Will changes in the ASX listing rules impact IPOs?

At an ASX meeting on 13 April 2016 the ASX raised the prospect of a number of potential changes to the Listing Rules.  The changes are intended to apply from 1 July 2016.  The changes may be subject to a brief consultation period. 

The transition arrangements for transactions commencing before the changes are effected are being considered and ASX should advise shortly on such arrangements.

The main changes raised were:

·         The assets test currently requires either the NTA test or the market capitalisation test to be satisfied.  It is proposed to increase the NTA test from $3,000,000 to $5,000,000 and the market capitalisation test from $10,000,000 to $20,000,000.  You still only have to satisfy one or the other.   On a typical back door listing for a raising at 2 cents, there would need to be at least 1 billion shares on issue at re-quotation so as to satisfy the market capitalisation test.  If this is not satisfied, the NTA test will need to be.

·         The minimum investment for "spread' shareholders is to increase from $2,000 to $5,000.  ASX and ASIC are currently negotiating as to whether the number of spread holders will be decreased from the current minimum level of 300 holders (which is the minimum based on persons who are not related parties holding securities in the main class, excluding restricted securities, which is not less than 50% of the total number of securities in the main class). 

·         The working capital requirement as part of the assets test of $1,500,000 after allowing for the first full financial year's budgeted administration costs will apply to all entities (and not just mining entities).

·         The profits test changing to require a minimum $500,000 profit in the most recent financial year (currently it is $400,000).

·         An audit requirement for all accounts including those of a target business.

·         A free float requirement of greater than 10%.  This means that the number of freely tradeable (non-escrowed) shares in the company on the date of listing must be greater than 10%.

·         ASX discretion to not admit being reinforced.  ASX will consider matters such as lack of a business model, sufficiency of operation such as joint venture arrangements with disproportionate rights for the counterparty, issuers from emerging markets (ASX will consider the regulation within the relevant emerging market) and the credibility of board and management.  The board should have experience in the relevant industry and the directors be of "good fame and character".

·         There may be suspension from trading for back door listing transactions from the date of the announcement of the transaction rather than the date of the shareholder meeting.

·         Newly listed companies (whether front door or back door) may be required to go on to monthly reporting depending on the nature of the businesses within these companies.

·         A Policy and Listings Standards Committee has been established to review front door and back door listings to determine whether ASX will exercise its discretion to not admit a company in exercise of its overriding discretion under Listing Rule 1.19.

·         Early consultation with ASX is encouraged and there is a possibility of seeking "in principle" rulings from ASX in advance of front door and back door listings

The SPI is up 49 points this morning.