Should Exchanges Allow Larger and More Discounted Placements? An Analysis of Changes to ASX Listing Rules

Abstract

This paper analyzes the desirability of relaxing constraints on non-pro-rata share issuances and examines amendments to Australian listing rules that have done so. The Australian Stock Exchange (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% (up from 15% issue at a 15% discount), if the company satisfies certain requirements (including approval of a supermajority of shareholders). The new changes have the potential to distort the shareholder-register. Further, if the equity issue is made to an existing blockholder (or blockholders), the super-majority 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.