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.
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.
Yes. There are a number of requirements.
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.
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.
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:
There are some other technical requirements which will not be covered in this note – see section 708A (5) and (6) of the Corporations Act.
A cleansing notice is a notice that complies with section 708A (6) of the Act. It must state that:
The cleansing notice must also include any information that is “Excluded Information” as at the date of the notice.
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:
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.
As mentioned above, the issuing company will need to liaise with the ASX in relation to a number of matters including:
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).