Background
The Australian Securities Exchange (ASX) recently released a consultation paper setting out proposed changes to the timetable for traditional pro rata rights issues which would reduce the timetable by more than a third, from a maximum of 26 business days to a maximum of 16 business days.
The Consultation Paper, which comes on the heels of new capital raising rules which allow certain small and mid-cap companies to issue a further 10% of share capital on an annual basis as well as a relaxation of the shareholder spread requirements for new listings (see our recent eAlert on these changes here), further reinforces ASX's stated commitment to strengthen the equity capital market and enhance the flexibility and efficiency of capital raising mechanisms.
Key timing changes
The proposed changes to the rights issue timetable are summarised in the following table:
| Step | Current timetable | Proposed timetable |
| Announcement date to ex date | Two business days (day zero to day one) | One business day (day zero) (Reduced by one day) |
| Ex date to and including record date | Five business days (day two to day six) | Three business days (day one to day three) (Reduced by two days) |
| Trading period for renounced rights (renounceable offer only) | 14 business days (day two to day 15) | Eight business days (day one to day eight) (Reduced by six days) |
| Day after record date to and including date that documents are sent to holders | Four business days (day seven to day 10) | Three business days (day four to day six) (Reduced by one day) |
| Day after documents are sent to holders to andincluding acceptances close date | 10 business days (day 11 to day 20) | Seven business days (day seven to day 13) (Reduced by three days) |
| Day after acceptances close date to and including issue date | Six business days (day 21 to day 26) | Three business days (day 14 to day 16) (Reduced by three days) |
| Total timetable | 26 business days | 16 business days |
Comment
ASX has recognised that, while 'fair' to all shareholders, traditional pro-rata rights issues take considerable time to complete in comparison with other capital raising mechanisms, such as an institutional placement which can take a mere one to two days. By reducing the rights issue timetable, ASX is seeking to ensure that rights issues remain a viable capital raising option for companies that need to raise capital. This is important as rights issues provide all shareholders, especially retail shareholders, with the opportunity to participate in capital raisings without the dilutionary effect of a placement. The proposed changes would improve the attractiveness of rights issues as they are expected to reduce the size of any discount required to raise the necessary capital as well as save costs. The changes would also reduce the time which a company (and an underwriter to a rights issue) will be exposed to any volatility in market conditions.
The timetable changes take into account the use of electronic communication and more efficient processes. A note of warning around the proposed timetable – it will give shareholders, especially retail shareholders, a shorter time in which to consider whether to participate in the offer. This could have the inadvertent effect of reducing acceptances.
Impact on accelerated rights issue
ASX previously conducted a separate consultation process in relation to accelerated rights issues which was designed to enable companies to carry these out without having to apply for waivers from ASX. ASX proposes to finalise the listing rule amendments in relation to the timetable for traditional rights issues prior to addressing the changes required for accelerated rights issues. This will avoid any inconsistency.
Closing date for feedback
ASX is accepting submissions in relation to the Consultation Paper until 14 August 2012.
Here to assist
If you wish to make submissions to the ASX addressing any of the issues set out in the Consultation Paper, we would be happy to assist.
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.
