As global competition for resources stocks builds, the Australian Securities Exchange is aiming to stay at the front of the pack.
As global competition for resources stocks builds, the Australian Securities Exchange is aiming to stay at the front of the pack.
Proposed changes to capital raising and listing rules on the Australian Securities Exchange (ASX) have been greeted with optimism for Western Australian companies but caution for the sustainability of businesses set to benefit.
ASX moved into the top 10 bourses in the world by market capitalisation value in 2011 and it could increase further in value once proposed changes aimed at benefiting emerging companies come into play.
By the end of last year, companies listed on the ASX had a combined market capitalisation of $US1.3 trillion, good enough for it to overtake the Indian exchange and move into the top 10, according to data from the World Federation of Exchanges.
More than half of the 2,223 companies listed on the exchange at the end of March were focused on the resources sector and based in Perth.
The resources contingent is positioned for growth after the bourse proposed to liberalise capital-raising rules for companies with a market capitalisation of less than $300 million.
These companies will be allowed to raise an extra 10 per cent of company value, on top of the existing 15 per cent limit, during any 12-month period, if they get shareholder approval in advance.
This amendment would give companies the opportunity to gain a capital-raising mandate at their annual general meeting, even if it is not used.
Grey Egerton-Warburton, head of corporate finance at Perth-based broker Hartleys, applauded the proposed changes, saying the ASX had responded to the needs of resources companies.
He emphasised that the proposals were something companies based in WA had been pushing for over the past decade.
“In relation to lifting the capital-raising limit from 15 per cent to 25 per cent – that’s a fundamental change,” Mr Egerton-Warburton told WA Business News.
“The expense of going to an (extraordinary) general meeting, as well as the delay, to seek shareholder approval is just a redundancy. Far and away, I think that is the most important change that is mooted.”
However, Peter Warnes, head of equities research at Morningstar, said the transition might not be as simple as it sounded for the ASX.
He said, while being mindful the ASX might already be addressing potential issues, the bourse would need to be careful in the event of a substantial increase in listings.
“The last thing we need to see is a surge in listings and then three years down the track a surge in delistings,” Mr Warnes told WA Business News.
“Opening up the exchange is not necessarily a good thing because a lot of companies shouldn’t be encouraged to list, because they just can’t afford it.”
Mr Warnes also questioned whether the ASX’s desire to attract foreign companies to the country for a dual listing was just to draw listing fees.
Mr Egerton-Warburton noted that more foreign companies were pursuing a listing on the ASX.
Last year, Hartleys worked with Gold One International to make it the first company to have a primary dual listing on the ASX and Johannesburg Stock Exchange (JSE).
Canada’s PMI Gold Corp utilised Hartleys in helping it move from Toronto’s TSX-V exchange to the ASX as it sought a better valuation for its assets in West Africa.
Mr Egerton-Warburton said the ASX was not as “hot and cold” as other exchanges that housed a large number of resources companies.
“With compulsory superannuation here, and the preponderance of share ownership amongst Australians, that drives a lot of liquidity in the market,” he said.
Despite this, WA-based companies are also pursuing listings on foreign exchanges to provide them with greater visibility, while also giving them a geographical advantage relative to their operations.
Primarily, it is on Canada’s Toronto Stock Exchange (TSX) or London’s Alternative Investment Market (AIM) where companies have listed.
Perth-based oil and gas explorer Rialto Energy, which listed on the ASX in 2006 and currently has a market capitalisation of about $240 million, started trading on AIM last week.
In recent years the company has added West African assets in Ivory Coast and Ghana to its exploration project in the north-west of WA.
Rialto managing director Jeff Schrull said despite building a presence in Australia, the company listed on AIM because it was recognised that UK and European investors had a bigger appetite for African-based projects, in particular in the oil and gas sector.
“As a company with a real focus on becoming a significant oil and gas producer in West Africa, the AIM listing will provide Rialto with a broader base of investment capital to augment that which we have available through the ASX listing,” Mr Schrull said.
“At this stage in the development of the company we feel that having both the AIM and ASX listings gives us much more flexibility and increases our options to secure funding for our projects and develop strong retail and institutional shareholder bases.”
Macquarie Equities agreed that the market in London appeared more willing to ascribe value to exploration and development projects in Africa.
“The local market (ASX) appears to discount exploration potential for most mid-cap exploration and production companies,” Macquarie said.
“Also, access to a greater capital pool could prove attractive given the need for additional funding.”
Six months on from South Africa-focused Continental Coal’s listing on AIM, director Jason Brewer told WA Business News it proved the right move for the company to add a second listing.
He believes that over the next 18 months AIM will overtake ASX as the coal producer’s major market.
“You’re not going to go to London and get an immediate profile – it is one we have to work on,” Mr Brewer said.
“But we are fortunate to be on a similar time zone in South Africa and with London’s understanding of mining in Africa.”
