ASX Reforms To Boost Capital Raisings In Listed Small to Mid Cap & Resource Sectors

By Clive Cachia

Posted: 25th May 2012 10:23

The Australian Securities Exchange (ASX) is continuing to promote itself as a hub for global resource investment.  It is proposing several reforms to address the capital-intensive needs of small to mid cap energy and resources companies.  These include changes to the current capital raising and admission requirements.  The ASX has also provided useful advance warning of likely reforms to the disclosure rules affecting listed mining and oil & gas companies.

Whilst small to mid cap companies (i.e. for ASX purposes, those with a market capitalisation less than A$300m) account for only 6% of total market capitalisation, they represent 76% of the number of listed entities on the ASX.  Of these, over half are active in the energy and resources sectors.  Without any significant cash-flow, these prospecting, exploration and early stage producers have difficulties accessing debt markets and venture capital and are increasingly cash-strapped.  Placements are therefore a crucial source of capital – in 2011, placements accounted for close to 70% of the secondary capital needs for mid to small caps. 

More Flexibility In Capital Raisings

The ASX's basic rule for equity issues, under which a listed company can only issue up to 15% of its issued capital in a 12 month period without shareholder approval, will remain in place.  However, the new proposal will allow small to mid cap companies to seek shareholder approval to issue a further 10% of their issued capital over a 12 month period, at a maximum 25% discount to market price.  So, in effect, small to mid cap companies will have the flexibility to easily (and more cheaply) raise equity finance at up to 25% of their market cap.  There are certain requirements for disclosures to shareholders both pre and post issue of the additional 10%.  These focus largely around the dilutive effect for existing shareholders.
The proposals would make the ASX's capital raising framework for mid to small cap companies similar to, and competitive with, other exchanges, such as Toronto, London, Hong Kong and Singapore.

Admission Criteria

The ASX also seeks to update its admission requirements by proposing changes to the requirements for shareholder spread and net tangible assets on listing.

In respect of shareholder spread, the ASX has proposed to relax the shareholder spread requirements such that companies applying for listing would be required to have one of the following:

The ASX also proposes an increase to the net tangible assets on listing requirement from A$2 million to A$4 million.  Whilst this may have the effect of limiting the listing possibilities for companies with no real asset base, the A$10 million market capitalisation admission test remains available and unchanged. 

Enhanced Disclosure Requirements

ASX is also proposing to enhance its disclosure requirements for resources companies to better align with international best practice, promote investor confidence and further attract global capital investment. 
Such enhancements include:

Middletons notes that whilst there will likely be increased compliance costs, the transparency and consistency enhancements in the reporting of resources and reserves will assist ASX-listed entities to better promote themselves to international mining and oil & gas capital investors.

Other Initiatives

Some other initiatives proposed by the ASX include:

Next Steps

The consultation process on the capital raising reforms closed on 14 May 2012.  There has already been some spirited opposition from shareholder advocates concerned with the dilutive effects on existing shareholders and the risk of increased control of related parties, major shareholders and others with significant influence.

This package is the first phase of a number of listing initiatives that ASX is planning to roll out in 2012 to strengthen Australia’s equity capital markets.
ASX is preparing draft amendments to the ASX listing rules to reflect the positive feedback on its enhanced disclosure proposals.  An exposure draft of such amendments is due for public release and comment in mid-2012. 

Clive Cachia is a special counsel in the Energy & Resources and Corporate Advisory Groups. He has more than 12 years experience advising on all facets of corporate matters, with extensive experience in major energy and resources projects.

Clive is predominantly focused on the mining and petroleum industries and his experience includes the equity capital markets, mergers & acquisitions, exploration and mining joint venture agreements, in-bound and out-bound investment arrangements, farm-in agreements, tenement sales and acquisitions, offtake agreements, drilling agreements and other service and operational arrangements.

He is an affiliate of the Law Society of NSW, the Law Council of Australia, the Australian Institute of Company Directors, the Australian Mining and Petroleum Law Association, the Young Energy Professionals – a division of the Australian Institute of Energy and the Financial Services Institute of Australia.  Clive can be contacted on +61 (02) 9513 2515 o r by email at

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