Facilitating Equity Capital Raising In A Volatile Market

In recognition of the difficult economic conditions facing companies, in particular their restricted access to debt markets, ASIC has released Consultation Paper 105: Facilitating equity capital raising. The consultation paper considers measures which may be implemented to facilitate capital raising by building on existing exemptions in the law and removing certain regulatory impediments.

In the consultation paper ASIC indicates that it is proposing to:

• remove the requirement that the issue price for interests in a managed investment scheme issued under a placement is not more than a 10% discount to the current market price of interests in the same class without member approval

• allow case-by-case relief to permit rights issues and secondary sales without a full prospectus even though the entity has been suspended from trading for more than five days in the past 12 months

• grant class order relief to enable listed entity members to be able to take up any shortfall in rights that other members have not accepted under a rights issue using a shortfall facility. It is proposed that the relief would allow members to exceed the takeover thresholds as a result of participating in the shortfall facility. Additionally, ASIC proposes to grant class order relief from the takeover provisions for accelerated rights issues

• grant class order relief to enable an underwriter of a dividend reinvestment plan to take up any shortfall under that dividend reinvestment plan, even if by doing so it exceeds the takeover threshold.

The proposals are aimed at enabling companies to quickly raise funds in a challenging market, while maintaining investor protections.

ASIC has indicated that in considering the implementation of the proposals, the overriding factors to be considered will be that:

• the market is fully informed at all relevant times

• investors are fully informed before they agree to buy securities

• retail investors are able to participate in the equity capital raising to the extent it is possible and at a fair price

• there is minimal risk of any unacceptable transfer of control resulting from the equity capital raising.

Comments on the consultation paper are due by 30 March 2009. Please contact us if you would like any further information.

Paul Brown edits the Australian Corporation Practice online and looseleaf series, a transaction and subject-based guide to the Corporations Act. It covers subjects for company officers like classification and incorporation, annual reporting and offering and acquiring securities.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.