Working paper

Placements and small cap firms - an analysis of changes to ASX Listing Rules

Finance Small cap firms ASX Australia
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apo-nid66504.pdf 404.9 KB

The ASX recently amended its listing rules to allow small-cap companies to issue up to 25% of their share capital at a discount of up to 25%- Rule 7.1A (up from a 15% issue at a 15% discount). The changes have the potential to distort the shareholder-register. Further, if the issue is to an existing blockholder (or blockholders), the supermajority requirement for the issue to take-place may only require a minority of non-blockholder-shareholders to agree. However, existing directors’ duties and shareholder remedies should be sufficient to protect shareholders from abuse of the new rules. Thus, they could provide additional flexibility to firms who may require significant capital-injections in order to undertake major investments or raise capital to stave-off financial distress. An analysis of placements made under the new listing rules finds that the market reacts positively on average to the announcement, the average dilutionary effect of the placement on existing shareholders is 14.5% and 19% of issues are made at a discount of greater than 15%. The evidence suggests that Rule 7.1A has not undermined shareholder wealth on average.

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