Capital raisings in the time of COVID-19

Just in the last 48 hours, ASIC (Australian Securities and Investments Commission) threw COVID-19-impacted listed companies a critical lifeline.  Companies needing to raise urgent capital that don’t have the luxury of time and resources to go through the ‘full-doc’/normal procedures will now have access to some temporary relief in relation to carrying out rights offers, placements and share purchase plans.  

ASIC Commissioner John Price said: “We want to give companies more fundraising flexibility in these circumstances. Many will need to seek a trading suspension to understand how COVID-19 will affect them and to put a capital raising in place.” 

In the ordinary course, without this lifeline, distressed listed companies would not be in a position to rely on the ‘low-doc’ offer because many have been suspended for the purpose of carrying out an assessment of the impacts of COVID-19 on their business.

Up until these changes came through from ASIC, the low-doc regimen was only accessible to companies that had been suspended for no more than five days in the previous 12 months.  Companies suspended for longer would ordinarily be required to prepare a prospectus or apply to ASIC for individual relief, both of which are obviously time and labour-intensive and costly.

Now, however, revenue-starved companies are able to access the low-doc regimen—even if shares have been suspended for a period of 10 days, relying upon ASIC Corporations (Trading Suspension Relief) Instrument 2020/289 and ASIC Corporations (Amendment) Instrument 2020/290 without making an individual application.

How ASIC’s lifeline works in practice

If a company was suspended for four days prior to 19 March 2020, it can conduct a low-doc capital raising even if it was suspended for up to another six days after 19 March 2020.

Also, if a company had not been suspended before 19 March 2020, it can still conduct a low doc capital raising if it was suspended for up to 10 days after 19 March 2020.

Entities that have been suspended for more than five days before 19 March 2020 or entities that have been suspended for more than 10 days in total will need to apply for individual relief to conduct a low-doc capital raising or prepare and lodge a prospectus.

It is important to note that, irrespective, the usual ‘best interest of the company’ threshold still applies—as do the disclosure requirements, such that directors must ensure the capital raising is in the best interests of the company and companies need to make sure they are keeping the market informed via continuous disclosure announcements, even when they are in suspension.

Relief from the Australian Securities Exchange (ASX)

On the evening of Tuesday 31 March 2020, the ASX also gave COVID-19-impacted listed companies a helping hand by lifting its limit on how much equity capital can be raised through a placement from investors in the market. The 25% limit for small-cap companies has been extended, such that all companies will now be able to raise up to 25% of the number of total ordinary shares on issue without shareholder approval through a placement in the market.

Many companies, for example Cochlear, Kathmandu and Webjet, have already begun capital raisings following COVID-19 shocks being felt by them. There will undoubtedly be more and, as time goes on, there will likely be further relief afforded to companies by ASIC and the ASX to allow for operating in this new normal.

Just as back in 2008-2010, we expect to see a flurry of emergency low-doc capital raisings to enable listed companies to make it through the crisis. However, even if some companies are not yet feeling the pain, it might be worthwhile considering topping up capital in these times.

Please let the Corporate, M&A and Capital Markets team at Sparkes know if you’d like help navigating these and other changes.