Novus Capital Limited is an investment and financial services company specialising in Investment Banking, Corporate Advisory and Share Trading services for Australian corporate and private clients, and overseas corporate clients.


Capital Raising – Placement Q&A

1. What is the quickest way to raise capital?

One of quickest way for a listed company to raise capital is to make a placement of shares to a group of sophisticated or professional investors.

This is the quickest route to raising equity capital as the issuing company is not required to prepare and lodge a prospectus (a disclosure document) with the ASIC.

2. Are there requirements that have to be satisfied in making a placement to sophisticated or professional investors?

Yes. There are a number of requirements.

  1. Each investor needs to qualify as a sophisticated or professional investor in accordance with the requirements of section 708 of the Corporations Act 2001 (Cth) (Corporations Act). The main categories of persons that would qualify as a sophisticated or professional investor are:
    • an investor that is purchasing at least $500,000 of shares in the offer;
    • an investor that holds or controls net assets of at least $10 million (e.g. a fund manager); and
    • an investor that has a certificate from an accountant that says they have the required level of net assets or gross income.
  2. The issuing company will need to comply with the requirements of the ASX Listing Rules in making the offer. These include:
    • not issuing more than 15% of its capital in any 12 months period: ASX Listing Rule 7.1. Note the ASX has temporarily lifted the 15% limit to 25%, conditional on the company combining the placement with an entitlement offer or a follow-on offer to retail investors under a security purchase plan. See our focus paper: "Capital Raisings During COVID-19" for more information on the conditions for being able to utilise this uplift;
    • complying with the requirements of ASX Listing Rules 10.11 and 10.12 and the relevant provisions of the Corporations Act in relation to offers to related parties. Generally shareholder approval will be required to issue placement shares to a director or other related party - so for a fast capital raise – related parties should not be offered shares in a placement. However, we understand that the ASX is taking a pragmatic view on waiver requests where a placement offer is made to related parties;
    • considering whether a trading halt is required whilst the issuing company is investigating a capital raising. A listed company proposing to raise capital will need to make an announcement to the market under Listing Rule 3.10.3 as soon as it commits to proceed with the capital raising. This is usually done on ASX Form Appendix 3B. A trading halt will assist with management of the announcement and the capital raising. In conjunction with the temporary uplift in placement capacity, ASX will also permit companies to request back-to-back trading halts (i.e. up to a total of 4 trading days) to consider, plan and execute capital raising;
    • complying with continuous disclosure requirements under Listing Rule 3.1. Generally, the raising of capital by an ASX listed company would be subject to continuous disclosure obligations. As such, it would be important to ensure that proposed placement parties are subject to confidentiality obligations to be able to fall within the incomplete proposal exception to the disclosure requirements, until the capital raising is finalised.

3. Should I have an underwriter for the placement?

If you can procure an underwriter at this time it will give confidence to investors that the full placement will proceed. In this market it is more likely that a broker or investment bank will want to manage, rather than underwrite, an issuing company’s placement. Again, although not underwriting, management of the placement by a broker or investment bank will give some confidence to the market that the placement in total will proceed.

An underwriter or placement manager will usually conduct a due diligence review of the issuing company before committing to becoming involved – usually by issuing a due diligence questionnaire to the officers of the issuing company to answer.

4. Can I have an investor that agrees to sub-underwrite or take a fixed % of the placement if others don’t take it up?

One issue to watch out for is the requirement to comply with the substantial shareholder notice provisions of the Corporations Act. These require the lodgement of a notice to the ASX where an investor’s voting power in an issuing company is 5% or more, and a further updated notice, where their voting power was at 5% or more and it changes by 1 percentage point or more.

Also, an investor should not be issued shares in the placement if their voting power in the issuing company will exceed 19.9%. If it does, and the circumstances of the issue do not fall within one of the relevant exceptions in the Corporations Act, they may be breaching the takeover provisions of the Corporations Act.

5. Will an investor be able to on-sell their offer shares on the ASX immediately after they are issued to them?

It depends.

On-sale by an investor within 12 months would usually require the issue of a prospectus unless it comes within one of the exceptions in section 708, for example an on-sale to a sophisticated or professional investor (refer to question 2 above).

However, there are certain exceptions in the Corporations Act to allow the on sale by an investor of the shares they are issued in a placement.

The principal exception is known as case 1 (sale offer of quoted securities). This exception requires that:

  • the offer shares must have been continuously quoted for 3 months before the issue of the offer shares;
  • trading in the offer shares was not suspended for more than 5 days in the last 12 months before the issue of the offer shares. However, see ASIC 20-075MR issued 31 March 2020 where the ASIC outlines the terms on which it has extended in certain cases this 5 days to 10 days. See our focus paper "Capital Raisings During COVID-19" for more information on this; and
  • the issuing company has given a cleansing notice to the ASX before the securities are able to be sold on the market.

There are some other technical requirements which will not be covered in this note – see section 708A (5) and (6) of the Corporations Act.

6. What is a cleansing notice?

A cleansing notice is a notice that complies with section 708A (6) of the Act. It must state that:

  • the issuing company issued the offer shares without disclosure to investors;
  • the notice is given in accordance with case 1 in section 708A (5); and
  • as at the date of the notice, the body has complied with:
  • its financial reporting obligations in Part 2M of the Act; and
  • its continuous disclosure obligations in section 674 of the Act.

The cleansing notice must also include any information that is “Excluded Information” as at the date of the notice.

7. What is “Excluded Information”?

This is information that has not previously been disclosed to the market because of the exceptions to the continuous disclosure obligations in ASX Listing Rules 3.1A but investors and their professional advisers would reasonably require the information to be disclosed (and expect to see the information in a prospectus, if a prospectus was required to be issued by the company) in order to make an informed assessment of:

  • the assets and liabilities, financial position and performance, profits and losses and prospects of the issuing company; or
  • the rights and liabilities attaching to the offer shares.

This requirement will usually mean that, before the placement is effected, the issuing company will update the market with any market sensitive information which has not previously been disclosed, including information which may have been excluded as a result of the exceptions in Listing Rule 3.1A.

This requirement can sometimes be time consuming as it will usually involve a due diligence investigation into the issuing company involving the board, management and usually the issuing company’s lawyers and accountants.

8. Are there any other matters that I need to be concerned about?

As mentioned above, the issuing company will need to liaise with the ASX in relation to a number of matters including:

  • calling a trading halt;
  • lodging an Appendix 3B (New Issue Announcement);
  • lodging an Appendix 2A (Application for Quotation of Securities); and
  • providing the work sheet with the calculations of available issue capacity under Listing Rules 7.1 and 7.1A.

9. What restrictions are there on the issue price of the offer shares?

The price at which the offer shares are issued is a matter to be determined by the Board of the issuing company having regard to a range of factors including the current market price of the issuing company’s shares, the expected discount expected by investors in the current market and the expected dilution of current shareholders by the issue of the offer shares.

Indeed, the expected dilution of current shareholders may be a reason why the Board of an issuing company may decide to have a placement followed by an entitlement offer to existing shareholders or an SPP (share purchase plan).