New ASX admission requirements to increase investor confidence29 November 2016
The Australian Stock Exchange (ASX) sets out specific requirements for entities applying for admission to the official exchange list. Generally, an ASX listing can be achieved through an initial public offering (IPO) or a compliance listing, which doesn't require capital to be raised.
The ASX consulted the public in May 2016 on its proposed changes to the admission requirements through a consultation paper entitled Updating ASX's Admission Requirements for Listed Entities. The ASX released its Response to Consultation earlier this month and subsequent changes to the listing rules and guidance notes are due to take effect from 19 December this year.
The proposed changes will apply to companies (and their directors) that are considering listing on the ASX or are already listed.
Without fully understanding the new admission requirements and continuing obligations, particularly throughout the IPO process, directors of potential or currently listed companies risk facing delays, prohibitions in obtaining a listing or failing to comply with their ongoing obligations.
Summary of the changes
The significant changes to the admission requirements due to take effect from 19 December 2016 include:
- Profit test (listing rule 1.2) – The profit test threshold will increase from $400,000 to $500,000. This threshold relates to the consolidated profits for the 12 months before admission and has not been changed since 1994.
- Net tangible asset test (listing rule 1.3) – The threshold for the net tangible asset test will increase from $3 million to $4 million. Despite the ASX initially proposing a higher threshold of $5 million, consultation resulted in the ASX limiting the increase.
- Market capitalisation test (listing rule 1.3) – The threshold for the market capitalisation test will increase from $10 million to $15 million. This threshold was determined to maintain an appropriate standard of the size of entities being listed on the ASX over time.
- Free float requirement (listing rule 1.1) – A new requirement will be introduced that requires an entity to have a 20% minimum free float at the time of admission, up from the current 10% guidance-based approach. This new requirement is aimed at increasing the potential for secondary market liquidity in securities.
- Minimum spread requirements (listing rule 1.1) – A new spread test will be introduced to require at least 300 security holders to each hold at least $2,000 of securities. The new test will be a single tier test, to simplify the current tiered spread test and take into account the new minimum free float requirement.
- Audited accounts requirement (listing rule 1.3.5) – Entities will now be required to disclose to the market two full financial years of audited accounts. Entities seeking admission under the assets test that have in the last 12 months acquired, or are proposing to acquire another significant entity or business, in connection with their IPO, must produce two full financial years of audited accounts for that entity or business.
- Standardised working capital requirement (listing rule 1.3.3) – A standard $1.5 million working capital will be required for all entities admitted under the assets test.
Impact of the changes
ASX cites the purpose of many of the changes is to ensure investors are provided with greater confidence that the entity will have sufficient resources to carry on its business for a reasonable period. While some of the requirements appear more burdensome, ASX believes the public benefit should outweigh any threshold issues.
The ASX will need to update its listing rules as well as various guidance notes due to these changes. Guidance note one will be amended to emphasise the ASX's absolute discretion on admission and quotation decisions.
Any companies who have applied for listing before 19 December 2016 will be assessed against the current listing rules.