Small companies hoping to list on the stock market are facing tougher conditions, with more than a dozen announced deals in Western Australia hitting problems this year and the ASX foreshadowing tighter regulation of new deals.
Small companies hoping to list on the stock market are facing tougher conditions, with more than a dozen announced deals in Western Australia hitting problems this year and the ASX foreshadowing tighter regulation of new deals.
The number of proposals causing issues has escalated during the year.
In the last week of April, for instance, the Australian Securities and Investments Commission placed an interim stop order on prospectuses issued by three WA companies planning reverse takeovers – Promesa, Fe, and Celsius Coal.
That was after two listed companies, Vonex (formerly Aleator Energy) and Transcendence Technologies (formerly GRP Corporation), had to refund $6.5 million to investors after the ASX scrutinised their actions.
The ASX has delisted Synergy Plus after it failed to complete a $3.5 million raising, Skin Elements failed to complete its planned IPO, and other companies, including International Goldfields and Oz Brewing, are battling to win investor support.
In addition, four WA companies have canned backdoor listings after deciding their announced deals didn’t stack up.
But it’s certainly not all bad news for new listings.
In recent weeks, Linius Technologies (formerly Firestrike Resources) and Stanfield Funds Management have received commitments for $7.6 million ahead of backdoor listings.
That is on top of 16 mostly tech companies to have listed on the ASX this year after completing reverse takeovers, according to the BNiQ database.
More than 20 other WA companies have announced plans to reinvent themselves through reverse takeovers, but their prospects could be adversely affected by new listing conditions.
In meetings with corporate lawyers in Perth, the ASX has foreshadowed several changes that will tighten the conditions to be met before it approves new listings.
Steinepreis Paganin partner Toby Hicks said the mooted changes would have a significant impact.
“Whether or not all of the current proposals are adopted, these changes will raise the bar for companies seeking an IPO or backdoor listing on the ASX,” he said.
Norton Rose Fulbright partner Jeremy Wickens said the ASX was intending to pull all its regulatory levers to lift quality.
ASX has proposed that companies seeking a listing must have net tangible assets of at least $5 million, up from $3 million.
Alternatively their market value must be at least $20 million, up from $10 million.
Mr Wickens said this change to market value or assets raised questions about the ASX’s role.
“While there is a public expectation for regulators to vet the integrity of listing aspirants, precluding smaller companies is a blunt instrument to achieve this,” he said.
Another major change would require shareholders to have at least $5,000 of stock (up from $2,000) for the purposes of calculating ‘spread’.
The number of shareholders required to meet the spread test (currently between 300 and 400) could also be reduced, and this would have a countervailing effect.
The ASX has proposed other changes that would directly affect backdoor listings, most notably bringing forward the listed company’s trading suspension.
Mr Wickens said this change, along with the increase in spread parcel size, could end the appeal of backdoor listings.
Mr Hicks said the changes would erode one of the competitive advantages of the ASX, which was the fact its listing rules were easier to understand and implement than on competing exchanges.
He said the ASX appeared keen to proceed with the proposed changes, and therefore a major issue would be the start date and transitional arrangements for companies that hadalready started work on a listing.
The failure of announced backdoor listings has left the directors of underlying tech companies to battle on.
Vonex founders Brydie McKee and Lewis G Cross, for instance, are continuing to run their business under its original name after a two-month stint as directors of the listed entity.
VGW Gaming chief executive Laurence Escalante said he was planning to restructure the company’s listing as an IPO, after the failure of its backdoor listing through Synergy Plus.
Mr Escalante said the business had continued growing, with the annual revenue run rate exceeding $55 million.
