ASX insights: navigating the evolving IPO landscape in 2024

The ASX is likely to introduce a series of new measures in 2024 aimed at streamlining aspects of the IPO listing process, as outlined in a recent adviser briefing. This article outlines a few of the measures the ASX has proposed in response to feedback from issuers and their advisers, particularly those in the early-stage technology, biotechnology and renewable energy sectors.

JWS welcomes the initiative taken by the ASX in seeking to further improve its processes. In our view, the proposed changes have the potential to reduce the cost and time taken to list on ASX.

2023 IPO market and ASX’s response

Consistent with global trends, 2023 saw a marked decline in the number of initial public offerings (IPOs) on the ASX. Global economic instability combined with some disappointing debuts on the ASX has caused some prospective IPO candidates to delay or withdraw their proposed IPOs. As a result, there have only been 38 listings on the ASX to date, compared with a mammoth 241 listings in 2021.

Despite the decrease in IPO volumes, the ASX has not been idle. Rather, a recent briefing by members of the ASX’s Listing Compliance team indicates that the ASX has spent 2023 focusing on continuous improvement, including a suite of proposed measures aimed at streamlining and simplifying aspects of the IPO listing process.

Suitability to list

Early-stage technology and biotechnology sectors

JWS regularly acts for issuers in the technology and biotechnology sectors.^[1] One of the first issues faced by prospective applicants in these sectors is whether the ASX will deem them suitable to warrant a listing. In response to concerns of uncertainty, the ASX is proposing to give additional clarity on the various factors the ASX’s Listings Review Panel will consider when assessing the suitability of such issuers for an ASX listing. While the ASX emphasised that no single factor is determinative, it was noted that the following factors will be taken into account:

• promoter involvement: was the business developed and grown organically, or was it recently acquired by promoters?
• funding: were material funds raised over several years, or has funding been “in-kind” over a shorter period?
• development stage (for biotech entities only): have clinical trials been completed, commenced, or are trials ready to commence?
• revenue and commercialisation: does the business have revenue or binding agreements for sales greater than A$1 million?
• IP/asset ownership: are IP rights granted in all jurisdictions where the entity operates? Does the issuer hold 100% ownership of all business assets and entities in the corporate structure?
• investment history: has the entity undertaken more than two material rounds of seed raising and have funds raised directly contributed to technology and business advancement?

Early-stage renewable energy sector

For prospective applicants in this sector,^[2] the Listings Review Panel will likely focus on the following criteria when determining an entity’s suitability to list:

• no back-door listings: prospective issuers must apply for a new listing. A back-door listing via a merger with an existing ASX-listed entity will not be acceptable.
• established tech: the tech used in the business should be established to generate/distribute energy (including the use of renewables for hydrogen capture).
• pre-feasibility study: the business should have completed a pre-feasibility study demonstrating an economic pathway to development.
• access rights: access rights for land should be in place.
• regulatory approvals: the business should have sought and obtained relevant regulatory approvals.
• demand for offtake arrangements: entities should have demonstrable demand for their offering through offtake arrangements.

Spread Test

ASX Listing Rule 1.1 Condition 8 requires an issuer to have a minimum of 300 non-affiliated shareholders, each holding a parcel of securities with a value of at least A$2,000 (Spread Test). The ASX has developed a standardised spreadsheet that it will require issuers to complete to demonstrate compliance with the Spread Test.

In addition, for those issuers whose registers will easily satisfy the Spread Test, the ASX is proposing to give them the option of submitting a signed attestation from their solicitor confirming compliance, rather than requiring a completed spreadsheet. ASX expects to release further guidance on this in 2024 (including what threshold of non-affiliated shareholders is required to make use of the attestation option).

Escrow

Issuers seeking to list under the assets test are typically subject to ASX escrow, which prohibits certain parties, including related parties and promoters, from disposing of their securities during the relevant escrow period. Preparing escrow submissions and restricted securities tables to accompany a listing application can be a difficult and lengthy process for both issuers and their advisers, particularly for those issuers with a complicated capitalisation history.

In response to these concerns, the ASX has developed a standardised template to accompany an issuer’s escrow submissions. We expect this will significantly simplify the process for issuers and likely reduce the time it takes for the ASX to review submissions on escrow.

Fast-track applications

The ASX is proposing to formalise its eligibility requirements to fast-track listing applications by lodging a draft or pathfinder prospectus and draft listing application. These requirements will likely include that the issuer has no escrowed securities, an IPO raise of at least A$100 million and there being a genuine reason for the application to be fast tracked. Formalising these requirements will give issuers more certainty as to their IPO timetables.

Adviser fees

ASX flagged that listing applications that disclosed adviser fees in excess of 15% of the aggregate raise amount would likely attract additional scrutiny from ASX.  

Looking ahead

JWS welcomes the proposals flagged by ASX as they will likely simplify the listing process, potentially making it more efficient and cost-effective for prospective issuers. These changes, together with the cautious optimism expressed by the ASX in relation to the 2024 listings pipeline, gives us some hope that 2024 may see the long awaited return of increased IPO activity on the ASX.

This article was written with the assistance of Armen Shiraz-Dilanchian (Seasonal Clerk). 

^[1] JWS has recently advised on ASX IPOs for diagnostic CT imaging company, CurveBeam AI Limited (ASX: CVB) (2023), cardiac device company, EBR Systems, Inc (ASX:EBR) (2021) and BNPL services provider, Laybuy Group Holdings Limited (2020).

^[2] The ASX does not consider this sector to include well-established renewable energy businesses like wind or solar, but rather “green” metals (such as lithium) and clean-energy projects.