The Australian Securities Exchange (ASX) has recently issued a consultation paper "Modernising the timetable for rights issues: facilitating efficient and timely rights issues". The Consultation Paper proposes to reduce the traditional rights issue timetable by 10 business days (from a maximum of 26 business days to a maximum of 16). This is a timely Consultation Paper, given current market volatility and on-going market discussion about capital raising structures.

The proposal is seeking to maintain the traditional rights issue as a viable capital raising mechanism and to strike a balance between the different interests of the issuer and its shareholders.

The key changes include:

  • that the maximum timetable for a traditional rights issue is reduced from 26 business days to 16 business days;
  • the cum entitlement trading period is reduced from two business days to one (being only the day the offer is announced);
  • the minimum trading period for renounceable rights will be reduced by 3 business days to 8 business days;
  • the period from when the documents are sent to shareholders and acceptances close is reduced from 10 business days to 7 business days; and
  • the period from acceptance closing to issue of the securities is reduced from 6 business days to 3 business days.

Balancing the competing interests

The timetable for any rights issues needs to appropriately balance potentially competing interests and consider potential volatility in equity markets.

A listed company may urgently need funds. A longer offer period will delay this and exposes the company to greater risks of adverse market conditions which may impact on the success of the rights issue and the costs to the company. A shorter offer period will reduce these risks for the issuer (and its underwriter) and may also potentially reduce the discount required to raise the capital. As such, a reduced timetable will be more attractive to issuers and may decrease the seemingly increasing reliance on institutional placements to quickly raise funds (these placements, of course, deny retail investors the opportunity to participate in the capital raising and dilute their existing shareholding, often at a discount).

On the other hand, retail shareholders need sufficient time to be able to participate in a rights issue. Under the proposal, shareholders would have 3 business days less to consider and accept the offer. Specifically, they would have between 9 to 11 business days' notice from the company of the capital raising and 6 business days to review any disclosure document and make payment (each assuming one business day for posting). Of course, many rights issues are now conducted under 'low docs' using a cleansing notice (resulting in only limited disclosure to shareholders) and electronic payment (rather than cheque) is frequently used, each an argument in favour of compressing a rights issue timetable. The impact is, however, likely to be greatest on foreign shareholders or shareholders in remote areas that are reliant on hard copy documents. The ASX notes that it is not clear what proportion of shareholders fall into this category and whether that proportion is sufficient to justify the longer timetable.

Other changes to rights issues being considered by ASX

The ASX has also opened the door to whether, in the long term, an even shorter timetable could be adopted, namely less than one week which the ASX notes would be competitive with a timetable for a placement. This would be driven by electronic dissemination of disclosure documents and mandatory electronic payment. This will require wide consultation and likely legislative reform.

ASX is also proposing amendments to facilitate accelerated rights issues. Currently the ASX regularly grants waivers from the Listing Rules to allow companies to conduct accelerated rights issues (for example, JUMBOs and AREOs). The amendments to the Listing Rules to facilitate the accelerated rights issue will only be finalised after the conclusion of the above consultation process for traditional rights issues. ASIC has already issued class order relief to facilitate certain accelerated rights issue (under Class Order 08/35).

The ASX will be receiving comments on its Consultation Paper until 14 August 2012. We will keep you updated of any developments.

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.