ASX backs down on back-door listings: How the West has won

Back in May 2016, the ASX released a Consultation Paper proposing a number of changes to the ASX Listing Rules and ASX policy.

On 2 November 2016, ASX released its Response to Consultation which updated the market on the final changes that will be come into effect from 19 December 2016.

While most of the proposals from the initial Consultation Paper will be implemented (although some of the changes are less severe than initially proposed), the ASX has backed down significantly on its plans to tighten the rules for back-door listings.

This reprieve for back-door listings has come after significant pressure from the Perth financial community, including a joint submission from a group of 15 prominent brokers, law firms and corporate advisers.

Why the West was worried

A back-door listing occurs when a listed company issues shares in itself as consideration for the acquisition of a larger private company.  In the initial Consultation Paper released in May 2016, ASX stated that it was changing its policy relating to back-door listings with immediate effect, so that a listed entity’s securities would be suspended from trading as soon as that entity announced a back-door listing transaction. The entity’s securities would not come out of suspension until the entity had re-complied with ASX’s admission and quotation requirements.

This was a significant change from the previous practice, which was that an entity’s securities would not be suspended from trading until the day that shareholders in the listed company would be asked to approve the back-door listing transaction.

ASX’s rationale for making this change was to put back-door listings on the same footing as front-door listings.

There was an immediate outcry, particularly from Western Australia where there is an active market in back-door listings (the main driver in recent times being the end of the mining boom, which has seen many mining exploration companies reinventing themselves as tech companies).

The change of policy removed one of the main advantages of a back-door listing, in that the listed entity was previously able to gauge market reaction to the transaction through changes in its share price after announcement. The change also made it more difficult for the listed entity to raise capital in conjunction with a back-door listing, as it would not have the benefit of a share price spike after announcement of the transaction when setting the price for the capital raise.

How the West has won

ASX has now announced that it will be moderating its policy on back-door listings. It will still require a listed entity’s securities to be suspended from the time it announces a back-door listing transaction. However, ASX will allow those securities to be reinstated to trading as soon as the listed entity puts out an announcement containing certain prescribed information and provided that ASX is otherwise satisfied that the announcement includes sufficient information about the transaction for trading in the entity’s securities to take place on a reasonably informed basis.

This change, together with ASX’s announcement that the NTA and market capitalisation admission tests will not be increased by as much as previously flagged, will mean that the future of the back-door listing market is looking much brighter.

Our friends in Perth will no doubt be delighted that their voices have been heard.

On 8 November 2016, Kain Lawyers will be hosting its inaugural ASX-Listed Companies Breakfast at the Adelaide Convention Centre. With 600 people attending, a keynote address from the Premier of South Australia and presentations from Elders, SeaLink, Ellex and Codan, this important corporate networking breakfast is expected to become a much-anticipated annual event on the South Australian business calendar.