The number of backdoor listings or reverse takeovers in Western Australia is likely to rise after a change in ASX policy has simplified the process for emerging companies to access capital via existing entities.
The number of backdoor listings or reverse takeovers in Western Australia is likely to rise after a change in ASX policy has simplified the process for emerging companies to access capital via existing entities.
ASX chief compliance officer Kevin Lewis told Business News companies with shares worth less than 20 cents, such as failed exploration companies, that wanted to change their operations by acquiring a company such as a biotech could now recomply with listing rules without consolidating shares to 20 cents each.
The ASX has traditionally required shareholders to submit to a 20-cent share consolidation during a recompliance, meaning a shareholder with 100 shares at 2 cents each ends up with 10 shares at 20-cent apiece.
Proving to shareholders this change doesn’t degrade the value of their stock has sometimes been difficult, however.
Mr Lewis said the change had been made after considerable feedback the previous policy provided too many hurdles, most notably from Perth where capital raisings were dominated by backdoor listings.
He said recompliance applications would still be subject to shareholder approval, and have to satisfy the ASX in terms of the company’s capital structure.
Otsana Capital managing director Faldi Ismail said that, since the change was implemented, his firm had been inundated with interested parties and private equity providers from a range of industries now reconsidering backdoor listings.
Albion Capital Partners principal Anthony Grist said the change was a very significant step for speculative ventures and would attract investors that would have otherwise been scared off by the 20-cent consolidation rule.
Brian Leedman, Biotech WA chair and the director of startup ResApp, which is developing smartphone technology to diagnose and manage respiratory illness, said the potential change could have big benefits for ResApp’s planned backdoor listing with Adam Sierakowski’s Narhex Life Sciences.
Mr Sierakowski’s Trident Capital is also managing the capital raising, but was unable to comment while in discussion with the ASX.
While companies with shares worth less than 2 cents, such as Narhex, do not receive the share consolidation reprieve, Mr Leedman said the rule change still provided opportunities.
“The Narhex share price could react positively to the anticipated news that the company expects to announce as the transaction progresses. Should Narhex require reconstruction back to 2 cents, investors would more readily accept a 1:2 to 1:4 reconstruction than a possible 1:40,” Mr Leedman said.
“This change will be a catalyst for more quality companies to list.”
