ASX looks to roll out platform to entice investors

THE cries of the country’s junior and mid-tier players have been heard, with the Australian Securities Exchange unveiling an ambitious plan to overhaul listing rules to lure cashed-up investors and drive new floats.
ASX looks to roll out platform to entice investors ASX looks to roll out platform to entice investors ASX looks to roll out platform to entice investors ASX looks to roll out platform to entice investors ASX looks to roll out platform to entice investors


Staff Reporter

Following consultation and feedback with the industry last year, the ASX this week outlined a number of reform proposals to combat its dwindling market share amid unprecedented global competition for clients and cash.

Six months into his role as the new ASX chief, Elmer Funk wasted little time when it came to overhauling the listing standards and ensuring the exchange’s growth over the next two decades.

He set a November target in which he hoped to have some of the proposals implemented, while consultation comments were due in mid-May.

These include the much-touted introduction of a flow-through share scheme and creation of a $A10 million a year equity research fund to support more broker coverage of small and mid-cap resources companies.

Other measures covered listed groups with a market capitalisation of $300 million or less, which would now be able to issue shares to raise up to 25% of the value of the company, including 15% without shareholder approval and an extra 10% at a maximum discount of 25% to the market price within a year of receiving the blessing of investors.

Current requirements restrict capital raisings to 15%.

Mining lobby group the Association of Mining and Exploration Companies welcomed the moves and expected to make an official submission next month as part of the ASX consultation comments process.

“We are currently canvassing our members seeking feedback on the proposals and any other measures they feel could be a benefit which we could put forward to the ASX,” AMEC chief executive Simon Bennison told ILN's sister publication

“I have already circulated the ASX paper to our tax committee and will also pass it onto our legislative committee but I think the industry is going to welcome such measures.”

One of the big campaigners of the flow-through shares scheme, he said it continued to remain on the table and was a key aspect of AMEC’s submission to government on the tax treatment of losses through the exploration tax credit – the rebadged flow-through shares scheme.

“With the current government, they made it very clear they could not afford the scheme and therefore would not honour their commitment when they were re-elected to go down this path,” Bennison said.

“However, the coalition actually included in their policy platform provision to go down the exploration tax credit path which was a proposition AMEC had put to them.

“There is a cost to an exploration tax credit but there is also a financial benefit that flows as a result and you just can’t look clinically at a budget bottom line, you need to look at the flow-on effects it creates.

“That is one of the difficulties we have had in selling the whole concept to both sides of government … but I think it is clear that the coalition is more understanding of the situation than the current government.”

The flow-through shares scheme proposal is not a new concept but the latest bid has once again moved it into the spotlight, although Funk reportedly conceded it might take several years to gain support given federal budget constraints.

Last year, the junior to mid-tiers dominated the number of new floats on the ASX, with 108 listings raising $3 billion.

Subsequent analysis of capital raising movements showed these players used equity funding to raise an additional $4.1 billion from placements.

Feedback from industry singled out the exchange’s current admission criteria which it said acted as barriers to capital market activity for the smaller players.

Industry argued strongly for a different approach to capital raising rules to better reflect the growth trajectory of juniors.

Of note, many commented on the time and cost involved in holding general meetings out of the annual general meeting cycle to approve capital raisings of greater than 15%.

While approval is typically granted, respondents said there was a high financial and opportunity cost involved in going to shareholders multiple times in a year.

Its proposal to extend the ASX trading hours by two hours to a 6pm close in Sydney rather than the current 4pm final bell remains the subject of discussion with the market.

Other proposals include doubling the net tangible assets test for admission to $4 million, trailing additional intraday auctions and introducing equity market makers for eligible juniors and mid-caps.

The measures are a key move for the ASX which is facing increasing competition from rival bourses in Hong Kong, London and Toronto.

Last year its plans to join forces with the Singapore Exchange by way of an $8 billion takeover were thwarted by the government on the grounds it was not in Australia’s best interest.

Larger companies would not be impacted by the proposals.

The ASX is also pushing for change in the reporting process when it comes to the JORC code and will include its proposed initiatives in the exposure draft of listing rule amendments to be released midyear while it continues talks with industry, including JORC and the Australian Securities Investment Commission.

Initiatives put forward include the streamlining of competent person sign-off requirements for reporting of mineral resource and ore reserve estimates and removing the requirement to obtain a waiver from the listing rules to report historical estimates of mineralisation that cannot be reported in accordance with the JORC code.

The ASX said initiatives in these two additional areas would be aimed at enhancing regulatory efficiency and reducing unnecessary red tape for listed entities.

“A framework for the reporting of historical estimates would also be focused on supporting market integrity by ensuring that the market is fully informed of all material mineralisation held by listed mining companies,” the ASX stated in its Strengthening Australia’s Equity Capital Markets document.

It said it also received strong opposition to the introduction of a requirement for the public release of a technical report supporting resource and reserve estimates for material properties, similar to what is in place under the Canadian reporting regime.

Other reporting issues for which there had been strong support were the disclosure of exploration targets; key assumptions underpinning initial, or materially changed resource and reserve estimates; defining the level of study for a maiden reserve; and annual reporting and reconciliation of resources and reserves.

However, the ASX said there was a “considerable divergence of views” when it came to the disclosure of production targets and exploration results in any new reporting requirements.

In relation to the disclosure of production targets, there was almost universal support for any new reporting requirements to be included in chapter five of the listing rules rather than in the JORC code.

However, there were differing views with respect to whether production targets and associated forecast financial information should be allowed to be disclosed when based solely from inferred resources.

This story first appeared on ILN's sister publication