Capital markets have responded strongly to the temporary emergency capital raising measures introduced by the Australian Stock Exchange (“ASX”) to help listed entities affected by the COVID-19 pandemic.
The Class Waivers announced 31 March will enable companies until 31 July 2020 (unless extended):
- to halt trading in their shares for up to 4 days to organize a capital raising;
- to make placements of up to 25% of their shares on issue during the pandemic (normal limit is 15%) provided it is followed by an accelerated pro rata entitlement offer or share purchase plan at a price equal to or below the placement price;
- to make a share purchase plan offer at any price (in recognition that some companies may not be able to secure additional capital by way of placement or a pro rata offer).
Over A$8 billion has been raised by ASX listed companies since the announcement; a response greater than the much larger capital markets in the UK, USA and Hong Kong. This highlights the strength of Australian capital markets and why the ASX continues to attract both foreign companies (12% of listed companies) and foreign investors (45% of ASX capital).
Large players in the travel industry moved quickly to raise urgently needed capital. Flight Centre (ASX:FLT), a travel agency business that has stood down 6,000 staff and closed approximately half of its travel shops around the world, has been able to raise A$679 million. Webjet (ASX:WEB) the largest online travel agency in Australia and New Zealand raised A$346 million in a combination of an institutional placement and a 1:1 retail offer at A$1.70 per share (note WEB traded at approximately A$10 per share before the outbreak of the virus).
The temporary measures have been met with some criticism, particularly from shareholder groups who say that placements are dilutionary for small shareholders. Shareholder groups have also pointed out that some capital raisings have been for growth and therefore against the spirit of the ASX temporary measures.
The ASX has quickly moved to provide greater protection for small shareholders and existing shareholders generally. The ASX now requires an advance notice of an entity’s intention to utilise the relief, provide reasons for doing so and state if the capital is needed as a result of the impact of COVID-19. Neither the notification nor the contents of the notification will be made public.
An entity must, within 5 days of completing the placement, provide key details to the market, which includes results of the placement, reasonable details of how it identified institutional investors and how it determined their respective allocations. Essentially the ASX is looking to ensure that best efforts were made to allocate securities on a pro rata basis to existing institutional investors.
Further disclosure is required by ASIC and the ASX of the securities allocation within 5 days of completing the placement.
The ASX maintains discretion to reserve the right to revoke these measures at any time in respect of its use by an entity or withdraw the measures in their entirety before 31 July 2020.
The flow of capital and liquidity are a crucial component in fighting the economic consequence of COVID-19. The ASX and the market’s performance in tough times are proof of the quality of Australia’s capital markets which is likely to attract future foreign listings and foreign capital, thus providing further economic stimulus in the future.