the view that its offer structure contains features which cannot be implemented without Listing Rule waiver(s).

Proposed amendments impacting on ETOs

ASX considers that where a trading halt exists over an ETO expiry date for ETOs over an entity's securities, this poses an increased risk for options holders and writers because the ETO positions cannot be rolled over or closed out during a trading halt (the ASX Market Rules prohibit the ETO market from being open while an entity is in trading halt).

The proposed amendments will require an entity to give 2 business days prior notice to ASX if the entity intends to enter into a trading halt which will coincide with expiry of ETOs over its securities. The intention is to give ASX time to liaise with ETO holders regarding expiry arrangements to be put in place. A fee will also be imposed on the entity unless the trading halt is outside the control of the entity (for example, where a trading halt is used to manage a disclosure issue).

Impact of amendments

If implemented, the amendments are intended to have the following positive implications:

• for listed entities undertaking accelerated offers - time and cost savings by removing the requirement to obtain ASX waivers and agree a specific timetable with ASX;
• for ASX - time and cost savings as ASX will not need to consider the commonly sought waivers (or case by case timetable approvals) in relation to such offers; and
• for all stakeholders - increased transparency and regulatory certainty regarding the types of offers permitted under the Listing Rules.

Timing

Comments on the proposed amendments are due by 25 February 2011. Johnson Winter & Slattery will make a submission to ASX with respect to certain technical aspects of the proposed amendments. Please contact us if you have any comments that you would like included in our submission.

ASX hopes to introduce the changes by the second quarter of 2011.

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¹ According to ASX, in 2008 there were 22 accelerated offers, in 2009 there were 61 and at the end of October 2010, 20 such offers had been completed.