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ASIC and ASX have both announced temporary changes to their respective regulatory regimes to facilitate capital raisings for listed entities in response to the economic impact of COVID-19. As more entities seek the relief available under these changes, the effects, benefits and limitations of these measures are becoming clearer.
While ASX has indicated that relief applications need not be solely or predominantly for the purposes of raising capital to address the impact of COVID-19 on a company’s business, our experience is that both ASIC and ASX are heavily scrutinising all applications and querying the appropriateness of an entity being granted the benefit of the relief.
As time goes on, we anticipate that more entities will be able to take advantage of the relief, as the direct impact of COVID-19 on individual businesses becomes more pronounced and companies are better placed to update financial forecasts and assess their capital raising requirements with greater certainty.
On 31 March 2020, ASIC announced that it is granting companies additional time to assess their capital needs as a result of COVID-19 by extending the maximum period of suspension allowed for a company to conduct a ‘low doc’ offer. Such offers include rights offers, placements and share purchase plans (SPP).
A company that had been suspended from ASX for more than five days in the 12 months prior to undertaking a capital raising would usually need to prepare a prospectus or apply to ASIC for individual relief. ASIC is now allowing companies to make ‘low doc’ offers where the company has been suspended for up to 10 days in the 12 month period prior to making the offer (provided they were not suspended for more than 5 days in the period commencing 12 months before the offer and ending 19 March 2020).
This temporary measure provides companies with more fundraising flexibility as companies will be able to enter into a trading suspension in order to consider and analyse the impact of COVID-19 on its operations, without restricting the ability to rely on the low doc offer exception, which is a cheaper and more efficient capital raising option.
On 31 March 2020, ASX issued two class waivers granting relief in the following areas:
The latest versions of the class waivers can be found here.
Market response to temporary measures
While these changes should provide welcome relief to some companies and enable capital to be more readily obtained, the hard line approach being taken by ASIC and ASX when considering applications means some companies will be unable to take advantage of the modified regime. For example, we are aware that some issuers have decided to limit placements to 15% rather than seek to persuade ASX that they should have access to the relief.
While ASX has stated that an application to rely on the available relief need not be solely or predominantly for the purposes of raising capital to address the impact of COVID-19, if it considers the need to raise capital is not COVID-19 related or is not urgently needed, ASX will query the appropriateness of the entity benefiting from the class waivers. It should also be noted that ASX has the power to withdraw the benefit of relief from an entity at any time and for any reason.
Our experience with both ASX and ASIC is that companies must be able to clearly demonstrate that their need for capital, or their strategy for raising capital, has dramatically changed due to COVID-19. Until now, this has been difficult to substantiate in many instances given the unprecedented nature of COVID-19 and the difficulty in quantifying its impact. However, as time goes on, companies are likely to be able to assess the impact of COVID-19 on their business operations with more certainty, and therefore articulate stronger arguments to the regulators when seeking relief.
We recommend caution should be exercised when seeking ASIC and / or ASX relief. While relief is not expressed to be limited to COVID-19 raisings or emergency raisings, both regulators are exercising close supervision and scrutiny and therefore early consultation is advisable.
 The class waivers were amended and reissued on 22 April and 23 April 2020.
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