Expect greater scrunity from ASX and ASIC on prospectus content and continuous disclosure

Yesterday, ASIC released its annual assessment report of the ASX Group.

Listed companies and companies intending to list on the ASX can expect:

• more scrutiny from the ASX in relation to compliance with listing rules. In particular, in relation to compliance with continuous disclosure obligations (see our article on the recent changes to the ASX Listing Rules and Guidance Note 8 on continuous disclosure); and
• more detailed guidance / procedural requirements in relation to timing and pre-vetting of prospectuses (the ASX and ASIC are likely to be more rigorous in their review of prospectuses, applying the more stringent content requirements detailed in the ASIC Regulatory Guide RG 228: see our article on this topic).

In addition, companies in suspension can also expect to be subject to more monitoring by the ASX and may be required to make more disclosures to the market while in suspension.

ASX proposal to establish an opt-in on-market book build process

The ASX has announced its intention to establish an on-market book build service for captial raisings. A key intended benefit over existing book-building by brokers and investment banks is that there will be greater transparency as to allocation of securities.

This may be attractive for companies concerned with fairness and/or the perception of fairness to retail investors. The issue here, as demonstrated by the recent QBE capital raising where the heavily discounted offer was oversubscribed is that particular investors may receive preferential treatment in a book build at the expense of other existing shareholders for whom the value of share holdings is diluted. 

However, there are concerns that the issuer company will have less control in an on-market book build including less control in obtaining quality, long-term investors  as opposed to opportunistic short-term investors. Further, the issuer may have less control over the process in general and investors may have less incentive to make applications earlier.

The proposed on-market book build service is intended to be a voluntary process and listed companies may continue to use private book builds arranged by investment banks. 

The ASX anticipates that its proposed facility will be operational by the end of the year.

Proposed Reduction in Time Required to Conduct a Rights Issue

The ASX released a consultation paper on Tuesday on “modernising the timetable for rights issues: facilitating efficient and timely rights issues“.  

 The consultation paper proposes to reduce the time for a rights issue as per the ASX Listing Rules from 26 business days to 16 business days.

 Key changes include:

•  bringing forward the earliest date on which the record date may be set by 1 business day; and
• reducing the minimum offer period by 3 business days.

Other changes to the timetable reflect what companies may have been doing previously as they relate to maximum time limits for particular events rather than minimum periods (e.g. days after the record date by which offer documents must be sent, and days after the acceptance closing date by which securities must be issued).

The shortened timeframes means shareholders have less time in which to respond (and this may be an issue for foreign shareholders in particular). However, the advantage for shareholders is that the shorter timeframe may be more attractive to companies needing to raise capital quickly and may be considered more often as an alternative to a placement. Further, the reduced timeframe reduces the market risk in the current volatile climate. This means shareholders may have greater opportunity to participate in capital raisings and reduces the likelihood of dilution of their shareholdings.

If the changes are adopted, companies will need to work closely with their legal advisers, their share registrar/printing and mailing services and the ASX to ensure the processes/logistics required for the reduced timeline are in place. For example:

•  the notice to shareholders containing information required by Appendix 3B would need to be despatched on the announcement date rather than the following day; and 
• the company would need to reconsider acceptable payment methods for applicants if securities are to be issued within 3 business days of the closing date.

The ASX is also considering the introduction of retrospective record dates and electronic dissemination of disclosure documentation which might further reduce the timetable for a rights issue.

The ASX will be receiving comments on the consultation paper until 14 August 2012.

New ASX listing requirement in line with ASIC requirements for prospectus disclosure

Pursuant to recent amendments to Chapter 1 of the Listing Rules, entities seeking new listings to the official list of the ASX or seeking re-admission to the official list (in relation to a transaction involving a change to the nature and scale of the entity’s activities), are now required to supply ASX with evidence that each director or proposed director as at the date of the listing is of good fame and character.

This is in line with ASIC’s recent guidance in relation to prospectus disclosure which specifies that  information about legal or disciplinary action that relates to a director’s honesty or competence to manage the company and other people’s money will be relevant for investors and should be disclosed.

For Australian residents the ASX requires a Police/CrimTrac criminal history and Insolvency and Trustee Service Australia bankruptcy check (both not more than 12 months old), as well as a statutory declaration from the director or proposed director confirming (among other things) that he/she has not been the subject of any criminal or civil proceedings involving fraud, dishonest, misrepresentation, concealment of material facts or breach of duty.

For non-Australian residents, the ASX requires equivalent criminal history and bankruptcy checks to be supplied for each country in which the director has resided over the past 10 years.

Our recent experience is that the process may take weeks or even months (in relation to overseas records). It is therefore prudent to make requests for criminal history records at the beginning of the IPO/re-compliance process.

For details, please see our article ‘ASX requirement for directors to be of good fame and character’ .

ASX adopts more prescriptive approach in proposed changes to disclosure requirements for mining and oil and gas companies

The ASX has proposed to specify further disclosure requirements applicable to mining and oil and gas companies as detailed in our article: ‘Impact of proposed changes to disclosure requirements for mining and oil and gas companies’.

The proposed changes are likely to be more prescriptive. The intention is to align Australian disclosure requirements with international practice and to raise investor confidence both within Australia and internationally.

Mining and oil and gas companies are likely to be required to disclose more information in relation to underlying assumptions and methodology and to be required to show more stringent research and testing before announcing reserve estimates.

Closer attention may need to be paid to disclosure of price assumptions and other potentially commercially sensitive information relating to reserve and resource estimates and the wording of public announcements to strike a balance between adequate disclosure and protection of sensitive information.