ASX – an effective prelude to Nasdaq?

NEED TO KNOW

• Several US medical device companies have successfully raised funds in the Australian public markets through an initial public offering on ASX.
• ASX has implemented measures to encourage smaller US companies to list on ASX, including obtaining a no-action letter from the US Securities and Exchange Commission for initial public offerings on ASX, and permitting waivers from certain ASX listing rule requirements.
• ASX can be an effective prelude to a future listing in the US.

Australia’s appetite for early-stage capital

Over the last 15 years, ASX has become an attractive alternative market for US lifescience companies, and more specifically, medical device companies, with the opportunity to raise early-stage capital in the public markets. Raising comparable public funds in the much larger and competitive US market has tended to be challenging for companies still at the development stage or even in the early commercialisation stage, whereas investors on ASX have shown to be more receptive to providing early-stage capital. This risk appetite is a function of our market’s experience with speculative resources stocks, and also the lack of a deep venture capital financing market in Australia.

No-action letter from SEC

ASX has implemented a number of measures to make ASX a more accessible market for US companies. These measures started back in 2000 when ASX sought, and was granted, a no-action letter from the US Securities and Exchange Commission (SEC) for initial public offerings of non-reporting US companies on ASX that are made in reliance on the safe harbour provisions of Regulation S under the US Securities Act of 1933. The effect of this letter has facilitated so-called “Reg S offerings” in Australia by modifying some of the relevant requirements. The key conditions include excluding US persons from participating in the public offering (though US persons can still participate in the overall offering via a separate private placement), and flagging the securities as Foreign Ownership Restriction (FOR) securities for 12 months so as to inform the market on the prohibition on US persons acquiring the securities.

Common ASX waivers

ASX has also become receptive to granting waivers from certain ASX listing rules requirements which are inconsistent with US laws or practices, or create unfair burdens for US issuers. Waivers are commonly granted to US issuers to:

• Permit the operation of staggered boards, ie the classification of directors into defined classes to allow a class of directors to be elected each year. Staggered boards are customary for US public companies and also operate as a potential takeover defence. ASX will ordinarily grant a waiver from listing rule 14.4 to allow a director of a US company appointed by a board to hold office for the term of his or her class, rather than the next annual meeting after the director’s appointment.
• Allow the provision of termination benefits to key senior executives in the event of a change in control of the issuer. Such benefits are customary inclusions in executive contracts for US companies, however would ordinarily breach listing rule 10.18. ASX generally has a favourable approach to applications for waivers in relation to pre-existing arrangements and has also started to consider successor arrangements.
• Allow certain US issuers to provide ASX with US-compliant half-yearly and quarterly reports in place of an Appendix 4D, Appendix 4E and Appendix 4C. ASX also customarily permits US issuers to prepare its accounts under US GAAP.

Prelude to a Nasdaq listing?

If a listing on a major US market, such as the Nasdaq, is a future goal for a US issuer, an existing listing on ASX poses no hindrance to entry into the US markets. HeartWare International, Inc. successfully listed on Nasdaq in early 2009, as did Unilife Corporation (2010), and Sunshine Heart, Inc. (2013). Each of these companies started their ‘public life’ on the ASX.

Although foreign companies typically cannot trade their shares electronically on ASX, but must rather issue CHESS Depositary Interests (CDIs) representing the underlying shares – the flexibility of having CDIs trade on ASX can actually assist US issuers to meet the criteria for a listing on Nasdaq. Specifically, Nasdaq has a minimum listing bid price of US$4.00 per share, however CDIs can trade at an exchange ratio to shares of the issuer’s choosing. For example, Heartware adopted a CDI to share ratio of 35:1, Unilife adopted a 6:1 ratio (recently changed to a 60:1 ratio) and Sunshine Heart adopted a 200:1 ratio. This also means that US issuers can maintain a trading price on ASX that is customary for lifescience stocks, whilst trading its shares at a higher price on Nasdaq.

James and Clare have acted and continue to act for a number of US issuers, including HeartWare Limited (ASX: HWI), Peplin, Inc. (ASX:PLI), Sunshine Heart, Inc. (ASX:SHI), Osprey Medical, Inc. (ASX:OSP) and AirXpanders, Inc. (ASX:AXP).  JWS is currently advising other US issuers considering an Australian IPO and ASX-listing.