The Australian Stock Exchange Is Raising the Bar for Listingsby
Australian exchange raises requirements for Sydney listings
Proposals suggest firms have higher asset value, profit test
A plan to raise the bar for firms looking to list on Australia’s main stock exchange has received support from an unexpected quarter.
Former Microsoft Corp. veteran David McLauchlan, who used the shell of a potash producer to take his burgeoning tech firm public in Sydney in December, said proposals by ASX Ltd. to tighten the requirements won’t prevent Australia from being a destination of choice for aspiring companies.
The exchange operator has focused on expanding the listed technology sector in a bid to broaden the scope of stocks trading in Sydney away from a concentration of resources and bank shares. New rules intended to apply from Sept. 1 will require an increased minimum free-float from shareholders and a larger profit leading up to the listing, according to proposals released Thursday. The changes will apply to initial public offerings and to so-called backdoor listings, another popular route for companies to come to market.
“I’m a big fan of the changes,” McLauchlan said by phone from Silicon Valley, where he was presenting at a conference. “There’s nothing about the changes that would have precluded us from doing the same deal we did. When companies can bring the discipline of the big guys, the multi-billion dollar company, to the smaller-cap space, then that will be better for everyone.”
McLauchlan counts Microsoft and AF Square, set up by pop star Lady Gaga and her former manager, among seed investors in his Seattle-based Buddy Platform Ltd., which develops technology known as the Internet of Things. Buddy shares are down 16 percent since listing in December, giving it a market capitalization of A$99 million ($72 million). The S&P/ASX Small Ordinaries Index has risen 5.8 percent in the period.
ASX Ltd., which is inviting submissions on its proposals before June 24, anticipates final changes to be released in August. The adoptions will ensure the Australian market continues to be one of quality and integrity, ASX said in the statement.
The exchange plans to require firms to have at least 200 shareholders if the entity has a free float of less than A$50 million, or 100 stockholders if this value is A$50 million or more. This so-called spread test aims to demonstrate sufficient investor demand in the company and will raise the value of the stock to be held by each shareholder from at least A$2,000 to A$5,000, ASX said.
“They are just trying to get what is in their eyes a bit more quality in the market for new listings,” said Marcus Ohm, a partner at HLB Mann Judd in Perth, who advises companies on initial public offerings. “That’s not to say what went before wasn’t good quality, but the changes are designed to make it a little bit more difficult.”
The changes would also tighten the requirements for audited accounts. Particularly applicable to backdoor listings, three years of audited financial accounts prior to listing will be needed, ASX said.
Backdoor listings, or reverse takeovers as they are also known, have become a popular way for aspiring tech firms to get a public listing, giving a new lease of life to dormant shell companies with existing investors. This popular route, which offers advantages in the time it takes to list and, often, the cost, has seen 72 firms list in Sydney in the 2016 fiscal year, the highest since the exchange first began collating the data in 2011.
“These proposals maintain the attractiveness of the ASX market as a venue for raising capital and funding innovation, including for technology and other growth companies,” said Max Cunningham, a former Goldman Sachs Group Inc. banker who now runs the listings business at ASX. “The proposed admission framework retains its flexibility to accommodate entities at different stages of their life cycle.”
Changes that would see the minimum net value of a company’s assets increase are key for Steve Nicols, founder and director of Benelong Capital Partners, where he’s spent the last 12 years matching dormant shell companies with prospective firms looking to list on the Sydney market. The A$3 million threshold for net tangible assets or a market cap of A$10 million, would rise to assets valued at A$5 million or a market cap of A$20 million under the ASX proposals.
“It’s about credibility,” said Sydney-based Nicols. “They will make a little bit of extra money on the capital side because you’re forced to raise more. But the ASX wants to keep itself positioned as being credible.”